Importing Venezuelan oil one proposal among many to refill the Strategic Reserve depleted by Biden

American oil companies may try to revitalize Venezuela’s oil industry. This has some Republicans talking about the possibility of using the country’s oil to refill the Strategic Petroleum Reserve (SPR).

The Biden-Harris administration depleted the nation’s crude-oil stockpiles to their lowest level since the 1980s — to around 350 million barrels of oil — and the Trump administration has been making regular oil buys in an effort to fill it back up, in part as a measure of national energy security.

Elmer Peter Danenberger, a petroleum engineer who worked in the Interior Department’s offshore oil and gas program for 38 years, notes on his “Bud’s Offshore Energy” blog that about 67 million barrels of oil have been added to the SPR since July 7, 2023. That’s less than 10% of its capacity.

“Unsurprisingly, it’s easier to deplete strategic national assets than replace them,” Danenberger wrote.

Venezuelan imports are one approach being looked at to replenish the SPR. A lot has changed in the global energy markets since the SPR was created, and questions are emerging about where the SPR fits in terms of energy security today. A group of analysts at the Energy Policy Research Foundation recently analyzed issues around the utilization of the SPR as an important piece of America’s national security.

Fifty years after OPEC embargo

The SPR was created in the wake of the 1972 OPEC oil embargo in order to mitigate the market impacts of domestic and international disruptions. At the time, the U.S. was highly dependent on crude oil imports from the Middle East, and built a large reserve to lessen price shocks that could arise from shortages.

Today, the U.S. is the largest oil producer in the world. Imports of petroleum peaked in 2006 at around 13.7 million barrels per day, and today, the U.S. imports roughly the same amount of oil as it did in 1990. The bulk of the imported crude now comes from Canada, and less than 1 million barrels per day come from OPEC countries.

Researchers at the Energy Policy Research Foundation (EPRINC) are examining the role the SPR plays and analyzing various policy issues for the world today. “I’m looking at how historically the SPR has developed and has been used, and I’m trying to situate the notions of energy security in the context of national and economic security,” Max Pyziur, director of research for EPRINC, told Just the News.

What market signals can tell us

Writing in National Interest, Pyziur and his colleagues — Matthew Sawoski, senior research analyst for EPRINC, and Lucian Pugliaresi, president of EPRINC — explain that the original anticipated scenario for tapping the SPR has reduced its current relevance. It’s now more utilized to address supply disruptions from adverse weather, as opposed to direct hostility against the U.S.

Except for the 220 million barrels that the Biden-Harris administration drew from the SPR, the degree of the utilization of the SPR is considerably smaller than the kinds of scenarios that the U.S. faced in the past. Recalibrating the SPR’s capacity, the EPRINC analysts propose, should take into account a range of other threat scenarios that might not have been plausible when the reserve was created.

Pyziur and his colleagues note that the cost of refilling the SPR has historically been controversial and occasionally been the subject of congressional investigations. They propose that purchases could be made utilizing the futures curve to create an advantage for U.S. taxpayers.

When the spot price of oil is higher than contracts at a later date, the federal government could purchase long-duration futures contracts and hold them for delivery when the price is lower. When the federal government is trying to refill the SPR as it is now, this approach lowers the cost of the buys.

“So use the market signals in that way, you also protect yourself politically,” Pyziur said.

Appropriate threshold of when SPR is tapped into

Another issue Pyziur and his colleagues examined is the threshold for which the SPR is tapped for strategic supplies. For example, when the Biden-Harris administration delivered 220 million barrels of oil from the SPR, there was no disruption of crude oil supplies. There was a tight market and high prices, but not a disruption of supplies.

“That isn’t an appropriate threshold,” Pyziur said.

A better threshold would be, for example, if Canada decided to cut off imports for whatever reason. That would be a loss of some 4 million barrels per day and would present a clearer emergency threshold, Pyziur said.

Procedural reform

However the SPR is to be managed, it has to contain enough crude oil to be an effective reserve.

Included in the framework of the second reconciliation bill released last week — a followup to the “One Big, Beautiful Bill” that’s been rebranded the “Working Families Tax Cut” — is a proposal to refill the SPR using discounted Venezuelan oil.

Rep. August Pfluger, R- Texas, explained in The Dallas Morning News that the entire proposal includes $171 million for crude oil purchases and $416 million to cancel future sales of 7 million barrels that were previously mandated.

It also includes $218 million for repairs to the salt caverns where the oil is stored. The crude oil reserves are stored in 61 salt caverns at four sites along the Texas and Louisiana Gulf Coasts.  The multiple releases of oil have caused the caverns to deform, as does the constant geological pressure to which they are exposed. The caverns are estimated to shrink by 2 million barrels per year, but according to the American Association of Petroleum Geologists (AAPG), the shrinkage could be even greater.

Should this proposal pass into law, Pfluger explained, it will go a long way to refilling the SPR, but it won’t be enough to hit the 700 million barrel capacity of the SPR. Pfluger wrote that the supply exists, but federal law requires the Department of Energy to wait for Congress to allocate funds to purchase the oil.

Pfluger argued that there needs to be a comprehensive reform of the congressional appropriations process to resolve this “procedural molasses.” With prices low and expected to be low through the year, Pfluger called on Congress to support the “Working Families Tax Cut” bill and appropriate the funds needed to fully replenish the SPR now.

As lawmakers wrestle with the challenge of refilling the nation’s energy stockpiles, the discussion is spilling over into a larger look at the role those reserves play in American energy today.

Kevin Killough is the energy reporter for Just The News. You can follow him on X for more coverage.