Saudi Oil Attacks: Why Does The US Store Oil Underground?

In the wake of the recent drone attacks on key Saudi Arabian oil infrastructure, US officials have been talking about drawing on massive emergency oil reserves kept in the United States.

As oil prices surged, President Donald Trump tweeted that they could use the oil “to keep the markets well-supplied”.

The oil he was inferring to is the over 640 million barrels of oil which are stored in salt caverns beneath the states of Texas and Louisiana. The idea of stocking these “strategic reserves” dates back to the 1970s. All member nations of the International Energy Agency have to hold the equivalent volume of 90 days’ worth of petroleum imports, but the US stockpile is by far the largest emergency store in the world.

US politicians first thought about an oil stockpile in the early 1970s, after an oil restriction by Middle East nations caused prices to skyrocket around the world. Members of the Organization of Arab Petroleum Exporting Countries such as Iran, Iraq, Kuwait, Qatar and Saudi Arabia, refused to export oil to the US to oppose its backing of Israel in the 1973 Arab-Israeli War, also called the Yom Kippur War. The war lasted three weeks in the month of October that year but the restriction which also targeted other countries, lasted until March 1974, triggering quadrupling of oil prices worldwide from about $3 to nearly $12 per barrel. In 1975, the US Congress passed the Energy Policy and Conservation Act to establish the Strategic Petroleum Reserve as a contingency for another major supply problem.

Presently, there are four US sites where oil is stored viz. near Freeport and Winnie in Texas, and outside Lake Charles and Baton Rouge in Louisiana.

Each stockpile site has several man-made salt caverns up to a kilometer (3,300ft)  beneath the ground where the oil is stored. This method is far cheaper than keeping it in tanks above ground and much safer as the chemical composition of the salt and the geological pressure prevents any oil from leaking out.

Officials walk across a door mat bearing the seal of the U.S. Department of Energy at the Bryan Mound Strategic Petroleum Reserve in Freeport, Texas, U.S., on Thursday, June 9, 2016. Photographer: Luke Sharrett/Bloomberg

The largest site is located at Bryan Mound near Freeport with a storage capacity equivalent to 254 million barrels of oil. The reserve’s website says that as on 13 September there were 644.8 million barrels of oil held in those caves.

As per the US Energy Information Administration, in 2018, Americans used on average 20.5 million barrels of petroleum a day implying that there’s enough oil to keep the country going for about 31 days.

Under the 1975 law signed by Gerald Ford, only the US president can authorize the release of oil reserves in case of a “severe energy supply interruption”. Due to physical constraints, only a small amount of oil can be moved from the caves daily, so even if there is a presidential directive to release oil it would take approximately two weeks to hit the markets.

Furthermore, the stored oil is all unrefined so needs to be processed into fuel before it would be useful for cars, ships, and airplanes.

US energy secretary Rick Perry told broadcaster CNBC this Monday, “It was a little premature” to talk about breaking into the reserve yet in the wake of the attacks in Saudi Arabia”.

The oil reserves were last used in 2011 when trouble caused by the Arab Spring uprisings impelled IEA member states to release a joint total of 60 million barrels of oil to reduce disturbance to energy supplies.

However, the US has also sold off large numbers of barrels on a few instances. President George H W Bush authorized one such transaction during the Gulf War in 1991 and his son President George W Bush approved the sale of 11 million barrels in the wake of Hurricane Katrina.

But some have questioned the usefulness of upholding such a huge reserve at a time when US energy production is booming. A report by the Government Accountability Office suggested getting rid of it completely in 2014 citing a possible lowering of prices at the pump for US consumers. Under President Bill Clinton in 1997, 28 million barrels were sold off as part of a move to reduce the federal deficit but a similar plan to sell off half the stockpile was mooted by the Trump administration in 2017.

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