Politicians in Washington have discovered a pot of gold at the end of the rainbow that they believe may solve, or at least delay, some of their monetary and budget problems.
The pot of gold actually is black gold (crude oil).
During the last 40-plus years, the federal government has bought and stored some 727 million barrels of crude oil in caverns in Texas and Louisiana. Known as the Strategic Petroleum Reserve (SPR), the oil was initially intended to be used for national security. However, politicians have found this "new" source of money and are spending it like drunken sailors.
On Oct. 27, a two-year budget deal was announced that authorizes the sale of 58 million barrels of oil from the SPR from fiscal 2018 to 2025.
The Senate already has passed legislation that allows for the selling of 101 million barrels to help pay for roads and public transportation.
In addition to the sale of a total of 159 million barrels from fiscal 2018 through 2025, the feds have authorized the sale of another 30 million barrels for deficit reduction four years ago, the House passed a bill this year that allows the sale of 80 million barrels to pay for drug research, and the budget deal authorized another 25 million barrels to pay for repairs to the SPR.
All together that accounts for about one-third of the crude oil in the SPR to pay for things that were not exactly on the radar screen when the SPR was originally authorized in 1975. Foremost on the public's mind back then were shortages of crude oil, gasoline lines and rising prices because of the Arab oil embargo.
Now, we have crude oil sales from the SPR funding drug research, paying for roads and bridges, and even the federal budget itself.
Senate Energy and Natural Resources Chairwoman Lisa Murkowski (R-Alaska) called a "piggy bank" for the federal government. She said it is a bad source of funding.
Others, however, believe that the oversupply of crude oil in the U.S. is a game changer, meaning that the increase in crude oil production in the U.S. has diminished the national security threat created by the possibility of another embargo.
Another issue involves the volatility in crude oil prices. Some members of Congress question the assumption that the federal government will be able to sell all their crude oil at a minimum of $85 per barrel. Crude oil is being traded on the New York Mercantile Exchange at about $45 per barrel currently. When all of the excess oil from the SPR hits the market, prices will decline even further.
There have been three releases from the SPR: during the Gulf War to liberate Kuwait from Iraq (1991), after hurricane Katrina hit the Gulf of Mexico production (2005), and after the war in Libya cut supplies (2011). Between 1996 and 1997, the federal government also sold 28 million barrels to reduce the federal deficit.
These releases can't even begin to compare with the magnitude of sales currently proposed by Congress and the President. Once the genie is out of the bottle it will be very difficult to get him back in. In other words, without a doubt all 435 members of the U.S. House of Representatives and 100 members of the U.S. Senate have a pet project that they would like to see funded by this new money found in caves along the Gulf coast.
Our security blanket that took 40 years to build will disappear and we will be back to square one.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.