Tap the SPR?

In light of the looming heating oil crisis in the northeastern US, as described in this CBS article, there have been renewed calls to open the SPR and refine some of its contents into heating oil to alleviate the crisis. One suggestion I read was to use a tenth of the SPR contents for this purpose. Does this proposal make sense? In order to find out, I did what I usually do, I turned to the numbers.

There are just over 700 million barrels of crude oil in the SPR. 10% of that is 70 million barrels, or 3 billion gallons of crude at 42 gallons per barrel. According to the EIA, a refined barrel of crude yields 23% heating oil. So by refining 10% of the SPR you would end up with abut 700 million gallons of heating oil. A family uses about 1000 gallons per winter, so 10% of the SPR, refined into heating oil, would keep 700,000 homes heated for the winter.

According to the linked article there are 8 million homes in New England that heat with oil. So 10% of the SPR would keep under 10% of those homes heated.

Look at it from a cost perspective. If 10% the SPR could be refined into heating oil, and that oil supplied to New England homes only for a quarter the price of commercial oil (cause you still have to pay for the refining, right?) then using 10% of the SPR would reduce the cost of the average gallon of New England heating oil by 7.5% for one winter. Using 10% of the SPR to drop heating costs of one small portion of the country from $4.00 a gallon to $3.70 for one year might be looked on as an inappropriate use of national resources by the rest of the country.

The SPR is not intended to form part of an ongoing energy policy. It's a stopgap, intended to get you through an emergency that will ultimately be solved by other means. I agree that the New England heating oil situation is an emergency, but so is the entire energy situation of the USA. I don't see any efforts under way to address the problem over the long term, which means that if the SPR is opened up now the same problem will just reappear later on when it's exhausted.

I have no suggestion for the long-term solution to the "heating oil" crisis, because I don't think there is one. IMO what we're seeing is the inevitable market turbulence caused by tight supply. If that's true, then the only long term solutions are to conserve as much as possible, shift to different, less expensive, locally available forms of energy, or migrate to warmer climates. In other words adapt to changing circumstances rather than mindlessly trying to preserve Business as Usual. Adaptation could be helped by short-term measures like opening the SPR, but that will work only if such adaptation is identified as the long term solution to the crisis. So far no such suggestions are being made.

is just an indication that our fearless leaders either (a) don't understand what it's for, (b) still mistakenly think that what's going on is temporary, (c) are thinking exactly as far ahead as November elections, or (d) are just desperate, and don't know whether to shit or go blind, or (e) all of the above.

Now, to be charitable, we could say they're hoping to alleviate problems in the short term, so that long term solutions can be found. I'm not feeling that charitable.

That's why there is no long term solution to anything. You would basically need a perfect state to existence, that never changes, outside of the bubble in which your solution exists, so that your solution never falls to the complexities and variables of existence.

Everybody with half a brain knows what the SPR is for, though the temptation to ignore that understanding in favour of conjuring up a Magic Oil Fairy can be irresistible. So that takes out a.

On b), I've found that politicians tend to have very smart advisers. I've found out from talking to a couple of Canadian provincial politicians that they are quite aware of the long-term nature of the energy problem. Some even know all about Peak Oil, though they never, ever, ever mention it in public. So that cuts out b.

The problem with democracies is the need to get elected. And you don't get elected by telling people there are no solutions. You do get elected by telling them that fairy-tales are real.

up by the nape of the neck and turn their greedy asses upside down and shake all our money out of their pockets. Then kick the living shit out of ever fucking one of them and then send their sorry asses on down the road to let 'em fend for themselves, broke and penniless, just like they want us to be. They been stealing from us just as sure as the bank robbers are when they rob a bank.
just saying

... except for your last point:
> They been stealing from us just as sure as the bank robbers are when
> they rob a bank.

The oil slugs are far worse than bank robbers. When bank robbers strike
your local bank, it has no effect on your savings, your cashflow or any
of your personal finances. (For that matter, the biggest impact to the
bank itself is in negative publicity as they get financial reimbursement
from insurance.)

When the oil slugs steal from you it comes straight out of *your* pocket.

It comes out *after* every other deduction has been taken from your income
(e.g., tax, mortgage, loans) then the rest that gets to *your* wallet has
to be split across food, travel, utilities and - if you're lucky - luxuries.

There is no insurance cover for thefts of this nature so it is *your*
pocket that takes the hit (rather than a negligible write-down on the
bank's annual report). This, to my mind, makes the majority of corporate
theft far worse than any "bank robbers".

Your ideas for punishment work for me though!

At least that way you could pay whatever price you wanted, and nobody would profit from it.

IMO the first question we should be thinking about is "Why does it take 1000 Gal. of heating oil to heat an "Average" home in the winter months". What would it cost to insulate those homes so they only required 500 Gal. for a typical winter?

Moreover, it is one whose solution is in the hands of every person
buying heating oil. (It will also help those with any other form
of heating too but the oil-fired homes are those flagged as becoming
critical first.)

:toast:

The Center for American Progress makes the argument for supporting Obama's initiative.

http://www.americanprogress.org/issues/2008/07/eight_reasons_spr.html

It is somewhat different (and much more informative) than the OP.

If price is the problem (and I agree that it is), and the supply problem is temporary (which it would have to be, for opening the SPR to make sense) why not simply address the price problem directly by giving rebates to distressed families? That approach has a number of attractive characteristics: the aid is targeted, and those who can afford to pay the full price do so; the money spent alleviating the problem comes from the economy at large rather than burdening one sector; and the oil drained from the SPR would not need to be replaced at a possibly higher price after the fact.

Of course either opening the SPR or adopting such an approach makes sense only if the price problem is temporary...

1) Rising demand against supply
2) Unregulated speculation

Release of the SPR can't do anything long term, but it can affect short term prices more than might be expected by threatening the speculators with ruin. This recent 20% drop in prices is (IMO) the nervous nellies liquidating their positions and cutting losses. I believe there is another $20-30 bbl slack in the price.

The price of oil drops a bit, and there is rejoicing in the streets of Bangor. The SPR is finite, so at some point you have to stop using it. What then stops the evil speculators from rushing back into the market? If the answer is legislation of some sort, why not do that up front rather than using the intermediary of the SPR? Wouldn't the threat of legislation scare them evil speculators just as much as the threat of increased supply?

Look at it this way,

The price of oil has risen by 400% in the last 5 years. If we dropped it another 20% by driving out the evil speculators it would go back to just under a hundred dollars. And then it would resume its upward climb and regain that 20% in six months -- without any excess speculation at all. Speculation is a pimple on the ass of the price of oil.

Northeast Home Heating Oil Reserve - Profile

Northeast Home Heating Oil Reserve


Of the 7.7 million households in the United States that use heating oil to heat their homes, 5.3 million households or roughly 69 percent reside in the Northeast region of the country - making this area especially vulnerable to fuel oil disruptions.

On July 10, 2000, President Clinton directed Energy Secretary Bill Richardson to establish a two million barrel home heating oil component of the Strategic Petroleum Reserve in the Northeast. The intent was to create a buffer large enough to allow commercial companies to compensate for interruptions in supply during severe winter weather, but not so large as to dissuade suppliers from responding to increasing prices as a sign that more supply is needed.

Two million barrels would give Northeast consumers adequate supplies for approximately 10 days, the time required for ships to carry additional heating oil from the Gulf of Mexico to New York Harbor.


Immediately after the President's July 10, 2000, directive, the Energy Department, acting through the Defense Energy Support Center, issued a solicitation to exchange crude oil from the Strategic Petroleum Reserve for two million barrels of distillate heating oil stocks to place in leased storage facilities in the Northeast.

An exchange using Strategic Petroleum Reserve crude oil was chosen because no appropriated funding was available to create the heating oil reserve.

On July 19, 2000, the Defense Energy Support Center issued a solicitation to companies willing to provide the storage tanks, heating stocks, or a combination.

By October 13, 2000, all of the heating oil had been delivered. In November 2000, Congress amended the Energy Policy and Conservation Act of 2000 providing clear authority for the reserve.

As Americans confronted the winter of 2000-2001, the Northeast Home Heating Oil Reserve was deemed ready.
The Bush Administration Endorses the Reserve

Although heating oil shortages never materialized during the 2000-2001 winter, the existence of the Northeast Home Heating Oil Reserve provided an important safety cushion for millions of Americans.

Recognizing this, the incoming administration of George W. Bush reinforced the value of the Reserve. On March 6, 2001, Energy Secretary Spencer Abraham formally notified Congress that the Bush Administration would establish the Reserve as a permanent part of America's energy readiness effort, separate from the Strategic Petroleum Reserve.

In May 2001 President Bush issued his National Energy Policy which again endorsed the Reserve as a way to help ensure adequate supplies of heating oil in the event of colder than normal winters.
The Home Heating Oil Reserve Today

Storage contracts for the first several years of operation expired on September 30, 2007, and new contracts became effective on October 1, 2007.

The current storage contracts are for two million barrels of heating oil, although current inventory stands at 1,965,000 barrels.The Department of Energy sold 35,000 of its two million barrel reserve during June 2007 in order to supplement available funds for the new storage contracts. Storage costs under the new contracts were significantly higher than the expiring contracts due to market changes in product storage that significantly reduced the available commercial storage capacity.

The sale was the first use of the on-line open bidding system that was developed for drawdown of the heating oil reserve.

http://www.fossil.energy.gov/programs/reserves/heatingoil/

This is exactly what an SPR is intended for -- to shield people from the possibility of supply interruptions. At the moment there is no threat of supply interruptions, however, just rising prices. As the article says, "not so large as to dissuade suppliers from responding to increasing prices as a sign that more supply is needed."

Sounds like we need suppliers to respond...

about the Magic Oil Fairy? I think I like that one best.

Well… here's what Jimmy said:
http://www.pbs.org/wgbh/amex/carter/filmmore/ps_energy.html

Oops, down to 77 days at the current rate of import.

It is not there so the happy motoring fast-food nation can have a few more months of it's God given right to bargain-priced go-juice.