“There is evidence that experience reduced the scope and severity of earlier errors [with the Strategic Petroleum Reserve]–that the 1981–84 performance was superior to the 1977–79 performance. But new facets of the program have brought new problems.”
“Combined with the $5 per barrel handling and storing expense [as of 1984], the overall market value of SPR oil is billions of dollars less than its embedded average cost of over $35 per barrel.”
A sacred cow of U.S. energy policy is the Strategic Petroleum Reserve. The case for the reserve assumes that another energy crisis lies around the corner, the reserve will be efficiently managed during the crisis to alleviate the emergency, and private inventories and entrepreneurship alone would be inadequate. The reserve is seen by proponents as the nation’s insurance policy against the inherent instability of the world oil market.…
“Compared to Ford and Carter, the SPR experienced a ‘Reagan Revolution’ – although hardly of the free-market variety. Two reasons explained Reagan’s bullish SPR [buy and fill] policy. First, the reserve was the centerpiece of Reagan’s ‘free market’ energy policy, which precluded the need for standby price and allocation controls to deal with future emergencies. Second, the reserve was an instrument of foreign policy should U.S. intervention and confrontation lead to reprisals by oil-exporting countries as it had in 1973 and 1979.”
“With the Reagan acceleration at a time of record crude prices, the reserve program became a major cost item, and with budget deficit problems, a group of proposals came forth to reduce cost while maintaining fill rates. Global settlements with refiners accused of product price overcharges was one tapped source.”
The fill rate of the reserve has never been far from controversy.…
Government does not only buy high and sell low (be sure and compare the purchase prices and the selling prices, adjusted for inflation to see the taxpayer loss, not to mention the high-cost of the whole storage operation). Government projects, particularly rushed, politicized ones, are extremely inefficient.
Consider this litany of problems plaguing the federal crude-oil storage program.