Senators’ 2008 Oil Buying Bill (Accidentally) Saved Taxpayers $600 Million
An underground salt cave tunnel to savings, i.e. a Louisiana portion of the Strategic Petroleum Reserve in light of a 2008 bill. (image: Robert Nickelsberg via Getty Images)
The bill that abruptly halted President Bush’s 2008 stockpiling of crude oil in the US Strategic Petroleum Reserve (SPR) panned out very well, according to a cost analysis by the Department of Energy released on Friday. As Greenwire via the New York Times reported, the decision to suspend refilling the reserve until prices fell below $75 a barrel saved US taxpayers $600 million. But not for reasons first thought.
The legislation to temporarily stop the 70,000 barrel-per-day shipments to the SPR was originally pitched by Sens. Byron Dorgan (D-N.D.) and Jeff Bingaman (D-N.M.) as a measure to alleviate high gas prices. An increase in the supply of oil left on the commercial market, they reasoned, would lower prices of crude oil and gasoline, which reached all-time highs in 2008. Despite White House criticism for the economic validity of this strategy, the Strategic Petroleum Reserve Fill Protection Act swept through Congress with nearly unanimous approval on May 13, 2008 [97 to 1 in Senate, 385 to 25 in House]. It proceeded on the belief that filling of the SPR was one of the factors contributing to rising prices:
Gas prices have […] skyrocketed. The U.S. average retail price of regular gasoline has reached a new record high of $3.22 per gallon. One year ago, oil was trading at $60.05 per barrel, and the average retail price of gasoline was $2.53 per gallon. The Administration’s oil fill policy is contributing to this price increase. (Dorgan press release from March 2008)
However, last week’s letter from the Department of Energy states that taxpayers benefited from the bill not through lower consumer fuel prices, but from Treasury savings achieved by waiting to buy oil until it had fallen to a more affordable price. The difference: $1.1 billion of oil purchased in 2009, versus what would have cost $1.7 billion during those months of 2008. So, Dorgan, Bingaman, and the virtually entire cast of Congress are to be applauded, but not for the reasons they originally presented.
It may seem funny now that so many people—Republicans and Democrats—believed that saving less than a hundred thousand barrels a day would put a damper on what is now appreciated as a historic rise in oil prices. The question of why prices ballooned out of nowhere to a $147 high in July is still open, but the debate rages on whether market fundamentals, speculation or some combination produced the trend, not whether SPR purchases that did or would have taken place made any difference. To 2010 denizens of a more oil-aware world, the rationale behind that bill in spring ‘08 appears as a sign of times, the kind of shortsightedness that history’s hindsight smoothes over. In 2008, Americans were frantic over oil and gasoline prices and wanted to do whatever they could to bring them down. We have to remember that other proposals at the time included opening the Alaska National Wildlife Refuge to drilling, levying more taxes on oil companies, and persuading ally and OPEC heavyweight Saudia Arabia to simply produce more oil.
Ever since the reserve released 20.8 of its 700 million barrels in response to Hurricane Katrina’s refinery interruptions, the Bush administration had been working to fill the gap. By April 2008, the SPR achieved its former capacity, and was 97 percent full. Therefore, when the shipment-forestalling bill passed in the House and the Senate in May 2008, it halted not the SPR’s responsibility to keep reserves replenished but rather a longer-term aim, vested in a 2005 act, to boost reserve supplies to 1 billion. At the time, the government had been paying the market price of $120 a barrel, instead of the $75 available a few months later, to fulfill this relatively newer agenda.
