Using a health crisis to boost Big Oil
After days of delay, Trump finally declared a state of national emergency in response to the coronavirus. This frees $42 billion in much-needed funding for state and local responders.
But during the announcement, he also promised to help a much less deserving constituency: Big Oil.
After days of rumors coming from both the White House and congressional Republicans, Trump made the first move toward a bailout of the oil industry. He declared that the Strategic Petroleum Reserve, the government’s emergency oil supply, would be filled “all the way up to the top.”
The response from the market was immediate. The price of oil shot up five percent before markets closed. Fracking giant Continental Resources, whose majority owner and former CEO had been lobbying the Trump administration publicly for help, saw its value rise over 20 percent from its low earlier in the day.
Less clear is what happens next. The Department of Energy is responsible for administering the SPR, and so far, all its secretary has done is write a one-sentence memo saying that crude purchases should begin as “expeditiously as possible.”
Here are some questions that ought to be answered first:
Fill’er up with regular? The Strategic Petroleum Reserve is actually four facilities in Texas and Louisiana that can store a combined 714 million barrels. The oil is supposed to be released during times of scarcity or national emergency. The Libyan Civil War in 2011 and Hurricane Harvey in 2017 are two recent examples. As of this month, the SPR contains 635 million barrels. That means a full tank translates into 79 million additional barrels, or around $2.3 billion, based on current market prices. But this is a physical limit, not a legal one. By law, the Strategic Petroleum Reserve is allowed to hold up to 1 billion barrels.
If that is the number Trump has in mind, it would require leasing or acquiring additional storage space — and it would also require a lot more money. Instead of a $2.3 billion giveaway, it would mean buying 365 million barrels at an estimated cost of $10.9 billion.
Where’s the money? The good news is the Department of Energy isn’t allowed to spend unlimited money buying oil to help Trump’s friends. It is actually allowed to buy oil only through something called the SPR Petroleum Account, which is authorized to engage in the “ … acquisition, transportation, and injection of petroleum products.” Crucially, this fund has only the money Congress appropriates, and as of the last spending bill, that was only $10 million, the equivalent of only 333,000 barrels. This is simply not a lot of cash, and it definitely doesn’t translate into a lot of oil.
The fact of the matter is that the SPR is designed to lower prices by injecting oil into the market — not raise them through bulk purchases. If Trump truly means to “fill up” the SPR, he would either need to demand more money from Congress or find some way to divert emergency funds to oil purchases. Members of Congress should feel obliged to weigh in on both of these reprehensible options.
Who’s counting the money? There is historically another way to fill the SPR without congressional approval, though it has a history of blatant corruption. Companies that drill for oil on public lands and waters pay royalties. Most of the time, companies pay what is called “royalty-in-value,” or a cash percentage from the proceeds of mineral sales. But between 1999 and 2009, the Department of the Interior developed a “royalty-in-kind” program that allowed for payment in oil and gas itself. Over the course of the program, it deposited over $6.6 billion worth of crude into the SPR.
This program was notoriously complex, especially when it came to filling the SPR. That’s because the SPR doesn’t just stock oil. It needs to stock oil of different chemical compositions to suit different refining needs; otherwise, it would make little sense as an emergency supply. The result was often a convoluted process whereby oil was accepted as royalty, transferred to the Department of Energy, and then traded again for the exact kind of oil needed for the SPR.
The program was also notoriously corrupt and ended under a considerable cloud of shame. A scathing report from the Government Accountability Office recounts how the program failed to verify production and accurately measure royalties due, resulting in an estimated $21 million loss to taxpayers in 2008 alone. And the explanation wasn’t incompetence; it was corruption. Members of the then-named “Minerals Management Service” were found to have “frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives.”
Unfortunately, royalty-in-kind is still written into the regulations governing SPR oil acquisitions and could likely be revived through executive order. This would be logistically very complicated but not illegal. No congressional approval would be required, and if there was ever an interior secretary to revive a program like this, it would be industry shill David Bernhardt.
Getting the Big Oil story straight. In response to Trump’s announcement, the business press and especially the oil industry gushed. The irony is until Trump started using the SPR to increase prices, the oil lobby actually hated it. The SPR is supposed to be a mechanism designed to protect consumers from price spikes, and, of course, price spikes usually mean profit for Big Oil. That’s why Exxon and the American Petroleum Institute lobbied for legislation to weaken the SPR, while longtime recipients of Big Oil cash like the Heritage Foundation have called openly for abolishing it.
Of course, now that the shoe is on the other foot and Big Oil is flailing, the industry must be glad that the SPR is around to help prop up its profits.
Disaster capitalism baby steps, for now. The coronavirus should be an opportunity to unite the country to prevent waves of death. But corporate America is treating it as an opportunity for waves of profit. Disaster capitalism is on deck to prevent a humane response and instead bail out industries ranging from cruise ships to airlines and, of course, Big Oil. Somehow, we can’t have a serious conversation about giving modest amounts of money to people who truly need it, but we’re instead preparing to throw billions at faceless corporations. The Strategic Petroleum Reserve announcement could be just the beginning. Tax credits, royalty-free leasing on public lands, and low-interest loans could all be coming next.
At a time of unprecedented economic and public health disaster, priorities matter. This is a moment to prioritize the health and well-being of communities, first responders, and our most vulnerable — not to bail out corporations and oligarchs.