Thread by @anasalhajji

🔥Thread on the costs of Strategic Petroleum Reserves (SPR)! (simplified calculations)
1- In 3 years, between the start of 1979 & the end of 1981, 168 mb of crude oil were added to the SPR at an average cost of about $32/b. That is about $125/b in Today's money!

#Oil #OOTT #SPR

2- The fixed cost incurred by the taxpayer to prepare the caverns was around $4 billion. That translates to about $6/b assuming 650 mb existed from day one in 1977 (of course that was not the case, but I am trying to use the low numbers). $6 in 1977 equals about $29.40/b today!

3- So far, the cost is $125 +$29.40 = 154.40/b
The yearly SPR budget in 2019 was about $235 million. That translates to about 40 cents per barrel per year in today's money. The cost for 42 years is about $16.80/b

Now the cost is $154.40 + $16.80= $171.20!
#COM #EFT #Oil #SPR

4- Discount rate? Historically, the DOE used 10% for SPR calculations. But whatever interest rate or rate of return you use on $4 billion since mid-1970s + interest on the cost of yearly management, you end up with more than $100/b! Let us say $100
Now the cost is $271.20/b! 😱

5- If the average selling price is $120, that means the accounting loss is -271.20 + 120 = -151.20

That loss MUST be judged against all economic and political benefits of the SPR releases. Some can be measured precisely. The others are subjective. Some benefits are debatable.

6- For example, the release of 180 mb from the SPR prevented oil prices from rising above $140/b by my calculations. Others might find that oil prices would have reached $200/b without the SPR release.
Compare $140 to $90, for example! That is a $50/b benefit to the economy.

7- Now the loss is no longer $151.20. It is only $101.20. But what about the multiplier effect & the impact on economic growth? What if lower oil prices prevented a recession? What if they prevented economic, political & social crises?
Remember the releases during hurricanes?

8- Experts in respective fields can estimate the impact. I do not know the final results, but I am convinced that after calculating all the costs and benefits, there is a net gain from releasing a LARGE amount of oil from the SPR.
#Oil #OOTT #SPR

9- There is a net benefit to SPR, especially that preventing prices from going to $140 or higher was global. There are economic, political, and social gains too on a global level! How to asses these benefits? (similar case when we talk about the shale revolution)

10- While the SPR is a subsidy to the oil industry since taxpayers pay for the oil and the cost of its storage so the industry can use it when it needs it instead of paying for it, the one million dollar question is: what will happen if there was no SPR?

11- If there was no SPR, private commercial oil inventories would be way higher than what we have seen since the SPR started. Would we get the same "net" benefits that are discussed above? This is subject to debate. I can see how the views are divided along political lines.

12- There are political benefits for the US when the SPR contributes to national security. Estimating the impact is subjective & could be huge. But the private sector can do that too!

🔥The political benefits might go to the political elite! How to account for that?