
Why the US stores 700M barrels of oil underground - williamhpark
http://www.bbc.com/future/story/20150921-why-the-us-hides-700-million-barrels-of-oil-underground
======
jacobolus
> _But there’s an important line to draw between that and using an SPR for ad
> hoc manipulation of the world’s markets. On this point, Martin Young is
> emphatic: “The oil stocks are not there for price management as such,” he
> explains, “they’re there to correct a shortage in the market because of a
> supply disruption.”_

Strategic reserves can absolutely also be used as an offensive economic
weapon, however. As one example, when Salvador Allende became President of
Chile in the early 1970s and nationalized Chilean copper mining, the US dumped
>250,000 tons of copper from its strategic reserves onto the world market,
crashing the price, in a (quite successful) attempt to destabilize the Chilean
economy, which was heavily reliant on copper exports. Of course when that
still didn’t lead to Allende’s downfall, plan B was a CIA-sponsored military
coup.

~~~
Shivetya
I am not beyond believing that the current gutting of oil prices was done at
the US's behest to damage Russia. It wouldn't take too much in the way of
guarantees to Saudi Arabia to have them swamp the markets. Far more effective
than military intervention.

~~~
retube
Sorry but that's nonsense. It's a well known and indeed publically admitted
strategy by the Saudi's to drive US shale producers out of business. Google
"saudia arabia united states oil price" for many authoritive hits on the
subject.

Russia was collateral damage.

~~~
Lawtonfogle
Why not both? Gives a better reason for the Saudi's to go along with the plan.
They help the US political side and get paid in political good will and
getting to damage the US competitors.

~~~
rancur
because we don't care that much about Russia. This isn't the 80's.

OPEC got greedy, that created room for shale, and Russia got hurt.

~~~
elektromekatron
Hello, there's a fairly warm little proxy war going down right now in Ukraine
and an increase in Russian forces in Syria. The 80's were the nice hopeful
bit.

~~~
rancur
yes, those were the days when Russia could at least hope they would win a war
with us

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ZeroGravitas
The use of "hides" is a bit clickbaity, if they said "stores" then people
would have thought it a perfectly reasonable thing to do.

~~~
steve19
Not just clickbaity but factually incorrect. There are right there for
everyone to see (from Google Maps) ...

[https://www.google.com/maps/place/Bryan+Mound+Strategic+Petr...](https://www.google.com/maps/place/Bryan+Mound+Strategic+Petroleum+Reserve/@28.9170944,-95.3769125,1289m/)

~~~
drzaiusapelord
It has its own webpage at the DOE. Some secret. Sadly, HN often falls for
click-baity articles with an anti-US or conspiratorial spin to them.

[http://energy.gov/fe/services/petroleum-
reserves/strategic-p...](http://energy.gov/fe/services/petroleum-
reserves/strategic-petroleum-reserve)

~~~
DinkyG
There's no shortage of conspiratorial comments and posts about Russia and
China on HN either. There's something about conspiracies which captures our
imagination but there needs to at least be some basis in the facts.

------
static_noise
Don't think of it as 700 000 000 barrels.

Think of it as 0.13 years of oil for the USA alone or 0.02 years of oil for
the World.

~~~
pestaa
Or think of it as X years of oil for the USA military (where I don't know X).

~~~
olewhalehunter
Or several decades worth of oil for our cyborg overlords.

~~~
Toenex
Or 1 million of our brave, cyborg killing, wind powered, polymer constructed,
automated freedom fighters.

~~~
olewhalehunter
Or infinite eons of entropic sex toys for the post eschaton neuro-orgey.

~~~
irl_zebra
Please don't try to turn this place into Reddit with comment chains like
this...

------
junto
When my Uncle worked out in China about 15 years ago, a local dignitary was
giving him a tour of the local area.

He noticed what looked line capped oil wells in the fields. When he asked what
they were the official confirmed that they contained oil, which "we will only
start using once we can't buy anymore from anyone else".

I've never heard of China having their own oil fields so I assume that there
was something lost in the translation but regardless, it was an interesting
insight into the Chinese psyche.

~~~
stephen
Charlie Munger has mentioned the same "use theirs first" approach:

"The imported oil is not your enemy, it's your friend. Every barrel that you
use up that comes from somebody else is a barrel of your precious oil which
you're going to need to feed your people and maintain your civilization."

[http://seekingalpha.com/article/1631292-charlie-munger-
think...](http://seekingalpha.com/article/1631292-charlie-munger-thinks-oil-
is-absolutely-certain-to-become-incredibly-short-in-supply)

~~~
lukeschlather
The disingenous (or ignorant) thing about that sort of thing is that it makes
no mention of alternative fuel prices. Coal and natural gas can be refined
into gasoline. This is obviously not a great idea from an environmental
standpoint, but from a cost standpoint it becomes economically viable when oil
hits about $70/barrel.

Electrolysis-refined hydrogen becomes economical when oil hits $200/barrel,
and that has a lot of environmental benefits. I would bet if oil stayed over
$120/barrel for several years the economic incentives would kick in and
someone would find a way to make hydrogen cost-competitive, probably even
eventually bringing the cost down so it's similar to current oil prices.

[http://www.greencarcongress.com/2014/06/20140609-lux.html](http://www.greencarcongress.com/2014/06/20140609-lux.html)

~~~
logfromblammo
The US tapped out its highest-profit traditional oil wells a long time ago,
and used the export profits to grow its economy. Now the US is awash in
fracked gas.

The "sit on it" strategy assumes that the resource held in reserve will not
become obsolete. It makes more sense to me to pull it all out of the ground as
fast as you can, so you can sell more of it when the global price is highest,
rather than being forced to buy at that time.

Didn't China learn anything from its rare earths play? The supply curve never
really hits a brick wall. As long as the price keeps going up, the market
keeps producing more to sell. And even if you hit a hard limit, such as by
exhausting all the cheap wells and mines, human ingenuity often produces an
acceptable substitute.

Many countries are burning the petroleum as fast as they can, keeping the
computers running for the engineers researching wind, solar, nuclear fission,
geothermal, hydrogen, fracking, cellulose enzymes, algae oils, nuclear fusion,
radioisotope thermal, external combustion engines, generator-electric hybrids,
fuel cells, denser batteries, more efficient motors and transmissions, and a
whole host of other technologies that will finally be ready to take over, once
the last oil on Earth is being burned by China to keep its lights on and
tractors running.

Everyone else will be running their tractors with fuels mixed up from
agricultural waste, and keeping the lights on with a dozen different competing
technologies.

It seems like a bad strategy to me, but I'm not Chinese.

~~~
selestify
What was China's rare earths play?

~~~
logfromblammo
After China became practically the sole supplier of rare earth elements to the
entire world, they restricted exports in 2011, creating shortages everywhere
outside of China.

It caused a lot of companies to reexamine their supply chains, this time
considering factors _other_ than just price per ton. Several nations started
subsidizing domestic production from mothballed facilities for strategic
economic reasons. China went from 95% share of that market to less than 80%.

Essentially, they were expecting to get higher prices by restricting output as
a monopoly supplier, but it blew up in their faces.

------
walod
> “Periodically when caverns are empty you can actually shoot sonar images of
> the caverns,” says Corbin. “And that gives you a three-dimensional way of
> looking at them.” Some have interesting shapes, he adds. The outline of one
> chamber, for example, would resemble a large flying saucer.

Mm yes this is a conspiracy theory waiting to happen

------
scott_karana
Not entirely related to the US supplies, but did this stand out to anyone
else?

> The facility at Shibushi, for example is just off-shore. Following the
> catastrophic earthquake and tsunami which struck Japan in 2011, calls were
> made to expand the country’s oil stocks in case of crises in the future
> which might hamper oil distribution again.

One of the most volcanically and tidally affected and nautically food-
dependent nations on earth thinks it's a good idea to hold _millions of
barrels of oil_ on their coastlines?!

------
adventured
China is aggressively trying to do the same thing, attempting to boost their
storage to 500m barrels, and buying a lot of oil right now while it's cheap
(something the US should be doing, to further bolster its 700m barrels):

[http://www.bloomberg.com/news/articles/2015-09-17/even-a-
slo...](http://www.bloomberg.com/news/articles/2015-09-17/even-a-slowing-
china-is-oil-s-best-defense-against-deeper-slump)

------
Vexs
I always wondered how they stored the oil- salt mines are a good way of doing
it I suppose. Reminds me of a certain science-y game...

------
3princip
>largest of the four, near the tiny city of Freetown, Texas

A little weird that I cannot find a "Freetown, Texas" using Google. I like to
look at places on a map when they are mentioned in articles.

Maybe they got the name wrong, or is it so small it's not on the map?

Or I'm using Google wrong :)

~~~
jzwinck
It's Freeport, not Freetown: [http://energy.gov/fe/services/petroleum-
reserves/strategic-p...](http://energy.gov/fe/services/petroleum-
reserves/strategic-petroleum-reserve)

------
WaltPurvis
Two quick comments:

"Hides" is a stupid word. It's not hidden; it's well-advertised.

The reporter calls it "expensive" because it costs $200m/year. That's not
expensive, that's ridiculously cheap insurance; it's surely one of the most
cost-effective government programs in existence.

(I stopped reading at that point.)

~~~
static_noise
It's an insurance and once it is really needed it will be worth more than all
dollars combined.

In my opinion the amount of stored oil is ridiculously low with about 8 days
of world oil consumption. It can only be used to iron out minor hiccups on the
world production or to power the US military and US emergency food supply for
some time. Is this reporter telling us that this little safety measure isn't
worth that amount of money?

~~~
dingo_bat
I think it would make sense to compare the barrels with _US_ demand and not
global demand. I couldn't find a good recent estimate of US oil demand.
Wikipedia says it was ~18M/day in 2011. That would mean about 40 days of
reserves, which is pretty good, IMO.

~~~
WaltPurvis
More recent figures can be found here:
[http://www.eia.gov/dnav/pet/PET_SUM_CRDSND_K_M.htm](http://www.eia.gov/dnav/pet/PET_SUM_CRDSND_K_M.htm)

We (the United States) produce around 9 million barrels per day, and could
produce more if necessary. We import a bit more than 7 million barrels per
day.

We wouldn't need to replace domestic production, so the strategic reserve
would cover about 100 days of lost imports. But there are few if any scenarios
where we'd lose _all_ imports -- most likely we'd lose access to only a small
fraction of imports, and even that kind of shock would spike prices and thus
our consumption would drop and domestic production would increase -- so the
reserve can be expected to last far more than 100 days. (If we are ever in a
situation where it seems plausible the reserve might be exhausted, e.g., a
major global war, then extreme conservation measures will be enforced, and the
discussion changes state.)

------
kiddico
700 megabytes is a lot of barrels....

