“Tactics without strategy is the noise before defeat.” – Sun Tzu
Up on Spindletop Hill, just south of Beaumont, Texas, at the beginning of a new year in the beginning of a new century, the world was changed forever. On January 10, 1901, at a drilled depth of 1,139 feet, an enormous geyser of oil exploded into the sky, much to the awe of the workers who made it happen. The well gushed at a powerful rate of 100,000 barrels a day, far more than any oil-producing well in the country, initiating a historic economic boom that gave birth to the modern petrochemical era.
Within months, the population of Beaumont increased by a factor of five, property values soared, and a classic “gold rush” mania ensued. Much of the critical petrochemical infrastructure that dots the US Gulf Coast today grew directly out of this groundbreaking discovery.
The success of Spindletop was significant validation of the work of Anthony Lucas, then a leading US expert on salt dome formations. Long a believer that salt domes could make for excellent natural petroleum traps, his so-called “dome theory” was met with significant derision from many of his contemporaries. The success of Spindletop was golden proof of concept, and today, 3D mapping of salt-bearing basins is the subject of intense technological investment in the energy sector. The challenges associated with understanding complex salt geometries are often more than offset by the huge financial rewards of successfully doing so.
Human ingenuity being what it is, it wasn’t long before engineers hypothesized that salt domes could also be used to successfully store oil for long periods. After all, if these formations helped nature keep oil in place for eons, surely a purpose-formed salt cavern within one could work to store oil for a few decades. In addition to their exceptionally low permeability and porosity, rock salt formations quickly self-heal, potentially making them the cheapest and most environmentally secure long-term oil storage option available.
The US Strategic Petroleum Reserve (SPR) – the world's largest supply of emergency crude oil – was established in the years following the 1973 oil embargo. Using 60 large salt caverns spread across four sites – two in Texas and two in Louisiana – the SPR can store as much as 727 million barrels of oil. For a primer on how these underground salt caverns are constructed, we turn to the US Department of Energy (DOE, emphasis added throughout):
“Salt caverns are carved out of underground salt domes by a process called ‘solution mining.’ Essentially, the process involves drilling a well into a salt formation, then injecting massive amounts of fresh water. The water dissolves the salt. In creating the SPR caverns, the dissolved salt was removed as brine and either reinjected into disposal wells or more commonly, piped several miles offshore into the Gulf of Mexico. By carefully controlling the freshwater injection process, salt caverns of very precise dimensions can be created. For every barrel of crude oil to be stored in the SPR’s caverns, it takes approximately seven barrels of raw water to create the storage space.”
The original intent of the SPR was to insulate the US from significant oil supply shocks and to ensure requisite industries – most notably the US military – had ready access to energy resources during times of significant national emergencies. Over time though, the SPR has gradually become politicized. In 2015, Congress began using it to game the Congressional Budget Office’s (CBO) score of major funding bills, mandating sales in the future to make present-day spending appear “deficit neutral.” For example, The Fixing America’s Surface Transportation Act of 2015 calls for SPR sales totaling 66 million barrels from US fiscal years 2023-2025, while the Tax Cuts and Jobs Act of 2017 calls for the sale of 7 million barrels over US fiscal years 2026 and 2027. The Bipartisan Budget Act of 2018 calls for the sale of 100 million barrels between 2022 and 2027.
And on it goes.
There’s nothing strategic about such mandates, but they have served to normalize the conversion of this national insurance policy into a political piggy bank. To overturn these future mandated sales would require offsetting budget cuts elsewhere – in other words, it’s not going to happen. In the past year, President Biden has taken things to the next level, draining the SPR at an unprecedented rate in a desperate, temporary attempt to keep a lid on the price of gasoline ahead of the 2022 midterm elections. Just how significant and dangerous is this nakedly political gambit and how does it play directly into the hands of the administration’s geopolitical opponents? Let’s dig in.