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High fuel prices: is SPR to blame?
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| 29 June 2005 |
By Jim Smith, Editor of Jane's Transport Finance
At first thought, it is easy to place the entire blame for high fuel costs on 'greedy' oil producers and refiners. But the next time you buy an airline ticket that features a fuel surcharge, or pull up to the pump to fill your car at extortionate prices, think out of the box. The Bush administration continues to add to the US Strategic Petroleum Reserve (SPR), the cache of oil the US government keeps available for possible national emergencies, even as prices continue to flirt with US$60 per barrel.
The current value of the stockpile is about US$18 billion. And an energy bill currently before Congress calls for SPR capacity to be increased to one billion barrels. In a recent week, the US added 700,000 barrels to the SPR; a week or so earlier the reserve was beefed up by almost one million barrels. These amounts far outstrip the 75,000 barrel average weekly increment to the SPR.
Drilling beneath the surface, one learns that the US alone consumes 24 million barrels per day, a large chunk of the 84 million barrels per day consumed worldwide. So, at the high end of adding about a billion barrels in a week, the SPR accounted for slightly more than four per cent of the US daily requirement for oil. However, at the average increment of 75,000 barrels per week, the percentage is negligible.
Adding fuel to the fire, China will begin filling its first strategic oil reserve tanks in the east coast city of Ningbo at the end of 2005. That facility will hold 33 million barrels, representing about a third of China's initially planned emergency reserves. In order to meet capacity demand, China will need to add between 70,000 and 90,000 barrels per day. The amount of oil China plans to stockpile may increase.
Chinese energy consumption has been growing at twice the rate of its gross domestic product (GDP) since around the late 1990s. It will be interesting to see whether a filled-to-capacity US SPR will soften demand and cause prices to fall and whether demand and prices will be affected by China's move to build reserves.
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