by John Brian Shannon
The United States of America keeps a 90-day supply of low-refine oil (also known as bunker fuel) in vast underground reservoirs located all over the U.S. as part of their Strategic Oil Reserves program, so that in the case of any interruption of oil imports (presumably originating in the Middle East) the U.S.A. could continue to function for the duration of that interruption.
The reasoning behind this is that once people can’t drive back and forth to work, buses can’t run, and other transportation is affected (jets, trains, ships) effectively the economy just stops! The U.S. can’t risk that – and neither can other countries. Most of them keep their own economies going by selling America resources and manufactured goods in huge volumes.
That is why the U.S.A. maintains a 90-day supply of low-refine oil – a type of oil which is easily and quickly refined into either diesel or gasoline and other products when required.
For decades, a significant benefit for the United States has been that the Strategic Oil Reserve has been used to ‘even out’ the worst oil price spikes as they occur in the marketplace – almost in real-time!
Don’t think of the strategic reserve as a static 180 – 225 million barrels – or any other amount of oil. That amount changes hourly, daily and weekly.
The many underground reservoirs located all over the country continuously move oil IN and OUT of their reservoirs, to (1) to ensure refineries have sufficient feedstock to allow continuous refining 24/7/365 and (2) to act as a shock absorber to market price spikes by adding supply – thereby slightly lowering the price at the gas pump. It’s all about ‘even-ing out’ the price, so that prices don’t jump up and down by 20% or more, many times per month.
The American government, which operates the U.S. Strategic Oil Reserve system have, from time to time, quite rightly punished some predatory-type oil speculators by suddenly dumping millions of barrels of oil into the market via the Strategic Oil Reserve system – lowering prices dramatically and costing speculators billions of dollars of losses in the mercantile market system.
Finally, in any sudden military attack against America, the U.S. military would need to tap that oil and have it refined quickly in order to fuel it’s jets, ships, tanks and almost all other military vehicles, etc… The public might not see gasoline or diesel for a while in that scenario, but protecting the country from invasion or attack takes precedence over and above keeping the economy going.
Maintaining a strategic oil reserve of low-refine oil in any country is always a good idea, but especially for Canada – an oil exporting country.
What? Yes, in case of terrorist attack, military attack or other delivery problems, if Canada had a large enough strategic reserve system it could quickly substitute the reserve oil to our Asian or American customers -and the government-run strategic reserve system could be simply ‘topped up’ once the supply problem or delivery system is repaired.
Think of the benefits of Canadian government involvement here;
1) A large pool of easily available and easily refine-able oil to supply our Canadian Forces during the first 90 days of any surprise military attack.
2) In case of any supply problem – low-refine can be substituted and the SOR oil tanks can be ‘topped up’ later.
3) The ability to ‘even out’ the worst supply shocks in regards to gasoline and diesel prices at the pumps.
4) The ability to punish predatory oil speculators who could virtually hold a country hostage and who also set the dates imported oil arrives at any North American oil refinery. (Remember an oil refinery is just an expensive collection of pipes and burners, when it is sitting idle waiting for a supertanker running behind schedule)
5) Aside from SUPPLY problems, a strategic reserve can ALSO assist during periods of high DEMAND such as the summer months and also in the dead of winter when home heating oil usage peaks.
6) We buy insurance for our cars. Sometimes we are actually glad we have insurance, when an accident or theft occurs, for example. The same applies here.
7) SOR countries are able to maintain exports and keep their customers happy and not lose them to other oil producing nations – when a pipeline breaks or a well-head is damaged, for example. When those or other problems occur, they instantly solve the problem with strategic reserve oil – and the affected oil company replaces that oil once the pipeline or well-head problem is repaired.
**Countries which rely on oil can be a fickle lot, if you can’t supply them – even once, they just phone someone more reliable and you lose them as a customer – permanently.**
Canada needs a strategic oil reserve system similar to the United States, scaled to our much smaller population to ensure Canada’s military could function for at least 90 days in the event of an imported oil collapse, so that Canadians have sufficient protection from unforeseen disruptions in the oil supply and demand equation and a realistic cushion from price spikes caused by market fluctuations and predatory speculators, while maintaining the ability to cover supply problems with regards to oil exports to our American and Asian oil customers.
- Save Strategic Oil Reserves for When They’re Really Needed (businessweek.com)
- France may tap strategic oil reserves (cbsnews.com)
- White House: No Decision on a Strategic Oil Reserve (socyberty.com)
- France, Britain, U.S. Considering Releasing Strategic Oil Reserves (shoppingblog.com)
- More Debate Over Release of Strategic Oil Reserves (247wallst.com)