Trump administration eyes paying oil companies to keep crude in the ground: reports
The Trump administration is contemplating paying oil companies to leave their product in the ground, a measure that could help boost the struggling industry while the market has been crushed by an oversupply of crude.
According to reporting from multiple outlets, the Department of Energy (DOE) is drafting a plan that would pay companies to leave as much as 365 million barrels untapped by considering it part of the nation’s emergency stockpile.
The plan was reported first by Bloomberg, and DOE did not respond to request for comment from The Hill.
Such a plan would be unprecedented and likely to face resistance from Congress, where Democrats were able to thwart a $3 billion request to fill the Strategic Petroleum Reserve (SPR) outright.
But President Trump has said the government should stock up on oil while prices are at historic lows, and the DOE plan appears to already have some support from Republicans.
“While we have not received a formal proposal from the Department of Energy, we look forward to fully reviewing the idea to purchase and store crude oil onsite in producing fields,” said Grace Jang, a spokeswoman for Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski (R-Alaska).
Jang said the office “continues to look for ways to support the American oil and gas industry … and believes that SPR purchases make sense at this time given market conditions.”
Federal law allows DOE to set aside up to 1 billion barrels of oil for emergencies, but it doesn’t stipulate where it must be stored.
Trump has repeatedly referenced oil companies stowing crude on tanker ships, and some are already stowing their product in rail cars.
Even with market forces expected to drive U.S. oil companies to drop production by 500,000 barrels a day, a little less than 5 percent of average production, the market is still facing a glut of oil as demand for fuel has declined 30 percent in the midst of the coronavirus.
DOE has already moved ahead with a plan to rent 23 million barrels of storage space in the strategic reserve to companies who have agreed to pay in oil.
The American Petroleum Institute, which represents a number of oil companies, has not been advocating for the DOE plan to store oil elsewhere.
But the idea could be more popular with smaller oil companies that are likely to be the most financially at risk due to falling prices.
“The largest integrated companies are quietly OK with what’s going on, and hoping this drives medium-sized independents in their laps,” said Dan Eberhart, CEO of oil services company Canary, told the Washington Examiner.
“The medium-sized companies are afraid, and that’s why they are grasping at solutions like being paid for oil in the ground as opposed to trying to wait this out,” he added.