House passes bill banning oil sales from Strategic Petroleum Reserve to China and companies it controls

The House on Thursday passed a bill to ban the sale of oil released from the Strategic Petroleum Reserve (SPR) to China as the chamber capped off its first full week of legislative business in the new Congress.

The one-page bill, known as the Protecting America's Strategic Petroleum Reserve from China Act, would prohibit the Dept. of Energy from drawing down the SPR to sell that oil to any entity under the ownership, control, or influence of the Chinese Communist Party, and also bar the export of oil released from the SPR to China. It was introduced by Rep. Cathy McMorris Rodgers (R-Wash.), who will chair the powerful House Energy and Commerce Committee in the 118th Congress.

"To cover up his failed policies driving our energy and inflation crisis, President Biden is draining our nation’s Strategic Petroleum Reserves at an alarming rate. America’s SPR – once the world’s largest stockpile – has been depleted to the lowest levels since 1983," McMorris Rodgers said in a statement following the vote. "To date, President Biden has released more from the SPR than all U.S. presidents in history combined."

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The House passed the bill Thursday on a broadly bipartisan vote of 331-97, with Republicans unanimously supporting the bill and a majority of Democrats in favor. Most of the Democratic lawmakers opposed to the measure argued it should be broadened to include countries like North Korea and Russia. It now heads to the Senate where it faces an uncertain fate.

President Joe Biden has released oil from the SPR on several occasions since taking office as part of an effort to combat high gasoline prices that have left many Americans feeling financial pain at the pump. Supporters of exporting oil from the SPR argue that because oil prices are determined on the global market, the increased supply ultimately helps stabilize prices regardless of where it's exported, and U.S. refineries have been operating at near capacity in recent years.

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Critics have taken issue with Biden doing so while his administration pursues policies that constrain U.S. production of oil and gas, in addition to not taking actions that could result in additional refining capacity. The sale of oil from the U.S. strategic reserve to China last year proved especially contentious. 

In April 2022, the Dept. of Energy sold nearly one million barrels of oil from the SPR that were then valued at nearly $100 million to Unipec, which is a subsidiary of Sinopec, an energy conglomerate that's wholly owned by the People's Republic of China. That came amid the Chinese government touting its relationship with Russia as having "no limits" despite the Russian invasion of Ukraine earlier that year. 

"Millions of barrels of that oil have gone to China, which now has the world’s largest government-controlled stockpile of oil," McMorris Rodgers said. "Draining our strategic reserves for political purposes and selling it to China is a significant threat to our national and energy security."

Aside from oil sold in the course of SPR drawdowns, China has purchased substantial amounts of oil from American energy companies in recent years as the U.S. increased domestic production and became a net exporter. In all of 2020, the U.S. exported 176 million barrels of oil to China. Last year through October, U.S. firms shipped nearly 67 million barrels of oil to China.

What's the status of the Strategic Petroleum Reserve?

Currently, the SPR has a congressionally-authorized maximum storage capacity of 713 million barrels. It contained 638 million barrels the week of Biden's inauguration in January 2021. 

Since taking office, Biden has authorized the release of about 260 million barrels of oil from the SPR. That includes a 180 million barrel release spread over six months in 2022 which was the largest-ever drawdown of the SPR. Biden's drawdowns have left the SPR with about 371.5 million barrels as of early January 2023 – which is the lowest level of SPR reserves since December 1983 according to data from the Energy Information Administration (EIA). 

The Biden administration in October 2022 announced a plan to repurchase crude oil to replenish SPR stockpiles when prices are at or below $67 to $72 per barrel. As of mid-January 2022, prices have only dipped into that range on two occasions in early December and early January, and West Texas crude was trading between $77 and $79 per barrel as of January 11-12.

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What is the Strategic Petroleum Reserve?

The SPR was created in 1975 by the Dept. of Energy (DOE) as a means of stockpiling petroleum supplies for emergency use to mitigate the impact of supply disruptions on U.S. energy markets in the wake of the OPEC oil embargo of 1973-74. Reserves can be released based on a finding by the president that there is a supply disruption, or if needed to fulfill U.S. obligations under international energy programs. Occasionally, Congress will authorize the sale of some SPR reserves to finance legislative priorities. 

Initially, Congress intended for the SPR to have a capacity of 1 billion barrels of oil, although it has never reached that level. The maximum authorized storage capacity of the SPR peaked at 750 million barrels in 1991, which declined after one of the facilities was closed. The highest the SPR inventory has ever been was in 2009, when it held 726.6 million barrels – essentially maxing out the authorized storage capacity of 727 million barrels at the time.

Some have questioned the effectiveness of releasing tens of millions of barrels from the SPR in bringing down energy prices given Americans' energy consumption. According to the EIA, the U.S. consumed roughly 20 million barrels of oil per day in 2021 – a figure which amounts to about 7.26 billion barrels per year. A Treasury Dept. report from 2022 found Biden's SPR releases affected gasoline prices by between 17 cents to 42 cents per gallon.

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SPR reserves are stored at four locations thousands of feet below ground in salt caverns because those geological formations are more advantageous than surface facilities in terms of cost and maintenance, in addition to environmental and security concerns. 

Geological pressures naturally seal cracks that emerge in salt formations to prevent leaking oil from seeping out, while the temperature difference keeps oil circulating to maintain its quality. The salt caverns can also be enlarged to fit precise dimensions through a mining process in which the salt is dissolved using fresh water.