US Senate tacks provision restricting SPR sales to China onto defense bill

The US Senate voted July 20 to add restrictions on where crude from the US Strategic Petroleum Reserve can be sold to its version of a must-pass defense bill.

Currently, the US Department of Energy is obligated by law to accept the highest bids at SPR auctions, with exceptions to decline to sell crude only made for entities sanctioned by US authorities. As such, nearly 1 million barrels from the SPR were awarded last year to Unipec America, a subsidiary of the Chinese state-owned oil company Sinopec, drawing intense criticism from Republicans.

An amendment to the National Defense Authorization Act barring the DOE from selling petroleum products from the SPR to entities under the ownership or control of China, Russia, North Korea or Iran cleared the full Senate in an 85-14 vote.

The bipartisan measure -- sponsored by Republican Senators Ted Cruz of Texas and Joni Ernst of Iowa and Democratic Senators Joe Manchin of West Virginia and John Fetterman of Pennsylvania -- allows an exception for sales on the condition that the oil will not be exported to China, Russia, North Korea or Iran. It also lays out a process under which the energy secretary could issue a waiver to permit such sales for national security interests.

But a DOE official told members of the Senate Energy and Natural Resources Committee during a Dec. 1 hearing that the US has no way of tracking crude sold from the SPR after delivery, and that it may be sold multiple times prior to reaching its intended destination.

Still, the US House of Representatives passed similar legislation in January prohibiting the sale and export of SPR crude to entities under the ownership, control or influence of the Chinese Communist Party.

Of the 296 million barrels released during the 18 SPR crude sales completed since fiscal year 2017, some 7.5 million barrels went to Chinese companies, or about 2.5% of total SPR awards, according to a February report from the Congressional Research Service.

US companies accounted for 63% of sale award volumes, with the remaining going to subsidiaries of entities in Saudi Arabia, Australia, France, Norway, Switzerland, Singapore and the UK, the CRS report said.

Senate debate

Manchin noted that while the US ramped up production and exports to help meet global fuel demand following Russia's invasion of Ukraine, China slowed refinery production and stockpiled oil, with help from the US SPR.

"That's what we're trying to stop," Manchin said. "Don't let the perfect be the enemy of the good. We have something in front of us right now that can stop this outrageous, basically raiding of our own stock supplies."

His remarks countered those of Senator Christopher Murphy, Democrat-Connecticut, who spoke in opposition to the amendment as he asserted it would have "very little political impact and likely do more harm than good."

The US exported more than 83 million barrels of oil to China in 2022, with less than 2 million barrels of that coming from the SPR, Murphy said.

"You are still going to have 80-million-plus barrels of oil from the private sector being sent to China every year ... and this amendment allows for the oil industry to keep making those billions off of selling oil to China, only stripping out sales from the SPR," he said.

Unprecedented drawdown

The DOE in November completed the largest-ever drawdown from the SPR, satisfying President Joe Biden's historic commitment to release 180 million barrels to combat energy price hikes spurred by Russia's invasion of Ukraine.

Crude volumes at the SPR stood at 346.8 million barrels the week ended July 14, according to the Energy Information Administration, the lowest level since August 1983.

Though attention has turned to replenishing the SPR, the Biden administration insists the reserve remains capable of addressing any supply disruptions and has left the possibility of further releases on the table if needed to help stabilize global oil markets and address pain at the pump domestically.

Lawmakers have questioned the prudence of the unprecedented SPR releases and sought answers as to the impact of the drawdown on the reserve's structural integrity as well as its capacity to ensure adequate fuel supplies if an emergency were to arise.

How the final NDAA for fiscal year 2024 will look remains murky. The House added a number of controversial, Republican-backed provisions to its version of the legislation passed July 14, setting up a likely tense reconciliation battle with the Democratic-led Senate.