IN CALIFORNIA, the federal government is producing oil from its Elk Hills reserve and selling it to commercial refiners. On the Gulf Coast, the same federal government has run out of imported oil to put into its strategic reserves. The obvious solution, as we recently argued in this space, is to use the Elk Hills oil for the reserve. Several readers have asked whether it wouldn't be simpler and better to shut down the Elk Hills wells and leave the oil in the ground until an emergency might require it. The answer is a technical point, but one worth noting here.
When an oil well taps into a natural reserve, in layers of sand and porous stone, its production rate is limited by geology. Attempting to produce too fast will wreck the well and damage the reserve. The government's share of the Elk Hills production currently runs about 128,000 barrells of oil a day. Increased drilling and advanced technology can raise that rate a bit over the coming year. But beyond that, the engineers cannot force the pace.
In contrast, the strategic reserves are being held in artificial underground caverns like huge tanks. Recovery rates there are limited only by the size of the pumps. The present pumping system was tested last week, and moved one million barrels of oil from the caverns into commercial terminals in 21 hours. Since it was a test, the oil was then pured back into the caverns. But in a crisis -- another embargo by exporting countries, for example -- that oil would move from the terminals to refineries and on to consumers.
Over the next year, working at its maximum rate, the Elk Hills field will produce some 50 million barrels of oil for the government. If that oil went into the strategic reserve, it could be fed into the national distribution system in six or seven weeks. The reserve in the caverns doesn't increase the amount of American oil available. But it makes that oil available much faster.
When the government auctioned off the last batch of Elk Hills oil at the beginning of the year, the prices were shockingly high. How can the United States urge OPEC to hold down prices, when the United States government itself is selling oil for more than any member of OPEC charges? The government can avoid that dilemma by taking the oil off the market and putting it into the reserve, to be accessible -- quickly -- when the country needs it.