U.S. Scrapped Canada’s Planned Oil Reserve

With oil prices spiking by about a third in just two weeks, fears of a global energy crisis have prompted a historic response.

In the 1980s, Canada considered creating storage facilities that could be shared with the United States, but U.S. officials ultimately backed out. (Photo: Quintin Soloviev, Wikimedia Commons) 

The 32 member countries of the International Energy Agency plan to release 400 million barrels of oil from emergency reserves—the largest coordinated release ever—in hopes of easing supply shortages and high prices caused by the war with Iran, Reid Southwick reported for the Financial Post.

The move raises questions about how Canada, the world’s fourth-largest oil producer, could contribute to the global response.

Why does Canada not maintain a strategic petroleum reserve for crises like this?

Would it make sense to build one now, and could the latest move help Canadians along with the rest of the world?

The concept of emergency energy stockpiles emerged in the 1970s after another Middle East conflict and the U.S. role in it triggered a devastating oil embargo that nearly quadrupled crude prices.

In response, the IEA was established to coordinate supply responses during disruptions.

“The members of the IEA learned in the mid-’70s that rather than everybody having their own stocks, the market is impacted most effectively under a collective system,” said David Goldwyn, an energy security adviser and president of Goldwyn Global Strategies.

“If everyone agrees to release their stocks at the same time, it’s a powerful market signal.”

The agency says its members now hold emergency reserves of more than 1.2 billion barrels of oil, with another 600 million barrels held on behalf of governments—enough to keep the global economy running for roughly two and a half weeks.

The U.S. Department of Energy manages the world’s largest reserve, known as the Strategic Petroleum Reserve. The oil is stored in underground caverns along the Texas and Louisiana Gulf coasts.

Canada, though an IEA member, is not required to maintain reserves because it is a net exporter of oil.

In the 1980s, Canada considered creating storage facilities that could be shared with the United States, but U.S. officials ultimately backed out, deciding they would not place a critical strategic energy reserve in another country.