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Home / Industry / Energy /  Why is Biden tapping the strategic oil reserve, and will that lower gas prices?

The Biden administration said Tuesday that it would release 50 million barrels of oil from its Strategic Petroleum Reserve in a coordinated effort with other countries to bring down gasoline prices.

Here’s what you need to know about the SPR.

What is the SPR?

The U.S. Strategic Petroleum Reserve consists of four underground salt caverns along the Texas and Louisiana coasts that currently hold about 605 million barrels of oil. That is enough to satisfy U.S. demand for several weeks.

The supply is owned by the U.S. government and managed by the Energy Department. Federal law gives US presidents the power to release oil from the reserves to minimize supply disruptions.

A president may release oil if they determine the move to be required by a “severe energy supply interruption," which is defined as a national energy supply shortage that is significant in scope and duration, that is “of an emergency nature" or that could cause “major adverse impact" on the national economy.

Why were people calling for it to be tapped now?

Gasoline prices have risen steadily over the 12 months since President Biden’s election. Pump prices are up 61% from a year ago, with regular unleaded selling last week at an national average price of $3.40 a gallon, according to Energy Department data.

Inflation has put the Democratic Party’s legislative agenda at risk, pressuring the White House to act.

White House officials have spent weeks debating what to do about rising energy prices, gasoline in particular. Prices for gasoline and heating-oil—both products that come from crude—have risen to their highest levels since 2014.

In a statement Tuesday, the White House said Mr. Biden is “using every tool available to him to work to lower prices and address the lack of supply."

Will tapping the reserve lower gasoline prices at the pump?

Boosting the supply of petroleum should lower gas prices for motorists, but there is no guarantee. Futures markets are complex and prices move for many reasons. Even if crude prices do drop, there is no guarantee gasoline prices will follow suit, or do so quickly if they do.

Coordinating with other countries to have a larger release is one way to try to ensure prices decline. If prices do fall, other market forces could push them back up again.

“Ultimately the amount of impact would be relatively short-lived," Stephen Nalley, the acting administrator of the U.S. Energy Information Administration, told a Senate committee recently. “It would depend on how much was released."

Who has supported the release?

In early November, 11 Senate Democrats including Elizabeth Warren of Massachusetts wrote a letter to Mr. Biden suggesting he consider tapping the reserve.

“We ask that you consider all tools available at your disposal to lower U.S. gasoline prices," they said in the letter.

At the same time, Mr. Biden’s own advisers also began looking to the reserve after they failed in a diplomatic push to get members of the Organization of the Petroleum Exporting Countries to increase output more than they had initially planned.

What’s the case against tapping the SPR?

Critics say the reserve was created for emergencies and to protect the U.S. ‘s energy security needs, not help consumers save a few dollars at the pump.

U.S. oil companies say a better solution is to focus on increasing the U.S.’s ability to pump more oil.

“Pulling some crude from SPR would do little to actually affect gasoline prices in the near term and may even do more harm than good in the long term," said American Exploration and Production Council Chief Executive Officer Anne Bradbury in a statement before the release announcement. “The better approach to help alleviate rising energy prices is to focus on supporting domestic production of oil and natural gas."

What authority is being used to tap the SPR?

Senior Biden administration officials said Tuesday the president isn’t using his emergency authority, but other powers available for less urgent situations. Most of the release, 32 million barrels, won’t simply be sold, but will go out as part of a supply exchange designed only to get more oil on the market in the immediate future. Buyers will be required to send oil back to the government to replenish the reserves between 2022 and 2024, according to the Energy Department.

Who created the SPR?

Congress authorized the SPR in 1975, in the wake of the Arab oil embargo, as a buffer against supply shocks from oil exporters. Energy markets, however, have changed dramatically in recent years, as has the country’s use of the reserve, which has a capacity of 714 million barrels. Resurgent U.S. oil production from fracking into shale has made political leaders of both parties less fearful of shortages.

The Trump administration considered selling off some of this oil in 2018 before opting against it. And Congress has started draining the reserve as a way to raise cash to pay for tax cuts and other spending. Under congressional authorization the Energy Department has run seven sales since 2017, unloading more than 60 million barrels, or about 8.6% of what had been in the reserve, according to department figures.

When has oil been released from the reserves in the past?

Since the first barrels were delivered for storage in 1977, oil has been released from the reserves about two dozen times. Many recent sales were those authorized by Congress, and the Energy Department has also run several exchanges after hurricanes and shipping channel closures disrupted domestic supplies.

The U.S. has also opted to release oil in coordination with other countries that keep their own reserves three times: when Operation Desert Storm began in 1991, after Hurricane Katrina in 2005 and at the height of Arab Spring in 2011. The International Energy Agency, a Paris-based energy watchdog, has coordinated those releases among member countries, though state leaders can decide whether to participate.

What happens when oil is released?

Released oil from the US reserves can take as long as two weeks to reach the markets from where it is stored in underground salt domes, which measure as long as 2,000 feet. To get oil out, fresh water is pumped into the bottom of the cylinder, forcing the oil upward, out of the cavern and into pipelines that carry the supply to refineries that convert it into gasoline or other petroleum products.

 

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