Biden Announces Release of 180 Million Barrels of Oil From Strategic Petroleum Reserve Over Six Months

What’s the story?

• President Joe Biden announced Thursday that 180 million barrels of oil will be released from the Strategic Petroleum Reserve over the next six months in an effort to counteract rising energy prices. It will be the largest drawdown of the Strategic Petroleum Reserve in its 47-year history.
• One million barrels of oil will be released daily from the Strategic Petroleum Reserve during the six-month period. Strategic Petroleum Reserve releases can take several forms, including outright sales or exchange agreements with private companies that function like loans, although this particular release will likely involve emergency sales using emergency drawdown authority.
• On a daily basis, the U.S. consumes about 20 million barrels of oil per day, so a release of 1 million barrels per day would account for about 5% of daily oil consumption. At the end of January, the Strategic Petroleum Reserve contained just over 588.3 million barrels of oil, which means that about 30.6% of the Reserve would be sold off during the drawdown.
• This will be the third time Biden has initiated a drawdown of the Strategic Petroleum Reserve since he took office in January 2021. The first occurred in November 2021, when he announced the release of 50 million barrels of oil, while the second occurred earlier in March 2022 when 30 million barrels were released. As was the case with other historical drawdowns from the Strategic Petroleum Reserve, neither release had a substantial impact on the trajectory of energy prices facing consumers.

What they’re saying

• President Joe Biden said the drawdown of the Strategic Petroleum Reserve is necessary because the economic recovery from the pandemic is causing demand to rise, in addition to sanctions on Russian oil due to Vladimir Putin’s invasion of Ukraine that have constrained the global oil market. The president explained:

“Today, I’m authorizing the release of 1 million barrels per day for the next six months — over 180 million barrels — for the Strategic — from the — from the Strategic Petroleum Reserve.

This is a wartime bridge to increase oil supply until production ramps up later this year. And it is by far the largest release from our history. It will provide a historic amount of supply for a historic amount of time ― a six-month bridge to the fall. And we’ll use the revenue from selling the oil now to restock the Strategic Petroleum Reserve when prices are lower so we’ll be ready for future emergencies. Folks, I’ve coordinated this release with allies and partners around the world. Already, I have — we have commitments from other countries to release tens of millions of additional barrels into the market."

• Minority Leader Mitch McConnell (R-KY) spoke on the Senate floor and said of the move, “President Biden is going to try to slap another band-aid on gas prices by draining more oil out of our Strategic Petroleum Reserve.” He added:

“The Reserve is supposed to exist for giant unforeseen crises such as a war between great powers. It’s not there so that anti-energy politicians whose policies have raised gas prices can try to hide that from the public. It’s also worth remembering that back in 2020, as oil prices were cratering, Republicans tried to seize the opportunity to refill the Strategic Reserve.

It would have been a win-win-win: Helped stabilize our energy industry in the early days of the crisis; gotten American taxpayers an incredible deal with oil at bargain-basement prices; and enhanced our readiness going forward. But you know what happened, Madam President? Senate Democrats blocked it. They said buying oil at rock-bottom prices and building up our Reserve would have been, ‘a bailout for Big Oil.’ So the Democratic Leader bragged about killing that provision.”

What is the Strategic Petroleum Reserve?

• The Strategic Petroleum Reserve (SPR) is a supply of petroleum held by the Dept. of Energy (DOE) for emergency use. It was created in 1975 after the 1973-74 oil embargo by OPEC to mitigate the impact of future supply disruptions on U.S. energy markets by holding 1 billion barrels of oil in reserve. 
• The SPR’s maximum authorized storage capacity reached an all-time high of 750 million barrels in 1991, but that declined after a facility closure. The most oil held in the SPR was 726 million barrels in 2009. The Energy Policy Act of 2005 authorized expansion of the SPR to its original goal of 1 billion barrels of storage capacity, but that failed to materialize because of opposition to a proposed facility in Mississippi.
• The SPR currently has a congressionally authorized capacity 713.5 million barrels of oil (actual physical capacity is 727 million barrels) at the four operational SPR facilities: Bayou Choctaw, Louisiana (76 million barrel capacity); Big Hill, Texas (170 million barrel capacity); Bryan Mound, Texas (247.1 million barrel capacity); and West Hackberry, Louisiana (220.4 million barrel capacity).
• SPR facilities are located 2,000-4,000 feet below ground in naturally-occurring salt formations that offer cost, environmental, maintenance, and security advantages over surface storage tanks. Salt caverns are about one-fifth the storage cost of surface tanks, geologic pressures naturally seal cracks in the salt formations to prevent oil leaks, and the temperature differential keeps the oil circulating to keep its quality consistent. They can also be enlarged to fit precise dimensions through a mining process in which the salt is dissolved with fresh water.

Will the Strategic Petroleum Reserve be replenished?

• Biden said Thursday that he intends to replenish the Strategic Petroleum Reserve “when prices are lower” and thanked the energy companies that have “indicated they will be producing an extra 1 million barrels of oil per day, probably starting as early as this fall.”
• It’s unclear whether the Reserve will be partially replenished during the drawdown, although that may depend on the state of oil prices at the time.
• When oil prices plummeted in the spring 2020 due to the onset of the COVID-19 pandemic ― briefly hitting a low of -$38 per barrel due to a lack of storage facilities before rebounding to $18 per barrel ― the SPR had an inventory of 635 million barrels of oil and there was a debate about replenishing the reserve while prices were low. 
• Republicans and then-President Donald Trump pushed to include $3 billion in the $2 trillion CARES Act relief package to fill the Strategic Petroleum Reserve to capacity, but were thwarted by Democrats as then-Senate Minority Leader Chuck Schumer (D-NY) derided the move as a “$3 billion bailout for big oil.”

RELATED READING

• Biden Reverses Course, Announces Ban on Russian Energy Imports (3/8/22)
• Biden Admin Balks at Banning Russian Oil Imports Amid Putin's Invasion of Ukraine (3/5/22)
• Biden Orders Release From Strategic Petroleum Reserve Amid Rising Energy Prices (11/23/21)
• Should the U.S. Refill the Strategic Petroleum Reserve While Oil is Cheap & Pay Down the Debt With the Profits Later? (4/20/20)

— Eric Revell

(Photo Credit: iStock.com / onourdongel)