Here’s what you need to know about SPR.
What is SPR?
The US Strategic Petroleum Reserve consists of four underground salt caves along the Texas and Louisiana coasts that currently hold approximately 605 million barrels of oil. This is enough to meet US demand for several weeks.
The supply is owned by the US government and managed by the Department of Energy. Federal law gives US presidents the power to release oil from reserves to minimize supply disruptions.
A president may release oil if they determine the necessary steps for a “serious energy supply interruption”, defined as a national energy supply shortfall that is significant in scope and duration, that is “a is of an emergency nature” or may cause a “major adverse effect” on the national economy.
Why were people calling to tap it now?
Gasoline prices have risen steadily in the 12 months since President Biden’s election. Pump prices are up 61% from a year ago, with regular unleaded sales last week at the national average price of $3.40 a gallon, according to Energy Department data.
Inflation has jeopardized the Democratic Party’s legislative agenda, pressing the White House to act.
White House officials have spent weeks debating what to do about rising energy prices, especially gasoline. Prices of gasoline and heating-oil—both by-products that crude oil comes from—have reached their highest level since 2014.
In a statement on Tuesday, the White House said Mr Biden is “using every tool available to him to drive down prices and address supply shortfalls.”
Will reducing the reserve reduce the price of petrol at the pump?
Increasing the supply of petroleum should lower gas prices for motorists, but there is no guarantee. The futures markets are complex and prices move for many reasons. Even if crude oil prices decline, there’s no guarantee that gasoline prices will follow suit, or rush if they do.
Coordinating with other countries to try to ensure prices drop is a major release. If prices fall, other market forces may push them up again.
“Ultimately the magnitude of the impact will be relatively short-lived,” Stephen Nelly, the acting administrator of the US Energy Information Administration, recently told a Senate committee. “It would depend on how much was released.”
Who supported the release?
In early November, 11 Senate Democrats, including Elizabeth Warren of Massachusetts, wrote a letter to Biden suggesting they consider tapping the reserve.
“We ask that you consider all the tools available at your disposal to reduce US gasoline prices,” he said in the letter.
At the same time, Mr. Biden’s own advisers also began to look to the reserve after they failed to deliver a diplomatic push to members of the Organization of the Petroleum Exporting Countries to increase production more than initially planned.
What is the case against tapping SPR?
Critics say the reserve was created for emergencies and to protect America’s energy security needs, not to help consumers save a few dollars at the pump.
US oil companies say a better solution is to focus on increasing America’s ability to pump more oil.
Anne Bradbury, chief executive officer of the American Exploration and Production Council, said in a statement prior to the release announcement, “The pulling of some crude from the SPR will not really impact gasoline prices in the near term and may cause more harm than good in the long term.” could.” “The better way to help offset rising energy prices is to focus on supporting domestic production of oil and natural gas.”
Which authority is being used to tap the SPR?
Senior Biden administration officials said Tuesday that the president is not exercising his emergency authority, but other powers are available for less urgent situations. Most of the release, 32 million barrels, will not just be sold, but will go out as part of a supply exchange designed to get more oil to market in the immediate future. According to the Department of Energy, buyers will need to send the oil back to the government to replenish reserves between 2022 and 2024.
Who made 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. However, energy markets have changed dramatically in recent years, as has the use of the country’s reserves, which have a capacity of 714 million barrels. The breakdown in shale from re-emerging US oil production has eased fears of shortages for political leaders in both parties.
The Trump administration considered selling some of this oil in 2018 before opposing it. And Congress has begun draining reserves as a way to raise cash to pay for tax cuts and other expenses. Under congressional authorization, the Department of Energy has driven seven sales since 2017, according to department data, with more than 60 million barrels, or about 8.6%, in reserve.
When has oil been released from reserves in the past?
Since the first barrels were delivered for storage in 1977, oil has been released from reserves about two dozen times. Many recent sales were authorized by Congress, and the Department of Energy has also run several exchanges after domestic supplies were disrupted by hurricanes and shipping channel closures.
The US has also opted to release oil in coordination with other countries that hold their reserves three times: when Operation Desert Storm began in 1991, after Hurricane Katrina in 2005, and in 2011 at the height of the Arab Spring. The International Energy Agency, a Paris-based energy watchdog, coordinates those releases among member states, although state leaders can decide whether to participate.
What happens when the oil runs out?
Oil released from US reserves can take up to two weeks to reach markets where it is stored in underground salt domes that are up to 2,000 feet tall. To extract the oil, fresh water is pumped to the bottom of the cylinder, the oil is supplied upstream, out of the cavern, and into pipelines that supply it to refineries that convert it into gasoline or other petroleum products.
Never miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,