This week, the Biden administration halted plans to purchase 6 million barrels of crude oil to begin replenishing the Strategic Petroleum Reserve (SPR). With the reserve at an unprecedented low since the U.S. began stockpiling, this raises questions about how and when it might be refilled.
Aii newsletter subscribers likely saw that we raised some of these questions in our July recap,
While it’s not pipeline news, we are certainly watching gas prices – and they are up. After years of releasing supply from the Strategic Petroleum Reserve to reduce prices, the government plans to replenish, which would reduce supply of oil as gas prices rise. We are eager to see how the reserve can be replenished economically and what will happen to gas prices along the way.
No sooner did we pen those words than the announcement came out that with rising oil prices and production cuts from Saudi Arabia, the U.S. will not move forward with its 6 million barrel acquisition. Though small purchases have been made, the enormous depletion in recent years puts energy security and economic security at risk.
The reserve currently sits at its lowest point since August 1983. Though the reserve can hold up to 727 million barrels of crude oil, it currently holds an estimated 346 million, less than half its capacity. This is a direct result of Biden administration energy policies. When the Biden administration entered office, the reserve held 638 million barrels.
Ultimately, it will take increased exploration and production domestically and globally to balance supply and demand in such a way that prices fall and there is enough oil on the market to refill the strategic petroleum reserve without negative impacts to gas prices. If production is not sufficiently increased, but the administration seeks to refill the reserve, they will likely do so at a price far higher than the barrels that were in the reserve before and were expended in the last three years.
Congress has a role in this issue, as selling off reserves is a budgeting gimmick as well. Whichever party takes ownership of the situation we are in – Congress or the Executive – it is the federal government’s role to safeguard our energy supply and make economically sound decisions. Whether it is done quickly or over a long period, the Strategic Petroleum Reserve will need to be refilled, but obstacles and policy issues may lie in the way that must be addressed first, namely domestic energy production.
Written by Benjamin Dierker, Executive Director
The Alliance for Innovation and Infrastructure (Aii) is an independent, national research and educational organization. An innovative think tank, Aii explores the intersection of economics, law, and public policy in the areas of climate, damage prevention, energy, infrastructure, innovation, technology, and transportation.