Why The Biden Administration’s Record-Breaking SPR Release Is Bad Energy Policy
Fri, October 21, 2022
This week, the Biden Administration announced it would withdraw 15 million barrels from the Strategic Petroleum Reserve (SPR). This sale is the final transaction in the release of the record-breaking 180 million barrels announced this past spring, bringing the SPR to its lowest level since the 1980s.
The administration also announced plans to repurchase crude oil. To ensure replenishment of the SPR, the DOE is moving forward with a rule that allows the agency to utilize fixed-price contracts through a highly sought-after bid process for products delivered in the future. Additionally, the President also expressed to the Department of Energy (DOE) to “be ready to move forward with additional significant SPR sales this winter if needed.”
Lastly, in an attempt to mitigate high gas prices the President called for companies to immediately pass their lower energy costs and savings to consumers because of declining input costs.
While the Biden administration’s recent push to increase domestic crude oil production is desperately needed to achieve energy security and to combat inflation, there is a clear lack of understanding of the energy market and the actual policies needed to accomplish these goals. The tactics proposed in the president’s announcement are short-sighted and do not take into consideration long-term stability or the global market.
Maintaining energy security is one of the top priorities for the United States. However, releasing oil from the SPR isn’t the answer. Commodity analysts at Goldman Sachs wrote that releasing oil from the U.S. reserves will “assist the market toward rebalancing in 2022, but would not resolve its structural deficit.” Using the SPR to temporarily manipulate markets puts the country in a vulnerable position should an emergency like a severe hurricane happen. At best, draining the SPR to tackle high energy prices may help mitigate some of the problem now, but only at the cost of pushing the real issue at hand down the line: rocketing global oil demand with limited supply.
Moreover, pointing the finger at energy producers will not lower global prices. Oil and gas companies are price takers, not price makers. The truth of the matter is global energy markets determine the costs of petroleum products.
Policies that get to the root of the problem and address the United States’ supply of oil and gas resources are what America really needs. This includes tackling production variables, such as streamlining permitting processes for additional infrastructure or increasing on and offshore development opportunities.
Increasing domestic oil and gas production in the United States provides a solution on a variety of fronts including strengthening national energy security, lowering prices at home, and allowing us to export LNG to our allies and trade partners in Europe. And oil and gas companies are making efforts to lower costs and provide the supply needed for the United States to operate.
Texas oil and gas companies are committed to achieving energy security and increasing crude oil production to address inflationary pressures facing all Americans. But the energy policies being implemented – specifically the record-breaking release of SPR reserves – are hindering those goals. The Biden Administration should to take a hard look at the path forward and prioritize a strategy based on reasonable and realistic policies. The industry stands ready to work together to meet the United States’ energy needs and economic goals, but they can’t do it alone.