Lower Gas Prices By Releasing Oil reserves? Yes / No
The first question, what is the Strategic Petroleum Reserve?
According to this article from the BBC:
“The Strategic Petroleum Reserve, which is intended to protect the country’s access to oil in cases of natural disasters or national security issues, sits in salt dome caverns along the Gulf coasts of Texas and Louisiana.”
Okay, so let’s get clear about the numbers in Joe Biden’s policy.
“The administration is reportedly considering extending the release for as long as six months, with a potential limit of 180m barrels drawn from the current national reserve of 568m barrels.”
So, is this just politics or is there a justifiable reason for accessing the strategic reserves?
“The possible injection into the market of oil reserves, first reported by Bloomberg, comes as the Biden administration is wrestling with the political fallout of high petrol prices and rising inflation. According to the American Automobile Association, the US average now stands at $4.23 a gallon, up from $2.87 a year ago.”
Some states have a bigger problem than others.
“Extraordinary measures including gas rebates are being considered by California, the worst-hit state, where an average gallon of petrol now costs close to $6.”
The first issue that comes to mind here is whether this will actually impact oil prices at all. The one million barrels per day sounds like a lot of but it’s actually nothing in the general scheme of the global supply of oil.
If this is going to work it needs to be part of a bigger plan to lower the price of oil.
“Any US release of national reserves is likely to be coordinated with other countries under the auspices of the International Energy Agency. Opec oil producers have so far resisted increasing output in the wake of Russia’s invasion of Ukraine, insisting there is no global shortage.”
So this is part of a plan with the countries that sanctioned Russia – not part of a plan with countries that supply oil.
“Biden confirmed that he decided on the measure in consultation with western partners, who have joined the US in imposing economic sanctions on Russia for the Ukraine invasion. Earlier this month, the US imposed a ban on Russian oil imports. Russia is the second-largest exporter of crude oil in the world.”
Biden’s plan also includes increasing domestic production in the United States.
“Biden’s plan called not just for immediately increasing supply, but also for increasing domestic production. In a statement, the White House said the oil and gas industry is sitting on more than 12m acres of non-producing federal land with 9,000 unused but already-approved permits for production. It said Biden would call on Congress to make oil companies pay fees on unused wells and land.”
So, that’s the plan as it relates to the short term supply of oil.
The related long term issue here is increasing the use of sustainable energy.
Biden also said he was including a directive “to strengthen our clean energy economy”.
“We need to embrace all the tools and technologies that can help us free us from our dependence on fossil fuels [and] move toward more homegrown clean energy technologies made by American companies and American workers,” he said.
Okay, that’s a statement of intent. What is he planning to actually do?
“He said he would use the Defense Production Act to secure America’s supply chains for the critical materials that go into batteries for electric vehicles and the storage of renewable energy, such as lithium, graphite and nickel.”
Now the Defense Production Act is a very rarely used piece of legislation that is used by governments to force private companies to act in a manner that’s in the interests of the country.
“The Congressional Progressive Caucus had recently called on Biden to do just that: use the Act to bolster the clean energy sector.”
What will be the overall impact from investment in green energy?
Biden claimed that as well as new oil production, investing in green energy would also bring down energy prices. “Yes, building a base in America clean energy future will help safeguard our national security. Yes, it will help us tackle climate change. Yes, it’s going to help us ensure that Americans create millions of good paying jobs for generations to come. But the most important thing my plan will do right away is save your family money.”
This is my personal opinion on this issue:
The Russia Ukraine war is obviously an emergency for Ukraine but I don’t think it’s a big enough emergency for global oil prices. The reality is that everybody that uses oil knows that oil is a finite resource and they know with with 100% certainty that the price of a finite resource will increase over time.
A temporary increase in supply won’t make any difference to the big picture. The best short term solution is to increase the supply of oil from oil production as opposed to from the Strategic Oil Reserve. The best long term solution is transitioning way from fossil fuels to green energy.
This means that oil prices will increase in the short term. Tax payers should not have to bail out people that deliberately decide to use a finite resource that they know will increase – constantly – in price over the short, medium and long term.
I’ve created a listing on the One Direct Democracy platform so that we can develop ideas about What is the best use of the Strategic Petroleum Reserve during the Russia Ukraine War. You can add your own ideas or vote and comment on ideas from other people. You can also create your own listings for people to vote on. It’s a simple way to get used to using the One Direct Democracy system.
Direct Democracy is the purest form of democracy. Representative Democracy is an outdated blunt instrument.
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