The Administration Must Replenish our Reserves Quickly
The administration’s decision to release over 175 million barrels of crude oil from our Strategic Petroleum Reserve (SPR) over the last eight months was met with strong opposition. The GAIN Coalition called out the sales numerous times as “political band-aids” and short term solutions. Over the course of the release, the SPR dropped to its lowest levels since the mid-1980s, now around 382 million barrels.
The “emergency” sale from our SPR is scheduled to end this month, and a new Wall Street Journal piece has illustrated that the U.S. is now almost $4 billion ahead of the current market price. The Department of Energy, enabled by rule changes in October that allowed it to wait for favorable prices before refilling the SPR, needs to begin now. Even though the DOE recently solicited bids for 3 million barrels starting in February that is not nearly enough to make a difference.
The administration seems content in taking its time with replenishment, leaving the SPR at its lowest levels in decades. Should an act of God wreak havoc in the Gulf of Mexico or another war break out, scenarios which the SPR was initially created for, then the price of crude will undoubtedly skyrocket again. This would leave the DOE with little room to negotiate new purchases for the reserve.
The GAIN Coalition is particularly hopeful that the Energy Department will follow through on its promises to replenish the SPR at a significant level. However, as the Senior Vice-President of Analysis at Rystad Energy recently said, “At some point, they will need to start buying irrespective of the market.” While other experts believe that “there is no need to refill it to previous levels due to the shale revolution,” we believe that would require the administration to support our domestic natural gas sector further, something they have not been willing to do. If the DOE does not replenish it to prior levels, then supporting domestic infrastructure projects such as pipelines need to be a major priority in the near future so that supply constraints do not contribute to volatile energy prices.