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News, Politics

Biden bets a million barrels a day will drive down soaring gas prices – what you need to know about the Strategic Petroleum Reserve

Several sites, such as one near Freeport, Texas, store the hundreds of million of barrels in the United States’ Strategic Petroleum Reserve. Department of Energy via AP

Scott L. Montgomery, University of Washington

The Biden administration on March 31, 2022, said it plans to release an unprecedented 180 million barrels of oil from the U.S. Strategic Petroleum Reserve to combat the recent spike in gas and diesel prices. About a million barrels of oil will be released every day for up to six months.

If all the oil is released, it would represent almost one-third of the current volume of the Strategic Petroleum Reserve. It follows a release of 30 million barrels in early March, a large withdrawal until the latest one.

But what is the Strategic Petroleum Reserve, why was it created, and when has it been used? And does it still serve a purpose, given that the U.S. exports more oil and other petroleum products than it imports?

As an energy researcher, I believe considering the reserve’s history can help answer these questions.

Origins of the reserve

Congress created the Strategic Petroleum Reserve as part of the Energy Policy and Conservation Act of 1975 in response to a global oil crisis.

Arab oil-exporting states led by Saudi Arabia had cut supply to the world market because of Western support for Israel in the 1973 Yom Kippur War. Oil prices quadrupled, resulting in major economic damage to the U.S. and other countries. This also shook the average American, who had grown used to cheap oil.

The oil crisis caused the U.S., Japan and 15 other advanced countries to form the International Energy Agency in 1974 to recommend policies that would forestall such events in the future. One of the agency’s key ideas was to create emergency petroleum reserves that could be drawn on in case of a severe supply disruption.

The map shows the locations of the oil held in the Strategic Petroleum Reserve. Department of Energy

The Energy Policy and Conservation Act originally stipulated the reserve should hold up to 1 billion barrels of crude and refined petroleum products. Though it has never reached that size, the U.S. reserve is the largest in the world, with a maximum volume of 714 million barrels. The cap was previously set at 727 million barrels.

As of March 25, 2022, the reserve contained about 568 million barrels.

Oil in the reserve is stored underground in a series of large underground salt domes in four locations along the Gulf Coast of Texas and Louisiana, and is linked to major supply pipelines in the region.

Salt domes, formed when a mass of salt is forced upward, are a good choice for storage since salt is impermeable and has low solubility in crude oil. Most of the storage sites were acquired by the federal government in 1977 and became fully operational in the 1980s.

History of drawdowns

In the 1975 act, Congress specified that the reserve was intended to prevent “severe supply interruptions” – that is, actual oil shortages.

Over time, as the oil market has changed, Congress expanded the list of reasons for which the Strategic Petroleum Reserve could be tapped, such as domestic supply interruptions due to extreme weather.

Prior to March 2022, about 280 million barrels of crude oil had been released since the reserve’s creation, including a 50 million release that began in November 2021.

There have only been three emergency releases in the reserve’s history. The first was in 1991 after Iraq invaded Kuwait the year before, which resulted in a sharp drop in oil supply to the world market. The U.S. released 34 million barrels.

The second release, of 30 million barrels, came in 2005 after Hurricanes Rita and Katrina knocked out Gulf of Mexico production, which then comprised about 25% of U.S. domestic supply.

The third was a coordinated release by the International Energy Agency in 2011 as a result of supply disruptions from several oil-producing countries, including Libya, then facing civil unrest during the Arab Spring. In all, the agency coordinated a release of 60 million barrels of crude, half of which came from the U.S.

In addition, there have been 11 planned sales of oil from the reserve, mainly to generate federal revenue. One of these – the 1996-1997 sale to reduce the federal budget deficit – seemed to serve political ends rather than supply-related ones.

A better way to avoid pain at the pump

President Joe Biden’s November decision to tap the reserve was also seen as political by Republicans because there was no emergency shortage of supply at that time.

Similarly, the latest historic release of 180 million barrels could also be seen as serving a political purpose – in an election year, no less. But I believe it also seems perfectly legitimate in terms of fulfilling the Strategic Petroleum Reserve’s original purpose: reducing the negative impacts of a major oil price shock.

Though the U.S. is today a net petroleum exporter, it continues to import as much as 8.2 million barrels of crude oil every day.

[Over 150,000 readers rely on The Conversation’s newsletters to understand the world. Sign up today.]

But in my view, the best way to avoid the pain of oil price shocks is to lower oil demand by reducing global carbon emissions – rather than mainly relying on releases from the reserve.

This is an updated version of an article originally published on Nov. 24, 2021.

Scott L. Montgomery, Lecturer, Jackson School of International Studies, University of Washington

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Business, Climate Solutions, News, Politics

As Consumers Pay, Oil CEO’s Refuse to Testify to Congress About Soaring Prices

“While Americans struggle with high gas prices, these companies are doing victory laps, showering their already wealthy executives and shareholders with billions in stock buybacks and bonus compensation,” said one watchdog group. “They should be ashamed.”

As people across the United States face record-high gas prices—compounded by rising grocery bills and prices for other essentials—executives at three major oil companies are refusing to testify before Congress about what their firms could do to lessen the burden on U.S. households, leaving Democratic lawmakers and consumer advocates to condemn the companies for profiting amid lower and middle-class people’s financial pain.

Rep. Raúl M. Grijalva (D-Ariz.), who chairs the House Natural Resources Committee, had invited the CEOs of EOG Resources Inc., Devon Energy Corp. and Occidental Petroleum Corp. to testify next week, only to be rebuffedTuesday by the executives, who have personally profited off gas prices which averaged $4.24 per gallon on Monday.

“I invited these companies to come before the committee and make their case, but apparently they don’t think it’s worth defending,” Grijalva said in a statement Tuesday. “Their silence tells us all we need to know—that cries for more drilling and looser regulations are nothing more than another age-old attempt to line their own pockets.

Since oil and gas prices began rising earlier this year as traveling and commuting increased, and went up further following Russia’s invasion of Ukraine in February, the fossil fuel industry has claimed the Biden administration should release more permits for drilling on public lands and accelerate approval of permits for building energy infrastructure, with the American Petroleum Institute pushing for what Grijalva called “a domestic drilling free-for-all” earlier this month.

Lawmakers including Grijalva have argued that the companies could easily stabilize gas prices immediately, considering the billions of dollars in profits EOG Resources, Devon Energy, and Occidental Petroleum raked in last year.

Instead, watchdog group Accountable.US said Tuesday, Occidental Petroleum planned to use $3 billion for stock buybacks in 2022, while Devon Energy gave nearly $2 billion in share buybacks and dividends to shareholders last year. EOG Resources gave CEO William R. Thomas a $150,000 raise in 2021, making his total compensation $9.8 million.

“We want to work with them to reduce gas prices, but it seems as though they’re too busy taking in record profits while refusing to pass savings on to consumers,” said Rep. Mike Levin (D-Calif.), a member of the Natural Resources Committee.

Rep. Mark Pocan (D-Wis.) sarcastically expressed empathy for the “spineless” executives who refused to testify before Grijalva’s committee.

“It is hardly surprising that EOG Resources, Devon Energy, and Occidental Petroleum are dodging accountability by refusing to testify in Congress,” said Kyle Herrig, president of watchdog group Accountable.US. “While Americans struggle with high gas prices, these companies are doing victory laps, showering their already wealthy executives and shareholders with billions in stock buybacks and bonus compensation. They should be ashamed.”

Grijalva noted that while the industry has used the Russian invasion of Ukraine to call for even more freedom to drill for oil and gas, fossil fuel companies hold leases on 26 million acres of land.

“These same companies already have over 9,000 approved permits they can use whenever they want,” Grijalva told Public News Service on Tuesday. “And the very companies with thousands of acres of existing leases and hundreds of unused permits are the same ones shouting that they need more land for drilling.”

According to Accountable.US, the three companies refusing to speak to Grijalva’s committee “are among the top leaseholders of public lands oil and gas leases with 4,114 leases covering nearly 1.5 million acres.”

Companies including BP, Chevron, Exxon Mobil, and Shell have also been invited to testify at upcoming hearings on their business practices and impacts on consumers. In February, board members from the four companies refused to testify about the firms’ climate pledges.

Senate Majority Leader Chuck Schumer (D-N.Y.) noted last week that oil prices dropped in recent days, but no savings were passed onto consumers.

“The bewildering incongruity between falling oil prices and rising gas prices smacks of price gouging and is deeply damaging to working Americans,” Schumer said last week. “The Senate is going to get answers.”

Originally published on Common Dreams by JULIA CONLEY  and republished under Creative Commons (CC BY-NC-ND 3.0).

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Breaking News, Politics

Dems Introduce Windfall Tax on Big Oil So Companies ‘Pay a Price When They Price Gouge’

Above: Photo Collage / Lynxotic / Adobe Stock

“This is a bill to reduce gas prices and hold Big Oil accountable,” said Rep. Ro Khanna, who led the measure in the U.S. House.

Congressional Democrats on Thursday introduced the bicameral Big Oil Windfall Profits Tax to target price gouging by profit-gorging fossil fuel companies amid Russian President Vladimir Putin’s invasion of Ukraine.

“We need to curb profiteering by Big Oil and provide relief to Americans at the gas pump—that starts with ensuring these corporations pay a price when they price gouge.”

“This is a bill to reduce gas prices and hold Big Oil accountable,” declared Rep. Ro Khanna (D-Calif.), who’s leading the measure in the U.S. House.

“As Russia’s invasion of Ukraine sends gas prices soaring,” said Khanna, “fossil fuel companies are raking in record profits. These companies have made billions and used the profits to enrich their own shareholders while average Americans are hurting at the pump.”

Sen. Sheldon Whitehouse (D-R.I.) introduced the legislation in the upper chamber along with co-sponsors including Sens. Jeff Merkley (D-Ore.), Elizabeth Warren (D-Mass.), and Bernie Sanders (I-Vt.).

The proposal followed President Joe Biden’s announcement earlier this week of a ban on U.S. imports of Russian fuels and amid swelling accusations that Big Oil has been taking advantage of the crisis in Ukraine to “pad their bottom line with war-fueled profits.”

The Democrats’ proposal aims to get some relief for Americans, who are facing average gas prices of $4.31 a gallon.

Big oil companies, specifically those that produce or import at least 300,000 barrels of oil per day, are targeted under the measure. They would face a per-barrel tax—whether the oil is domestically produced or imported—equal to 50% of the difference between the current price of a barrel of oil and the average price per barrel between 2015 and 2019.

The measure exempts smaller companies, which, according to a statement from the lawmakers, account for roughly 70% of the domestic production. This approach is meant to deter the larger multinational producers from simply raising prices.

The tax imposed on the energy firms would be quarterly. Consumers would receive quarterly rebates, with the relief phasing out for single filers earning more than $75,000 annually and joint filers earning more than $150,000 annually. The lawmakers project the tax to raise $45 billion per year at $120 per barrel of oil, delivering to single filers $240 annually and joint filers $360 annually.

“While Putin’s war is causing gas prices to go up, Big Oil companies are raking in record profits,” Warren said in a statement. “We need to curb profiteering by Big Oil and provide relief to Americans at the gas pump—that starts with ensuring these corporations pay a price when they price gouge, and using the revenue to help American families,” she said.

A number of social justice and climate groups heaped praise on the legislative proposal.

According to Richard Wiles, president of the Center for Climate Integrity, “The oil and gas industry got the world into this mess by lobbying and lying to keep us hooked on fossil fuels. Now they’re using the war in Ukraine to distract us from the fact that they are ripping off hard working Americans with high gas prices as they reap record earnings.”

“It’s time we stop allowing Big Oil to use its record profits, earned on the backs of hard-working American families, to reward wealthy shareholders and CEOs, and instead make them pay a fair share to lower the cost for consumers,” he added.

Collin Rees, U.S. program director at Oil Change International, welcomed the proposal as precisely the opposite of what the fossil fuel lobby has called for to counter Putin’s power, namely expanded domestic fossil fuel production.

“The so-called ‘solutions’ to the energy crisis being put forward by Big Oil companies and the American Petroleum Institute would do nothing but further line their own pockets and lock in a climate-wrecking, fossil-fueled future,” he said. “What’s needed now is immediate relief for American consumers, which is what this commonsense windfall profits tax bill would provide.”

The bill also drew plaudits from Lukas Ross, program manager at Friends of the Earth, which released an analysis Thursday along with BailoutWatch finding that Big Oil CEOs have “absolutely” used the spiked in fuel prices triggered by Russia’s invasion of Ukraine to “price-gouge and profiteer.”

In a statement responding to the new legislation, Ross said: “All-American oil oligarchs are profiteering off the war in Ukraine while sacrificing our communities and climate. The windfall profits tax will require Big Oil to pay their fair share while putting billions of dollars back into the pockets of taxpayers.”

Originally published on Common Dreams by ANDREA GERMANOS and republished under  a Creative Commons license (CC BY-NC-ND 3.0)

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Climate Solutions, News, Observation

To Avert ‘Uncontrollable Climate Chaos,’ Scientists Tell Biden to Stop Backing Fossil Fuels

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“When scientists across the U.S. are imploring the president to get the country off fossil fuels, it’s time to listen.”

With an open letter expressing “the utmost alarm about the state of our climate system,” over 330 scientists on Thursday urged President Joe Biden to declare a climate emergency and swiftly put an end to a fossil fuel-based energy system.

“When scientists across the U.S. are imploring the president to get the country off fossil fuels,” said Dr. Shaye Wolf, climate science director at the Center for Biological Diversity, “it’s time to listen.”

The letter—an effort organized by biologist Dr. Sandra Steingraber and climate scientist Dr. Peter Kalmus along with advocacy groups Center for Biological Diversity and Food & Water Watch—frames the current moment as a “time of peril” that must be met with “emergency action.”

Other initial signatories include Dr. Robert Bullard, known as the father of environmental justice, and climate scientist Michael Mann, director of the Earth System Science Center at Pennsylvania State University.

A three-step action plan is presented in the letter, beginning with a full ban on any new fossil fuel leasing and extraction on public lands and waters; no future permits for related infrastructure; and ending fossil fuel exports and subsidies.

Biden must also declare a climate emergency, the letter says, through which a chunk of the nation’s vast military spending would instead be directed to fund renewable energy projects and the crude oil export ban would be reinstated.

As a third key step, the president needs to reject fossil fuel industry schemes, such as carbon capture and storage, that the scientists frame as “delay tactics” that ultimately “impede the rapid transition to renewable energy.”

The first two in the trio of demands mirror those set out by the People Vs. Fossil Fuels mobilization, which is set to kick off next week.

“U.S. scientists are done speaking calmly in the face of inaction,” Steingraber said in a statement in which she expressed solidarity with the upcoming mobilization.

She also urged the president to follow through on a key campaign vow that his support for pipelines like the Dakota Access and Line 3 has betrayed.

“President Biden,” said Steingraber, “listening to science means acting on science. It means stopping new fossil fuel projects, opposing industry delay tactics, and declaring a national climate emergency.”

The scientists warned that “our chances for avoiding irreversible and uncontrollable climate chaos diminish daily.”

“We implore you, on behalf of and for the love of all life on Earth,” they added, “to respond to the greatest threat ever to face our species and lead the transition away from fossil fuels that humanity desperately needs.”

Originally published on Common Dreams by ANDREA GERMANOS and republished under a Creative Commons License (CC BY-NC-ND 3.0).

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