What’s the U.S. Strategic Petroleum Reserve and will tapping into it lower gas prices?
The average gas price in the United States hit a record high of $4.17 a gallon on Tuesday as the Russian invasion of Ukraine continues, hitting the wallets of Americans already struggling with inflation.
In Missouri and Kansas average prices are somewhat lower, for the moment at least: $3.73, according to AAA.
President Joe Biden on Tuesday announced he would block all U.S. imports of Russian oil in response to the war in Ukraine, which experts say could drive prices at the pump even higher.
One government tool for trying to hold costs down is the Strategic Petroleum Reserve. Last week, Biden announced he would release barrels from the reserve in an attempt to bring down prices.
Here’s a look at what the reserve is and whether tapping into it will help.
What is the strategic petroleum reserve?
It is a stockpile of crude oil the United States keeps in underground salt caverns along the Gulf of Mexico. There are four sites — two in Texas and two in Louisiana.
They hold up to 714 million barrels of oil, according to the U.S. Department of Energy.
Why was the reserve created?
Congress authorized it in response to the 1973 Arab Oil Embargo, when prices skyrocketed during tensions in the Middle East.
The reserve was intended to reduce the impact of reductions in the global oil supply and to meet the obligations of the International Energy Program, which requires the U.S. to keep enough reserves to match 90 days of the previous year’s net imports of crude oil and petroleum.
It’s seen as insurance against supply chain disruptions, a deterrent against threats to cut off oil supplies and a way to protect the economy.
When has it been used?
The first major draw down came during the Gulf War in 1991. It’s also been used to stabilize the oil market after natural disasters, like Hurricane Katrina in 2005 and, more recently, Hurricane Harvey in 2017.
Congress has also allowed the reserve to sell off barrels to pay down the federal budget deficit and to modernize the reserve’s facilities.
Before last week’s announcement, the most recent draw down was in November when Biden attempted to buffer a sharp increase in gas prices due to global supply chain issues.
The use of the reserve has been most effective during natural disasters, according to Ed Hirs, an economics professor at the University of Houston who studies the global energy market.
“It’s been used effectively during disasters, such as hurricanes,” Hirs said. “But it’s not intended really to be an economic buffer.”
Is the government tapping the SPR now?
In his State of the Union address, President Joe Biden announced the U.S. was releasing 30 million barrels of crude — part of a larger pledge among countries to release a combined 60 million barrels from strategic reserves. That’s less than the global average amount of oil that’s consumed in a single day.
Oil also doesn’t come out of the reserves very quickly. The U.S. can release a maximum of 4 million barrels a day, a ceiling it’s never hit.
Will it help lower gas prices?
Tapping into strategic reserves is likely to have little impact on gas prices, Hirs said.
The global energy market is 100 million barrels of oil a day and the U.S. consumed a daily average of 18.19 million barrels in 2020 — the lowest since 1995, according to the U.S. Energy Information Administration.
Hirs says its unlikely countries would be able to release enough barrels a day to make up for Russia’s production. He also said it could get worse if Russia decided to cut off oil to Western Europe, which could drive up the price to $300 a barrel.
“Quite honestly, a higher price for gasoline, this is going to accomplish one of the goals of the Biden administration: encourage people not to use internal combustion engines, encourage people to move to electric vehicles,” Hirs said. “This is a birds nest on the ground for environmentalists.”