Updated Apr 2, 2022 - Energy & Climate
How the Strategic Petroleum Reserve works
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A gas pump in Washington, DC, on March 31, 2022. Photo: Stefani Reynolds/AFP via Getty Images
President Biden on Thursday ordered a historic release from the Strategic Petroleum Reserve in an effort to curb gas prices.
Driving the news: Biden is ordering the release an average of 1 million barrels per day for the next six months, which senior administration officials say will "shore up global supplies."
- "The bottom line is if we want lower gas prices we need to have more oil supply right now," Biden said.
- Biden's release — as much as 180 million barrels total — is by far the largest SPR release in U.S. history.
What is the Strategic Petroleum Reserve?
- The Strategic Petroleum Reserve holds about 568 million barrels of crude oil in underground salt caverns along the Texas and Louisiana Gulf Coast.
- The reserve is an emergency oil stockpile intended to offset any oil import disruptions, according to the Department of Energy, created in response to the oil embargo of 1973-74.
How does it work?
- The reserve was originally intended as an emergency response tool during an "economically-threatening disruption in oil supplies," per the Department of Energy.
- A presidential emergency release has occurred just three times in the reserve's history — in 1991 at the beginning of Operation Desert Storm, after Hurricane Katrina in 2005 and in June 2011 in response to crude oil supply disruptions in Libya and other countries.
- Under a sale, such as what Biden announced today, the U.S. directs the Energy Department to conduct a public sale of oil, typically through a competitive auction, and the highest bidder receives the oil.
When else can the reserve be used?
- The Department of Energy can also tap into the reserve and offer barrels to private companies through exchange agreements, typically after local natural disasters, such as in the wake of Hurricane Ida.
- During exchanges, an entity, typically an oil refiner, borrows crude oil for a short time period and later replaces it in full, along with a premium of an additional quantity of oil.
How long will it take for the oil to enter the market?
- The maximum drawdown capability is 4.4 million barrels a day and it takes 13 days for the oil to enter the market from the time of the presidential decision, according to the Energy Department.
Will Biden's announcement lower gas prices?
- It depends: "It will lower the oil price a little and encourage more demand," Scott Sheffield, chief executive of Pioneer Natural Resources, a major Texas oil company, told the New York Times.
- "But it is still a Band-Aid on a significant shortfall of supply," Sheffield said.
- JPMorgan said Friday that the release of oil barrels from the emergency reserve could help stabilize oil prices in 2022, but a larger than expected loss in Russian oil supplies could leave 2023 in a "deep deficit," Markets Insider reports.
Go deeper: Biden ordering massive release of oil in bid to curb gas prices
Editor's note: This story has been updated with a statement from JPMorgan.
