Biden government launches plan to replenish emergency oil reserve

The Biden administration plans to seek offers this fall to buy 60 million barrels of crude as the first step in a years-long process aimed at replenishing the United States’ emergency supplies of the commodity, an Energy Department official told CNN. .

This would mark the first time since the early 2000s that the Department of Energy has purchased large amounts of oil for the US Strategic Petroleum Reserve (SPR), the largest emergency supply on the planet.

The Department of Energy plans to announce the release of the long-term buyback plan on Thursday to show officials are serious about replenishing the SPR, which has been drained by the war in Ukraine and congressionally-mandated sales to boost energy. recipe.

But that will take time. Delivery of the first tranche of 60 million barrels will take place in unspecified future years, the Energy Department official said, adding that it will be paid from revenue received from ongoing emergency sales.

The SPR serves as a vital economic and national security tool to protect the United States from energy price spikes. Presidents have released oil from the SPR in times of war and after natural disasters.

Reserves were already at 20-year lows, largely because of congressionally-mandated sales, before President Joe Biden pledged in late March to release a record 180 million barrels of oil in six months to ease pressure on energy markets. The latest release equates to a loss of one-third of the oil left in the SPR.

The first tranche of purchases will only cover a third of that 180 million barrel launch. The specific timing will be determined by expected market conditions, with a focus on when oil prices and demand are expected to be significantly lower, the official said.

Of course, there is uncertainty about where prices and demand will go. The war in Ukraine highlights how unexpected events can have a big impact on energy markets.

“As we are careful and methodical in our decision to withdraw our emergency reserve, we must be equally strategic in replenishing the supply so that it is ready to fulfill its mission of providing relief when it is most needed,” said Energy Secretary Jennifer Granholm in a statement. .

In addition to trying to replenish a vital fund, the Biden administration hopes the buyback plan will encourage domestic oil production, ensuring a source of future demand.

The Energy Department plans to open tenders this fall that will specify the volume and type of crude that will be purchased for SPR, the official said.

Instead of pegging the purchase price to an index, the Energy Department plans to change the rules to allow for a competitive fixed-price bidding process, the official said.

“Replenishing the reserve is the absolutely responsible thing to do. It shows that they are serious about recovery. That’s commendable,” said Bob McNally, who in the early 2000s oversaw the Department of Energy’s efforts to replenish the SPR under former President George W. Arbusto.

However, McNally, now chairman of the consulting firm Rapidan Energy Group, has warned that the Biden administration’s efforts to buy back oil will only partially reverse the reduction in the SPR’s size in recent years.

The buyback plan will not affect SPR’s oil sales, mandated by Congress, aimed at increasing revenue to alleviate the federal deficit.

The Department of Energy says these sales total up to 265 million barrels between fiscal year 2023 and fiscal year 2031.

“Congress has been irresponsibly selling the SPR,” McNally said. “Draining the reserve leaves the country and the world more vulnerable to geopolitical shocks.”