When it comes to oil, the Biden administration has benefited from a mild winter and excellent timing. Having sold off a record 180 million barrels to cut gas prices ahead of midterms, the administration recently announced plans to sell an additional 26 million barrels this June. This is great for Mr. Biden, who will continue to benefit from artificially reduced market prices, but the Strategic Petroleum Reserve (SPR) is meant to be only used as a genuine tool of American foreign policy. "Break Glass in Case of Emergency" doesn't cover political expediency.
The administration says the drawdown is congressionally mandated, but waivers have been given before. Moreover, this new sale is unlikely to forestall higher summer prices completely, but it will raid the SPR to its lowest level since 1983.
Established shortly after the 1973 Arab Oil Embargo, the SPR was designed to reduce risks associated with disruptions in global oil markets. While the shale revolution significantly reduced overseas oil dependencies, the SPR remains a vital hedge against oil supply volatility if it remains filled enough to be tapped during a real emergency. The SPR reached 726.6 million barrels in 2010 and has typically adjusted within a variable range. It now sits at 370 million barrels. Given that the country uses 19 million barrels of oil daily, the cupboard raid leaves the country with less than three weeks of supply in case of a major disruption.
Fans and critics of Biden's SPR drawdown rely on Russia's invasion of Ukraine to make their argument. They both miss the point, which has nothing to do with Russia. Had the Biden administration taken a less draconian tone toward oil and gas companies out of the gate, it would have mitigated or eliminated any need to tap reserves to reduce prices, even with Russia's invasion. Russia's invasion would have certainly created upward pressure on fuel prices, but it wouldn't have been enough to warrant the extent of Biden's sale of oil from the SPR.
The Biden administration's energy policy began as what could be kindly described as a cold shoulder toward the domestic oil and gas industry. Taken directly from the European playbook, administration officials not only prioritized renewables, but they did so by demonizing fossil fuels, urging the entire economy to accelerate an energy transition to green energy.
In his first two weeks of office, President Biden put a moratorium on oil leases in the Gulf of Mexico, halted the Keystone XL pipeline, and stopped all drilling activities on government-owned lands. The results of his policies are reflected in the U.S. Energy Information Administration's data, which shows that by the end of President Biden's first six months in office, petroleum and heating fuel cost had jumped 15% – all well before the war in Europe.
The world is in the beginning stages of an energy transformation toward lower carbon fuel sources. The delicate transition requires a seamless pass between the two. That can only happen if the ramp down in fossil fuels occurs only after lower carbon fuels ramp up. Anything less will lead to significant disruption, placing the country at a significant economic disadvantage and hitting consumers with significantly higher prices and usage restrictions.
Renewable energy remains short of the necessary goals to replace oil and gas as energy mainstays. In the case of electricity, natural gas, nuclear, and even coal will remain as baseload energy sources well into the next decade.
Until renewables match the availability, reliability, and affordability of fossil fuels and nuclear, they will remain relegated to a supporting role. Those who believe otherwise need only look at Europe's energy crisis, where the shortcomings of renewable energy immediately came into focus as soon as Russian oil and gas were removed from the equation. The resulting chaos throughout Europe made clear that the continent's advances in renewables were made possible only because of cheap Russian fossil fuel.
The immediate danger is that the Biden administration's policy largely resembles Europe's. This is not to say, "drill baby drill," but it is to say that ideological rhetoric must be tempered by reality. The future may belong to renewables, but America must learn from others’ mistakes. In the interim, Mr. Biden has chided oil companies for not producing more oil. Luckily, he can start fixing this production imbalance by approving Alaska's Willow Oil Project, now sitting on his desk for approval.