When it comes to making bad energy policy decisions, President Obama is a pro. Yesterday was no exception when the Obama Administration announced it would release 30 million barrels of oil from the Strategic Petroleum Reserve (SPR). This is part of an agreement with the International Energy Agency (IEA) to put a total of 60 million barrels on the market in the next 30 days. Another 27 nations will make up the other half of the oil needed.
President Obama and the IEA first explained this irresponsible action by noting a supply disruption as a result of the war in Libya. However, this disruption does not justify the depletion of the SPR, and the Administration doesn't have the legal rationale, either. The White House slightly changed its tune late yesterday when Press Secretary Jay Carney told reporters it was meant as protection against increasing gas prices over the summer driving season.
Clearly, President Obama is putting politics and polls ahead of responsible governance and a smart energy policy. Even The Washington Post's editorial board agrees. This morning, in a scathing editorial entitled "The wrong reason for depleting the strategic oil reserve," the Post argues the White House is likely more focused on a "political emergency" and "the government should not tap the reserve absent a genuine crisis."
So what is the Strategic Petroleum Reserve? The SPR is a national security inventory designed to protect the U.S. against a "severe energy supply disruption." In order to use it, three conditions must be met:
- An emergency situation exists and there is a significant reduction in supply which is of significant scope and duration;
- A severe increase in the price of petroleum products has resulted from such emergency situation; and
- Such price increase is likely to cause a major adverse impact on the national economy.
These conditions have not been met.
Let's also put the release of 30 million barrels in perspective. The entire global market uses more than 84 million barrels a day, and this action would supply only two million of those for 30 days. The President's own Energy Information Administration (EIA) estimates that U.S. production in the Gulf has declined by 220,000 barrels a day since Obama's moratorium (which still persists) began.
The SPR has more than 726 million barrels of oil in reserve. It holds roughly 30 days' worth of total U.S. daily consumption, and the private sector holds another 30 days. According to international agreements, the U.S. is obligated to have in reserve 90 days' worth of imported crude. Current public/private reserves make up roughly 115 days of import protection.
Due to these obligations, the U.S. must replace any oil it releases, and according to the Energy Policy Act of 2005, it must do so expeditiously. Releasing the oil requires a strategy for replacing it as well.
Libya—supposedly the source of the problem—produces roughly 1.5 million barrels a day, and most of that oil is delivered to Europe. Libyan production has been offline for almost three months without having a significant effect on already high oil prices. And most observers do not expect the Libyan crisis to end in 30 days. So is there a significant reduction in supply as a result of Libya? No.
Congressman Ed Markey (D–MA), no stranger to irresponsible and costly energy policy, hailed the President's decision, saying: "This is the one tool America has at her disposal to immediately help drive down prices at the pump." Nothing could be further from the truth.
The SPR is not a "tool." The SPR is a national security asset that should remain protected against short-term political manipulation. President Obama has the ability to offer relief at the pump without sacrificing energy security.
As Heritage energy expert Nick Loris points out:
Releasing reserves now simply allows the Administration to avoid addressing the underlying problems with U.S. energy policy that exacerbate the market impact of global supply disruptions. The problem is that the Obama Administration is artificially constraining supply to the market by denying Americans access to domestic oil.
In the past two years, President Obama shut down drilling in the Pacific and Atlantic Oceans and the Gulf of Mexico. The EIA estimates that oil production will decline significantly in 2011 and 2012. His Administration was so negligent in issuing drilling permits that the Department of Interior was held in contempt of federal court. The Environmental Protection Agency has imposed costly regulations on refiners, and the Administration has rejected agreements with Canada to open up less expensive crude supplies.
If President Obama simply stopped being a roadblock, the U.S. would increase its energy supply, oil prices would decrease, and taxpayers would stop losing royalty revenue. The Gulf economy would rebound, and jobs would be created (or recreated). If Obama simply got out of the way.
With gas prices soaring, unemployment remaining high, and a government spending crisis looming, President Obama is under pressure to turn one of these economic indicators positive. Stealing some political goodwill from the SPR will have that desired effect in the short term—and Administration officials hinted yesterday they may do it again. Unfortunately for the President, bad poll numbers are not one of the conditions necessary for a drawdown.
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