Curious, does anyone know if the US govt is filling the reserve now, or even adding capacity? With oil so incredibly cheap right now, now is the absolute best time to be building and expanding our reserves.
Right now we can, yes. There's nothing that guarantees that will continue to be the case in the future. If we could accurately predict future changes in market conditions, nobody would ever need stockpiles.
If anything, the writing is on the wall for American oil production. The current low prices are mainly a manufactured attempt to bankrupt oil producers with higher overhead costs.
> The shale oil in the ground is a perfectly good stockpile as is.
I think the point people are trying to make is that it's quite a bit less expensive to buy crude and store it right now than to extract it from shale in the future.
They aren’t making that argument, they are making the ludicrous argument that moving a fraction of 1% of our oil supplies from one hole to another at taxpayer expense somehow protects us from something.
Even if they were it’s not the purpose of government to gamble public money on market timing bets. Oil has a history of always getting cheaper.
Plenty of private funds are going to be spent in the energy market in these bets.
Well, we have a bunch of call options at $40 (50% of American shale is viable there, probably more if labour costs drop). Given that, the downside is capped so that reduces the need to stockpile, and hyper-optimize this stuff.
Sorry, I was being metaphorical. Shale becomes viable at $40 so the US has practically unlimited oil if prices hit $40. There's no need to hedge against. America has a natural resources hedge.
You're forgetting the opportunity cost. $3B spent on buying something you don't really need but that might save you some cash in the future, versus $3B saving lives today.
Does opportunity cost really exist when print money? You can print 3 billion to do this. Or not. Unclear if it would change the inflation of our currency.
> Does opportunity cost really exist when print money? You can print 3 billion to do this. Or not. Unclear if it would change the inflation of our currency.
Just because the US can transmute solvency risk into inflation risk doesn't mean that the cost goes away.
Sure, but you measure it very different compared to a man standing around with $100 in his pocket. It's more like a man with a money press in his pocket.
No it didn't, commercial fracking had existed for almost 30 years during the '79 crisis.
It was horizontal drilling that made it cheaper.
That doesn't necessarily mean that these things will be cheap in the future. There are plenty of social, economic, or political events that could change that.
> Why on earth did they frame this as a "bailout for big oil"?
Because that is exactly what it is. You're talking about the largest companies in the world, they've have decades and decades of war and subsidy supporting them.
They don't need more support now, especially considering the environmental destruction they cause. Now is a much better time to push forward higher quality energy production technology like solar, wind, batteries, etc.
Yes. But just like various items in demand now ( ventilators, masks and so on ), it is not a bad idea to have a strategic reserve of those for those times when they would be necessary. I am a alternative energy proponent, but it seems misguided to simply ignore current situation and not take steps beneficial to the taxpayer ( buy stuff while it is cheap ).
The other side of the argument appears to want to cause maximum amount of pain to force people to move to the other sources. I understand that argument. I do not really buy it. National stockpile should not be subject to that. It serves a strategic purpose.
why would now, while we're in the midst of a public health crisis and the ensuing economic turmoil, be a good time to radically change our energy infrastructure to something that still has a higher unit cost?
I can obviously see that, politically, now is a good opportunity to push agendas that would otherwise not be accepted, but does that really make it a good time overall?
It's not a good time at all. Even if you put the cost and reliability problems aside for a moment, the entire planet's supply chains are massively disrupted and largely shut down. Plus, even if you could get the equipment manufactured, installing it is a health hazard right now - it means lots of people from all over the place in close quarters on sites with poor access to sanitation facilities. This will set back green energy a year at the very minimum.
Lower pollution energies only have a higher unit cost due to insane subsidies that oil/gas/coal receive. Now is a great time to ramp up cleaner technologies since people are going to be looking for jobs anyways once this ends.
Much better to advance technology when we are fixing our economy versus propping up old, unhealthy means.
Now is the worst time. Millions are losing their jobs, the last thing we need is to promote more expensive energy. A steady supply of energy right now is critical to literally keeping the lights on. Imagine our current situation but with more expensive energy costs and an unreliable supply. Like it our not, oil is critical to our survival right now. Cheap, plentiful energy is also going to be essential to driving the recovery. It’s also a strategic necessity.
Even without direct funding from Congress, the executive branch has pretty wide discretion for filling the reserve, mostly by accepting royalties-in-kind from producers on Federal land or offshore.
Basically, they can accept oil into the reserve instead of cash payments owed. There's also quite a bit of leeway for borrowing and lending oil as needed, as well as ways to lease unused storage capacity.
And the overall capacity is rate limited such that it takes almost half a year to fill/drain accessible reserves, so it's not like we could just purchases $3 billion in oil tomorrow and instantly put it there. It might store 35-40 days of US needs, but it takes 140-180 days to fill and/or access it. Which makes royalty based purchasing over time align more with ability to accept delivery.
So just because Congress removed that $3 billion, doesn't mean it's not getting filled.
It shouldn’t be filled because it’s useless and nothing but a political pork barrel. It will never be emptied during an emergency because politicians won’t agree on it.
We have emergency supplies, they are in the ground or in shale. The US is the largest producer of oil, low prices means more of it stays in the ground waiting for higher prices.
False. The US has made releases from the SPR in the past to stabilize oil prices. Such releases were made in 2005, 2006, and 2008 to stabilize prices when production was disrupted due to hurricane damage (either directly or due to shipping disruption).
6 months ago, you could have made the same argument about medical PPE - it costs billions of dollars and "we can always make a tremendous amount more".
Take the case of the SPR drawn downs after hurricane Katrina. Most of the disruption there was that the ports needed to get the oil on shore were damaged. More drilling wouldn't have fixed that in the short or long term - we just needed to repair the ports. The SPR was able to cover that and minimize the economic shocks of a fairly short term problem.
That dislocation was temporary, and prices did what they are supposed to do, they spiked to better allocate limited supplies and spur more rapid redevelopment.
The strategic oil supplies releases were done to lower prices for summer drivers to prevent damage to Bushes popularity rating.
The damage in that case is real though. People and businesses are impacted by price shocks and preventing them is an important thing for the government to do. As for the pricing signal, it's not like the businesses in question would just leave their pipelines broken, they're bleeding money from not being able to sell.
Certainly blocking pricing mechanisms without any additional government source of supply (I'm looking at you, preventing scalping during disasters) is potentially harmful, but I don't see the harm when they government can step in to meet demand.
There isn’t any damage to businesses. Higher pricing is how markets work out supplies limits, and prices determine what businesses should do.
On the face, lower oil prices is throwing millions out of work and “damaging” energy companies. But in reality it’s a huge boon for the economy. Outside of the energy businesses we are all energy consuming and cheaper energy makes us all more prosperous. The “damage” to energy companies and their employees is the wise reallocation if investment and labor into industries that now have more value and demand. The “damage” can also be temporary, when prices increase investment and jobs will return.
Jobs aren't just some fungible assets that come back for free when they're lost. A drop in the price of oil can also damage oil's substitutes, especially if the shock is expected to be long term.
>It will never be emptied during an emergency because politicians won’t agree on it.
This rests on speculation about future choices treated as if it were a fact, which is then used to make an absolutist, fatalistic decree.
And all the while the opposite is often true. If a decision is widely believed to benefit the American people, emergencies are excellent catalysts to motivate bipartisan compromise.
Even if you think politicians will make wise decisions with it, it’s not useful or necessary. We have hundreds of times more oil in the ground waiting for higher prices, no need to spend taxpayer money to force prices higher just to pump some into another hole.
While it is not necessary to have more than a cache because of domestic shale oil, forcing an average price would be good because the market is too volatile to support large investment.
It is critical to understand that shale/tar sands oil is very expensive in terms of fugitive emissions, far more than traditional deep wells. An emissions tax is needed to capture this externalized cost. A more stable oil price and greenhouse emissions taxation would encourage better fracking engineering to reduce emissions, as well as reducing pointless consumption.
That’s ridiculous, that volatile market has supported trillions in investment over the years. The market knows better than politicians and right now it’s keeping our massive supplies of oil in the ground until they are more valuable.
They are going bankrupt. A boom bust cycle is not the most efficient way to operate, and lots of marginal value taps with poor engineering and amateur boom operators leads to massive fugitive emissions. Your investment timeline is myopic.
It is literally the most efficient way to operate. Very quickly massive resources of investment and labor are redirected into areas that are much more valuable in a low energy cost world. Keeping zombie companies operating for no value is damaging to the economy.
It's not just the best time to build reserves; there's so much oil out there that prices dipped to negative values in some spots (yes, they would pay you to just come and collect the oil; if only you could). Oil is energy, this is similar to the occasional negative electrical energy prices in renewables-rich countries like Germany.
It's the opposite: now is the best time to scale down oil extraction, like we know has to be done to avoid climate catastrophe. In other times the demand wouldn't affect production as much.
“This is the perfect time to top it up: prices are low and we’re engaged militarily in the Middle East. For once, Russia’s loss is our gain,” said Scott Nations, chief investment officer of NationsShares.” [0]
How would Russia’s loss, “For once”, be our gain? Considering the rival interests of Russia and the United States, it would seem that Russia’s loss is usually our gain. What am I missing here?
I actually share your confusion but If I had to guess, Nations is thinking about the oil market specifically, where both US and Russia are exporters and would usually both benefit from high prices.
>> “Making some of the SPR’s storage capacity available to industry, without purchasing the oil, provides this immediate benefit to the industry and its hard-working employees”
The government is not buying any oil. The SPR is being opened up for storage so expensive producers can hold onto supply until prices recover.
The oil is from US producers, when they sell that oil out it won't be for $25/barrel when most of that oil will be from fracked wells costing $50+/dollars a barrel to operate [1].
"The U.S. Energy Information Administration (EIA) estimates that in 2019, about 2.81 billion barrels (or 7.7 million barrels per day) of crude oil were produced directly from tight oil resources in the United States. This was equal to about 63% of total U.S. crude oil production in 2019." [0]
