President Biden’s plan yesterday to release a historic amount of oil from the Strategic Petroleum Reserve and boost mining for critical minerals helped push down the price of crude, but also drew pushback from entities ranging from the U.S. oil and gas industry to wildlife protection groups.
The plan also left unanswered questions about whether it would reach its intended goals, affect emissions and change the trajectory of the oil and mining industries over the long term.
In a bid to curb high gasoline prices, Biden announced that his administration would release 1 million barrels of oil per day from the SPR for six months — the largest release ever — in addition to a proposal to make companies pay fees on wells that have been idle for years or on “acres of public lands that they are hoarding without producing” (E&E News PM, March 31). The White House also released a memo to promote mining of minerals used in electric vehicles, calling for use of the Defense Production Act.
Speaking at the White House, Biden said elevated gasoline prices are rooted in a surge in oil demand as the United States rebounds from the depths of the Covid-19 pandemic and Russian President Vladimir Putin’s war in Ukraine, which has now stretched into its second month.
“As Russian oil comes off the global market, supply of oil drops and prices are rising,” Biden said. “Now, Putin’s price hike is hitting Americans at the pump.” If the country wants to lower gas prices, there needs to be more oil supply “right now,” Biden said.
The Biden administration’s decision yesterday to tap the country’s strategic reserves came roughly a month after the United States coordinated with International Energy Agency member countries to release 60 million barrels of oil from emergency reserves (Greenwire, March 1).
The price of West Texas Intermediate crude oil fell by more than 6 percent to about $101 a barrel yesterday. Biden said the reserve release could push down gasoline prices by 10 to 35 cents a gallon.
Biden said oil companies “recording their largest profits in years” have a choice to make: Either put those profits to use by producing more oil and restarting idle wells, or “exploit the situation, sit back and ship those profits” to investors.
While some companies have already announced plans to increase production, others don’t want to increase supply because “Putin’s price hike means higher profits,” he said.
Still, the call for U.S. oil and gas companies to increase production comes from the same White House that’s saying the country needs to move off of fossil fuels in the long term.
Also speaking at the White House, National Economic Council Director Brian Deese said the circumstances in global energy markets today “provide the clearest possible signal why the United States needs to do everything it can to accelerate toward energy security and true energy independence.“
“And the only way that we can ultimately do that is to reduce and eliminate our dependence on fossil fuels,” Deese said. He noted that there is currently 568 million barrels in the reserve, which is in four locations in southern Louisiana and Texas.
Along with the unprecedented release from the SPR, other countries could release 30 million to 50 million barrels from their own reserves, Biden said in his remarks.
A spokesperson for the Paris-based IEA did not respond to a request for comment yesterday.
A challenge for curbing oil prices, though, is that they are still largely controlled by Russia, Saudi Arabia and the countries allied under OPEC. OPEC could simply pull oil off the market to push the price back up, said Ed Hirs, an economist who teaches at the University of Houston.
The oil-producing nations, which have been dubbed OPEC+, worked together to push down prices in 2014 and 2015, in a move that bankrupted hundreds of U.S. oil companies. “This is war; we’re just not shooting at them,” Hirs said.
The SPR release also could ultimately push up demand for oil, Dan Pickering, a longtime oil watcher who runs an energy investment firm in Houston, said on Twitter. By pushing down gasoline prices, the administration is boosting demand for fuel over the long run. The administration has also said it will buy oil on the world market to refill the reserve in the future, which will bolster the price in the future.
“So as an energy investor, I’ll certainly take it,” Pickering wrote.
The Biden administration’s plea for the oil industry to boost production predates Russia’s invasion of Ukraine. In December, for example, Energy Secretary Jennifer Granholm told the industry to “get your rig count up” and to take advantage of existing leases (Energywire, Dec. 15, 2021).
Biden took the argument further yesterday, saying he would ask Congress to pass a “use it or lose it” policy for drilling on federal property. The idea is to push companies to act on unused permits.
“Right now, the oil and gas industry is sitting on more than 12 million acres of non-producing Federal land with 9,000 unused but already-approved permits for production,” according to a White House fact sheet. “Companies that are producing from their leased acres and existing wells will not face higher fees.”
Such fees would require congressional approval. Most federal leases also already have a kind of “use it or lose it” clause, and typically require companies to begin production within 10 years to hold onto the lease. That’s generous compared with leases on private land, where a three-year lease term is the norm.
Only about 25 percent of U.S. oil production comes from federal lands or water, though, so it’s unclear how effective the change would be, even if Congress moved quickly.
Mike Sommers, the president and CEO of the American Petroleum Institute, said that while the SPR release announced yesterday “may provide some short-term relief, it is far from a long-term solution to the economic pain Americans are feeling at the pump.”
Industry groups claim that Biden has discouraged the industry from producing by making it harder to get permits for pipelines and other necessary infrastructure. “The White House is in a panic because polling suggests Americans understand that the anti-oil-and-gas agenda of this administration is the primary reason gasoline prices are high,” said Kathleen Sgamma, president of the Western Energy Alliance.
Still, a survey released in March from the Federal Reserve Bank of Dallas identified “investor pressure to maintain capital discipline” as the top reason that publicly traded oil producers are restraining growth, despite high oil prices.
1. Political fallout
Biden has been facing political pressure from both sides of the aisle during a midterm election year to lower energy prices, a dynamic that was apparent yesterday after the SPR announcement.
“President Biden has once again resorted to tapping into the nation’s oil reserve to try and cover up the ramifications of his disastrous anti-American energy policies,” said Sen. Steve Daines (R-Mont.) in a statement yesterday.
“These desperate moves are not the solution — investing in American energy production is, and that includes oil and gas,” Daines continued.
Sen. John Barrasso (R-Wyo.) echoed Daines, saying that the Biden administration has spent the last 14 months making it harder to produce U.S. oil and gas.
Still, Rep. Frank Pallone (D-N.J.) welcomed the president’s decision.
“I commend @POTUS for taking decisive, historic action to combat rising gas prices & help provide the American people much needed relief at the pump,” Pallone said in a tweet. “Today President Biden is doing what the fossil fuel industry won’t: providing more supply to meet growing demand.”
The White House yesterday firmly rejected a claim from Sen. Bill Cassidy (R-La.) that the Biden administration is placing the country’s future energy security “at risk for a short-term attempt to salvage the president’s plummeting poll numbers.”
Kate Bedingfield, the White House communications director, said that wasn’t part of the White House’s calculus.
“Absolutely not,” Bedingfield told reporters yesterday when asked about Cassidy. “What the president is doing is using every tool available to him to bring prices down for the American people at the pump.”
Like Sommers at API, Sen. Joe Manchin (D-W.Va.) said tapping the SPR isn’t a long-term fix.
“The U.S. can produce energy cleaner than anywhere else in the world and it is important we have a balanced approach that supports increased domestic production that can get into the market in the coming weeks and months and that we establish a strategic plan to refill our reserves,” Manchin said in a statement.
2. Batteries and EVs
With clean energy, Biden’s announcement may have opened the door to a multi-year showdown over mining of battery metals — one of the most divisive energy issues among Democrats and environmentalists.
The mining industry has long argued that regulations should be pared back to enable more U.S. production of key battery minerals. Yesterday, the president acted in their favor by authorizing the use of the Defense Production Act to support domestic mining and processing of precious metals like lithium, nickel, cobalt, graphite and manganese (Greenwire, March 31). Those are often the most expensive components of the lithium-ion batteries used in electric cars and grid storage.
Invoking the Defense Production Act would expand the administration’s powers to buy or guarantee demand for those minerals, while forcing businesses to prioritize demand from the federal government. It was used most recently to facilitate Covid-19 vaccine production at the height of the pandemic.
Rich Nolan, the National Mining Association’s chief executive, said the Biden administration has sent a clear signal that the country’s energy transition is threatened by dependence on foreign-produced minerals.
“Unless we continue to build on this action, and get serious about reshoring these supply chains and bringing new mines and mineral processing online, we risk feeding the minerals dominance of geopolitical rivals,” Nolan said in a statement.
In Congress, Manchin said he was “pleased” with Biden’s actions on domestic critical minerals, while Sen. Lisa Murkowski (R-Alaska) said the announcement was “an overdue step” and that she hoped it would jump-start “a much more serious emphasis on our nation’s mineral security.”
Yet Biden’s move on battery minerals was pilloried by some environmental groups, which called it a giveaway to industry that would harm the environment and mining communities.
“This order will do irreversible harm to our public lands and fan the flames of the climate emergency. Some of it reads like it was written by the fossil fuel industry,” said Randi Spivak, public lands director at the Center for Biological Diversity.
The announcement also raised questions about how the Biden administration might follow through to encourage mining of the key metals. One of them, nickel, has experienced huge spikes in price because of the war in Ukraine, since Russia is a major global supplier. But new mines often take several years to develop, meaning yesterday’s announcement could have limited relevance in the near term.
Martin Meyers, director of market intelligence and a data expert on batteries for consultancy Clean Energy Associates, pointed out that Biden’s announcement could make financing of U.S. projects easier for mining companies.
Using the Defense Production Act for domestic production of battery materials could be helpful “by enabling some of the early-stage work which may be challenging to finance from other sources,” he wrote in an email to E&E News.
3. Heat pumps
Biden’s announcement also closed the door, at least temporarily, to the idea of a federal government-backed campaign to supercharge production of electric heat pumps — the building sector’s chief alternative to gas boilers.
In an expansive plan dubbed “Electrify for Peace,” advocates with Rewiring America had urged Biden to use the Defense Production Act to place large orders with U.S. heat pump manufacturers. Hundreds of green groups, plus five Democratic U.S. senators — Ed Markey and Elizabeth Warren of Massachusetts, Martin Heinrich of New Mexico, Cory Booker of New Jersey and Jeff Merkley of Oregon — wrote letters last month to the White House backing elements of the plan.
They urged Biden to offer guaranteed contracts to U.S. heat pump manufacturers so that they could scale up output destined largely for Europe, which is at a crossroads in determining its reliance on natural gas.
A massive scale-up of heat pump production for European homes would bring down the price of the technology in the United States, as well, making it a more tantalizing alternative for homeowners, backers of the policy reasoned. Heat pumps are often a more expensive option compared to gas boilers, although millions of homes in the Southeast use them for both heating and cooling, since heat pumps can act as air conditioners, as well.
The idea of guaranteeing contracts, through invoking the Defense Production Act, had reportedly been considered by the Biden administration in recent weeks, but was left out of Biden’s plans yesterday.
Ari Matusiak, chief executive of Rewiring America and a White House assistant under former President Obama, said in an email that the ideas from the Electrify for Peace plan are still “very much in play,” both from the White House and as part of a congressional climate package.
Biden’s actions for battery minerals yesterday could be “a road map to invoking the Defense Production Act for domestic manufacturing of heat pumps. And we hope that is what we see from the Administration in the weeks ahead,” he wrote.
Vijay Modi, a professor of mechanical engineering at Columbia University’s Earth Institute who has authored studies on heat pumps and promoted their use, told E&E News that even if heat pumps became cheaper, the cost of installing and operating them could still remain higher, particularly in colder climates. Europe has its own manufacturers that could fill much of the continent’s demand. And houses in many European countries use different designs for space heating than the United States, meaning scaled-up production for Europe might not always translate directly into lower costs across the Atlantic.
Heat pump manufacturers’ position on the idea is foggy, as well. Five of the biggest producers in the United States either did not respond to inquiries from E&E News or declined to provide comment, in the weeks leading up to Biden’s announcement.
Still, said Modi, shifting off of natural gas and oil for building heat “needs to be done on a warlike footing, because that’s the only way we can accomplish it soon — mobilizing on all fronts on a large scale.
“And we have a war right now, it turns out,” he added.
During a press call yesterday morning, senior officials in the Biden administration also sought to highlight existing initiatives to slash emissions from homes and other buildings.
Earlier this week, for instance, the Energy Department opened $3.16 billion in funding from the bipartisan infrastructure law for weatherization projects, including heat pump installations, more efficient gas boilers and upgrades on building envelopes.
DOE’s awards from that pot of funds will prioritize “the homes of low-income families in the most disadvantaged communities in the country,” according to guidance released on Wednesday. Some environmental groups, like the Natural Resources Defense Council and Environment America, praised the program as an aid in cutting emissions and providing relief on energy bills.
Biden administration officials noted during the call that due to the infrastructure law, about 10 times more funds would be available through DOE’s Weatherization Assistance Program than in previous years.