The leading U.S.
oil
and gas industry group told the
Department of Energy
its Strategic Petroleum Reserve refill plan wouldn’t work as intended, its CEO said Thursday after the department’s first attempt failed to advance.
The DOE
solicited
offers in December to begin refilling the reserve after the drawdown of more than 200 million barrels of reserve oil in 2022, but it has yet to find suppliers interested in selling at the department’s desired price of between $67 and $72 per barrel.
WHAT WOULD GOP BILLS MEAN FOR THE SPR’S FUTURE?
Its December solicitation was a “pilot” of the DOE’s
novel acquisition method
offering fixed-price contracts to producers, which was designed with the intention of luring producers to increase output by locking in a stable price.
The department rejected the offers it got from oil companies. Energy Secretary Jennifer Granholm said Monday the offers “did not meet specification or price.”
“We talked to them about it before they announced it. We told them that it wasn’t going to work,” Mike Sommers, president and CEO of the American Petroleum Institute, told the Washington Examiner.
Sommers said the fixed-price contract approach, and the administration’s attempt to encourage more production by contracting for barrels, tries to emulate something the market does better.
“I think for most producers — they use the futures markets already to hedge their oil. It’s one of the reasons why in 2021, we hit negative oil prices for one day, and a lot of my companies survived because they’d hedged a lot of their oil,” Sommers said.
“We really don’t need the federal government jumping in to provide a futures market when they are already financial incentives to do that,” he said, adding that the volume of oil the administration will seek to acquire is not an adequate incentive to producers.
The Biden administration is trying to refill the SPR after its record withdrawals, which President Joe Biden ordered in a bid to reduce oil and retail fuel prices. The reserve is currently at its lowest levels in decades.
Some in Congress
have sought
for the administration to use the reserve more strategically in the future by drawing down volumes to relieve high oil prices.
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Republicans have criticized Biden’s use of the reserve as straying from its intended function as an emergency solution to supply interruptions. Congress created the reserve after the Arab oil embargo, although it has
ordered drawdowns from the reserve to raise revenues
.
The GOP is
advancing legislation
to put new constraints on the administration’s authority to use the reserve.
