Regular readers know that when Matthew L. Wald‘s byline appears in The New York Times, we pay attention. In “Obama Considers Tapping Oil Reserve, ” we suspect that space considerations forced the omission of certain important background details. First, excerpts from Mr. Wald’s piece:
WASHINGTON — The Obama administration is considering tapping the Strategic Petroleum Reserve in response to rapidly rising gasoline prices brought on by turmoil in the Middle East, the White House chief of staff, William M. Daley, said on Sunday.
“It’s something that only has been done on very rare occasions,” Mr. Daley said on “Meet the Press” on
Image by Infrogmation via Wikimedia Commons.
NBC, adding, “It’s something we’re considering.”
Administration officials have sent mixed signals about the possibility of opening the reserve, which would add supply to the domestic oil market and tend to push down prices.
Energy Secretary Steven Chu said on Friday that the administration was monitoring prices, but he has been reluctant to endorse more aggressive steps.
“We don’t want to be totally reactive so that when the price goes up, everybody panics, and when it goes back down, everybody goes back to sleep,” he said.
A few days earlier, Mr. Chu said the administration was watching the situation closely, but it expected oil production that had been lost in Libya would be made up by production elsewhere.
Administration officials continue to emphasize the critical need for long-term steps to reduce oil use, like improving the fuel economy of cars and promoting battery-powered vehicles.
But recently, five Senate Democrats have called for opening the reserve, which is stored in four salt domes in Texas and Louisiana. And on Feb. 24, three House Democrats from New England, where oil is used to heat homes, wrote to Mr. Obama saying that while exporters could increase production, “they also profit from oil price spikes and therefore have little incentive to quickly respond with the increased supply needed to calm markets.”
“We don’t want to be totally reactive so that when the price goes up, everybody panics, and when it goes back down, everybody goes back to sleep,” he said.
A few days earlier, Mr. Chu said the administration was watching the situation closely, but it expected oil production that had been lost in Libya would be made up by production elsewhere.
Administration officials continue to emphasize the critical need for long-term steps to reduce oil use, like improving the fuel economy of cars and promoting battery-powered vehicles.
But recently, five Senate Democrats have called for opening the reserve, which is stored in four salt domes in Texas and Louisiana. And on Feb. 24, three House Democrats from New England, where oil is used to heat homes, wrote to Mr. Obama saying that while exporters could increase production, “they also profit from oil price spikes and therefore have little incentive to quickly respond with the increased supply needed to calm markets.”
In recent days, prices for the American benchmark crude, West Texas Intermediate, have exceeded $100 a barrel. Oil for April delivery settled at $104.42 a barrel on the New York Mercantile Exchange on Friday.
The average price for a gallon of unleaded gasoline was $3.50 on Sunday, AAA reported, up from $3.12 a month earlier. Gasoline prices routinely rise as the weather turns warmer and people drive more, leading some experts to predict gasoline at $4 a gallon this summer.
The Strategic Petroleum Reserve was established in response to the Arab oil embargo of 1973-4. It was tapped most recently in September 2008 in response to Hurricanes Gustav and Ike. At that time, the Energy Department arranged “exchanges” with oil companies whose normal supplies had been interrupted; the oil companies later made restitution in oil. The last time the government sold oil from the reserve to address supply interruptions was in 2005, after Hurricane Katrina.
Sales were also made in January 1991 to calm global markets as the United States invaded Kuwait, which had been occupied the previous year by Iraq.
The government suspended oil purchases when prices were approaching a peak in 2008, before the recession began. In that case, members of Congress argued that acquisitions for the reserve were contributing to higher prices, harming consumers.
A version of this article appeared in print on March 7, 2011, on page B6 of the New York edition.
What’s missing? Here are a few things that should, we think, be in a sidebar, or otherwise at hand so the reader can make sense of this:
- How many barrels (and of what grades) are in the reserve?
- What’s our average daily consumption?
- For the arithmetic-challenged, how many days’ supply are in the strategic reserve?
Here’s another set of questions:
- What are the easiest ways to reduce consumption? Fedex, for instance, is using hybrids. The New York City Police Department has purchased about 400 hybrids; so far as we know, the United States Postal Service is not yet using hybrid vehicles. About 2/3 of NYC’s yellow cab fleet are hybrids – and many of those without government intervention, but merely because they’re cheaper to operate.But organizations which use many vehicles, use them many hours a day and therefore are always retiring and replacing them, are well-situated to take advantage of the switch to hybrids.
- Heating. We’re far away from exploiting all the potential in aggressively insulating residential and commercia l buildings.
- Solar and Wind. We’ve still got lots of opportunities here.
- Green Roofs and Solar Roofs. These prevent buildings from heating up in the summer, reducing air conditioning power needs.Those are just a few of the obvious examples.
Let’s suppose that we’ve got a thirty-day supply at current consumption levels. If – to make the math simpler – we reduce consumption by 50% – our strategic reserve would last for 60 days. And the less oil we need to import, the more we can replace petroleum with domestic renewable energy and reduce consumption, the less vulnerable we’ll be to energy extortion, or sudden price spikes.
However, the more readily we use and replenish the strategic reserve, we anesthetize ourselves from the economic pain. There’s a moral problem here: it’s one thing to let market forces push big fleet operators towards more efficient vehicles. They can stand the pain, even if they’re only replacing vehicles on normal fleet replacement schedules. But small business owners and families – replacing vehicles is a big economic move.
However, if it’s the big groups of vehicles that make the change first (police departments, taxis, rental car fleets), by the time they replace the first group of hybrids, that will mean that the market in second-hand cars will contain a large proportion of higher-efficiency cars.
Perhaps the best strategy is Robert Reich’s – reduce income taxes for families exactly as much as the excise taxes on petroleum-based fuels are raised. If a family is not in a position to make the switch immediately, the income tax reduction should cover the increase in net fuel price (pump price plus taxes). In Reich’s scheme, households not ready to make the switch come out even. But families which own petroleum-fuel-based businesses (a taxi, delivery vehicles) will have additional incentives to make the switch.
The risk of using the Strategic Petroleum Reserve is it serves as an analgesic for the pain of elevated oil prices – particularly sudden ones. So – let’s increase it in two ways: (1) by simply adding to the number of barrels in the reserve at a moment when prices are low; (2) by reducing consumption, we can increase the effective supply in the reserve.
We note that this piece has a number of unsourced statements; please check back later; we hope to have remedied the situation by the end of the day