Sun. Jan 29th, 2023

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

January 10, 2023

Although the idea of stockpiling emergency oil arose as early as 1944, it took the oil embargo of 1973-74 to spur the creation of the Strategic Petroleum Reserve (SPR), which was included in the Energy Policy and Conservation Act signed by President Ford in late 1975.

The SPR can hold up to 727 million barrels. Oil can be drawn down from the SPR in three different ways: a full drawdown to counter a “severe energy interruption,” a limited drawdown of up to 30 million barrels — such as the drawdown that took place during Hurricane Katrina — and a drawdown for a test sale or exchange. A full or limited drawdown can only be authorized by a sitting President.

US SPR has served the US well since it was established: it stabilized the global oil market for more than four decades. But its role or function has been under scrutiny after the successful shale oil/gas revolution in the US around 2010. By 2015, the US started to export crude oil and eventually the US became the global energy superpower as then President Trump proclaimed that the US Energy First. It just does not make much sense when the US is exporting oil with full confidence of energy security, but at the same time holding an extremely large amount of SPR underground. The total amount of SPR was accumulated through the years when the oil prices were low, even so, it represents a significant amount of cash locked down without any interest. Further DOE has to budget millions of dollars for managing and maintaining the asset from year to year.

When President Biden authorized the release of 220 million barrels of SPR in 2022 he was heavily criticized arguing that he should relax the environmental regulations and allow US domestic oil production increase to avoid the release. Then it would have a real impact on the US economy.

During last year’s emergency SPR sales some crudes did go to Unipec America—which is wholly owned by Sinopec, China’s state-run oil company. But the amount is very limited amounts to around 5 million barrels. Further there was on evidence any drop of US SPR oil reached China.

But some US politicians seized the opportunity and made a big deal as reported that the US will ban the sale to US SPR to China. It is a grandstanding to the extreme and does not make any sense.

  1. DOE will have one less bidder in the future SPR sale.
  2. SPR is rather limited now, the SPR release for 2023 is mandated by Congress to be (merely) 26 million barrels.
  3. On the other hand, China will import 970 million barrels of oil in 2023. US oil exporter will pressure China to import as much as possible US crudes. US administration will press China government, on the ground of balancing trade deficits, to import US crude and US LNG etc.

U.S. Congress To Vote On Ending SPR Oil Sales To China

Editor OilPrice.com Tue, January 10, 2023 at 10:00 AM PST

The U.S. House of Representatives is set to vote this week on ending sales of the U.S. Strategic Petroleum Reserves to China, House Majority Leader Steve Scalise said in a Tweet.

The vote on the measure will take place Tuesday or Wednesday, Scalise said.

Senators James Lankford and Ted Cruz introduced a No Emergency Crude Oil for Foreign Adversaries Act over the summer—the bill would have banned the export of crude oil from the nation’s reserve stockpile to countries such as China.

“At a time of skyrocketing inflation and record gas prices, and with SPR drained to its lowest level since 1986, it is reckless and inexplicable that President Biden would allow oil from the Strategic Petroleum Reserve to be exported to China. This practice poses a direct threat to American national security, not least of all because the Chinese Communist Party is currently stockpiling oil for strategic use, and the Biden administration is aiding their effort,” Cruz said at the time.

The current bill, known as H.R. 22, Protecting America’s Strategic Petroleum Reserve from China Act, “will prevent further direct or indirect sales and exports from our Strategic Petroleum Reserve to the Chinese Communist Party and help end Biden’s abuse of our strategic reserves.”

The current process allows for crude oil sales from the nation’s SPR to companies who make the highest offer, which includes U.S. subsidiaries of foreign oil companies, which could then export that crude oil overseas.

Some of last year’s emergency SPR sales did go to Chinese owned companies, including to Unipec America—which is wholly owned by Sinopec, China’s state-run oil company.

The practice drew criticism over the summer when domestic gasoline prices were running at uncomfortable highs, with some arguing that shipping crude oil from the SPR out of the country did little to bring down gasoline prices at home.

www.energyandcapital.com

January 10, 2023

The Biden administration has pulled almost all of the oil it can out of the Strategic Petroleum Reserve (SPR) and now must fill it back up. The SPR release for 2023 is mandated by Congress to be 26 million barrels, which is the lowest amount since 2021. There is to be no release in 2024.

That said, the big dog itself, China, has just increased its oil quota by 21%, or 170 million barrels. The Middle Kingdom has said it will import 970 million barrels of oil in 2023. To put this in perspective, it imported 800 million barrels in 2022.

Furthermore, due to several years of lockdowns, the Chinese are sitting on trillions of dollars.

Pent-up demand should boost the economy and demand for oil.  

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