Biden taps oil reserves to reduce gas prices; Alaska experts say lagging production comes from weak investment
JUNEAU, Alaska (KTUU) - President Joe Biden has announced that his administration will draw 50 million barrels of oil from U.S. reserves as a way to help reduce high gas prices.
“It will take time, but before long, you should see the price of gas drop where you fill up your tank,” Biden said at a Tuesday press conference. “In the longer term, we will reduce our reliance on oil as we shift to clean energy. But right now, I will do what needs to be done to reduce the price you pay at the pump.”
National oil and gas experts say the additional supply, coupled with similar moves from other countries, could see prices drop by around 10 cents per gallon. In Alaska, the average price for gasoline is about $3.72 per gallon which is up by over $1.30 from a year ago during coronavirus-impacted price drops.
The draw from the Strategic Petroleum Reserve is the largest in U.S. history. The reserve, sitting at roughly 605 million barrels, was established after the 1973 oil crisis saw the Organization of Petroleum Exporting Countries constrain supply.
In the past, the Strategic Petroleum Reserve has been used during disasters such as Hurricane Katrina in 2005.
Alaska Republican Rep. Don Young and Sen. Dan Sullivan both lambasted Biden for drawing from it now. Young called Biden’s decision “reckless” and suggested there are ample domestic energy opportunities, particularly in Alaska. Sullivan called Biden’s energy policies “schizophrenic.”
U.S. Energy Secretary Jennifer Granholm argued on Tuesday that domestic producers have “taken advantage” of high prices by not increasing supply. She said that 250 fewer oil rigs are operating now than at the beginning of the pandemic and producers have unused leases on 23 million acres of land.
Alaska oil and gas experts point to a more complicated picture for why gas prices are high and why domestic production has not increased quickly since falling during the COVID-19 pandemic.
Brad Keithley, a long-time oil and gas attorney and managing director of Alaskans for Sustainable Budgets, said the biggest impact on production is from long-term oil prices. Future markets suggest that prices will fall in the next few years, Keithley explained, which is curtailing investment in new projects because investors are prioritizing getting returns now when prices are high.
“It doesn’t matter if you open up more leases, close down more leases, put more money into green investments or not,” Keithley said. “It’s the long-term oil price that is really driving the decisions around investments.”
Larry Persily, former deputy commissioner of the Alaska Department of Revenue, echoed that explanation about high oil prices and slowly increasing domestic production.
“There is nothing stopping U.S. producers from pumping more oil other than they’ve got to invest the money,” he said. “And they’re not sure on big projects. Do they want to invest in a 20 or 30-year project as the world is transitioning to other sorts of energy?”
Granholm spoke about the twin priorities facing the Biden administration: Pivot away from fossil fuels in the long term and reduce prices for fossil fuels in the short term. She encouraged domestic and foreign producers to increase supply to reduce prices.
All eyes will now be on the response from oil producing nations to Tuesday’s announcement.
OPEC and Russia will convene in early December for their monthly meeting to discuss global supply. In their November meeting, they agreed to increase supply by 400,000 barrels per day, but U.S. officials have been frustrated, saying that is too slow to cope with demand.
Persily explained OPEC+ doesn’t want to risk flooding the market again as was seen last year when demand dropped, and oil producing nations like high prices. Keithley said the battle between OPEC+ and the U.S. could play out over the next few months.
He says there are also concerns for oil producing nations that a nuclear agreement between the U.S. and Iran could see sanctions on the Gulf nation lifted and supply increase when there are already ample global reserves.
For Alaska, oil prices at a seven-year high creates a paradox: They hurt Alaskan consumers, but help fill state coffers which in turn makes government services for Alaskans more affordable.
At close to $80 per barrel for North Slope crude, the Department of Revenue expects the state will see hundreds of millions of dollars more in revenue than was projected earlier. Keithley again points to long-term price projections that suggest the state’s oil and gas revenue will again fall, making budgeting again more difficult.
He suggests Biden’s announcement is yet another up and down on the oil and gas roller coaster that Alaska has ridden for decades.
“I think what it creates is more uncertainty from our standpoint about what the price regime will be going forward, and I think that should lead us to be more cautious in fiscal policy in what we’re assuming about oil prices moving forward,” Keithley added.
Persily said Biden’s initiative to tap reserves is political and aimed at garnering headlines instead of making concrete changes.
“This announcement will quickly be forgotten when Thanksgiving is served in a couple of days,” he argued.
Copyright 2021 KTUU. All rights reserved.