Daily on Energy: Examining the logic behind Trump filling up the Strategic Petroleum Reserve

But analysts concerned that Congress and the executive branch have been taking the SPR for granted say Trump’s decision makes good sense on energy security grounds, while benefiting taxpayers.

“I am in the camp of keeping the SPR at full capacity and using it as needed in case of supply emergencies,” said Joseph McMonigle, a former chief of staff at the Energy Department in the George W. Bush administration and president of the Abraham Group, an international strategic consulting firm. “If Congress doesn’t like it, this is a good fight for the president and administration to have,” McMonigle told Josh. “It looks like the president is doing the smart thing here and demonstrating he can get the best deal for taxpayers.”

Oil prices initially rose on the president’s announcement Friday that the U.S. would be purchasing “large quantities of crude” to restock the SPR “right up to the top” in order to save American taxpayer “billions and billions of dollars” while “helping our oil industry.”

But those gains were short-lived as the Brent crude price briefly fell below $30 per barrel Monday morning for the first time since 2016, amid reaction to the coronavirus shutting down activity across the world.

Nonetheless, taking U.S. oil off the market to fill the SPR signals that the U.S. has the wherewithal to tap the brakes in a low-price, oversupplied marketplace, says Amy Myers Jaffe, director of the program on Energy Security and Climate Change at the Council on Foreign Relations

“The president’s move was sophisticated,” Myers Jaffe told Josh. “He is signaling to credit markets that he is thinking about shale companies, but in a way that is not a social handout and sends a signal to our oil producing allies like Mexico that the president is cognizant of the instability created for countries from a disorderly oil market.”

Added Myers Jaffe: “The U.S. in effect is contributing a production cut because by putting the oil in the SPR we are taking it off the market. That is closest the U.S. can get to stabilize the market because the government can’t tell producers to stop producing.”

The history of SPR: Congress has recently been ordering the government to sell oil from the SPR to fund deficit reduction and other unrelated items (the Trump administration has also proposed sales in its budget proposals).

Congress created the SPR in response to the Arab oil embargo in the 1970s. Oil in the reserve is stored in four underground sites with the capacity to hold about 713 million barrels along the coast of the Gulf of Mexico. The SPR currently holds just shy of 635 million barrels per day of oil, according to Energy Information Administration data, allowing room for a bit less than 78 million additional barrels.

Inside the logistics: A senior Energy Department official told Bloomberg the purchases will occur quickly, but delivery to the four storage sites could take months.

Energy Secretary Dan Brouillette Friday directed his agency “to immediately initiate the process of purchasing American-made crude oil for storage in the U.S. Strategic Petroleum Reserve as expeditiously as possible.”

The consulting group ClearView Energy said in a research note that it’s likely Congress will have to appropriate money for the purchases or at least approve the transfer of funding from other Energy Department accounts. ClearView warned it anticipates “pushback from fossil fuel skeptics on Capitol Hill” to the idea of spending more than $2 billion (depending on the prevailing oil price at the time) for fully restocking the SPR.

Bottom line: McMonigle said Congress should welcome the move, but cautioned the administration would need to do more to stabilize the oil market.

“At the end of the day it’s not a lot of oil,” McMonigle said of the SPR purchases. “The best thing the administration can do for producers is to do everything possible to move past this health crisis and get the economy back on its feet.”

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

MOST ‘EXTREME’ GLOBAL OIL SURPLUS EVER RECORDED PREDICTED: The combination of the coronavirus curbing consumption and Saudi Arabia flooding the market could cause a buildup of the most extreme global oil supply surplus ever recorded, the consulting group IHS Markit projected Monday.

If the price war continues amid a global recession and the coronavirus crisis, the surplus could range from 800 million to 1.3 billion barrels in the first six months of 2020.

Up until now, the largest six-month global surplus since 2000 was from late 2015 to early 2016, when it was a cumulative 360 million barrels per day.

U.S. oil production, meanwhile, could fall by 2 to 4 million barrels per day over the next 18 months, due to low prices and the “fast reactivity” of shale producers to market conditions, IHS Markit said.

NEW EPA CHIEF OF STAFF’S PLAN TO ATTACK DEMOCRATS: Mandy Gunasekara returns to EPA on Monday, and she’s vowing to use her new post to promote the president’s deregulatory agenda aggressively ahead of the 2020 election while pushing back against Democrats’ “socialist-aligned policies.”

“With bad ideas coming from Congress, I will always be honest with how I characterize those not only within the agency but to the general public,” Gunasekara, 35, told Josh in an exclusive interview.

“If Democrats don’t want to be called socialist, I would suggest they stop putting out socialist-aligned policies,” she said.

Remember me? Gunasekara is back at EPA after spending the past year running a nonprofit organization called Energy 45 out of her home state of Mississippi to promote Trump’s fossil fuel-first energy agenda and counter the principles of the liberal “Green New Deal.”

Before that, she led the EPA’s Office of Air and Radiation on an acting basis under then-administrator Scott Pruitt, after previously working for Republican Sen. Jim Inhofe, a climate science skeptic, as majority counsel for the Environment and Public Works Committee.

Other agenda items: Gunasekara said she hopes to help the administration promote its environmental record, which has focused on traditional items such as cleaning up toxic waste sites and combating lead in drinking water rather than on climate change.

“Republicans have not always been good at telling that story,” she said.

Gunasekara also plans to make the case for some of the administration’s main deregulatory initiatives, including its replacement of the Clean Power Plan regulating emissions from coal plants, which is tied up in court and may not be decided on before the presidential election.

She said the EPA’s decision to propose its Affordable Clean Energy, or ACE, rule shows its commitment to combating climate change despite analysis that shows it won’t have a significant effect.

“This administration has been very thoughtful on its approach to climate change from the beginning,” Gunasekara said. “The ACE rule is the first ever legally viable greenhouse gas standard for coal plants. I don’t think we get the credit for that.”

PRESSURED BY SANDERS, BIDEN CONFUSES ON FRACKING: Frontrunner Joe Biden potentially provided fodder for general election attack ads when said he would allow “no new fracking” during Sunday night’s Democratic debate after intense questioning from rival Bernie Sanders.

“I’m talking about stopping fracking as soon as we possibly can” and “telling the fossil fuel industry they’re going to stop destroying the planet,” the Vermont senator said, questioning Biden’s climate platform.

“Your heart is in the right place,” he told Biden, but it “doesn’t take on the fossil fuel industry.”

“You cannot continue, as I understand, Joe believes, to continue fracking,” Sanders said.

In response, Biden muttered, “No new fracking,” without additional context.

A quick walkback from Biden: The Biden campaign told reporters after the debate that he was restating his pledge to block new oil and gas drilling on public lands.

The turnabout signals the Biden campaign is aware that a no-fracking position could trouble him in the important swing state of Pennsylvania in the general election.

Biden’s official climate plan posted on his website does not commit to a fracking ban and allows for the potential of using fossil fuels in the near term while pledging that the U.S. will reach net-zero emissions by 2050.

Thought bubble: Biden’s slipup in the heat of the moment shows he is concerned about throwing olive branches to the left in order to energize young people that dominate Sanders’ base of support.

This could have been the last debate, so it may not matter, but we’ll be watching to see if Biden feels the need to flip on positions in a way that could weaken his general election chances, which would seem unnecessary when his existing climate pledges amount to the most progressive ever proposed by a nominee.

ANY CORONAVIRUS STIMULUS SHOULD BOOST CLEAN ENERGY, IEA CHIEF SAYS: That way, amid a short-term crisis, countries don’t lose sight of a major long-term challenge: climate change and the clean energy transition, said Fatih Birol, chief of the International Energy Agency.

Birol, in a LinkedIn post Saturday, urged countries to take steps in any economic stimulus package to incentivize investments in clean energy technologies — not just wind and solar energy, but also hydrogen and carbon capture, utilization and storage.

He said governments should seek to de-risk clean energy investments for the private sector by “providing guarantees and contracts.” The dramatic drop in oil prices recently also gives countries an opportunity to pull back subsidies for fossil fuels, Birol said.

Birol fears coronavirus could distract countries from climate change efforts: Low oil prices, for example, could undermine clean energy policies like energy efficiency, which Birol said have already seen a dip in recent years. When fuel is cheap, Birol said, consumers worry less about using energy efficiently, buying more efficient cars, or retrofitting homes and businesses to save energy.

“This situation is a test of governments and companies’ commitment,” he wrote. “Observers will quickly notice if their emphasis on clean energy transitions fades when market conditions become more challenging.”

ENERGY GROUPS UNITE TO PUSH EXPANDING R&D DOLLARS: The U.S. needs to pick up its pace of spending on energy research and development, writes a coalition of more than 50 environmental and energy groups.

The coalition of groups is broad, ranging from environmental groups like the Natural Resources Defense Council to conservative clean energy groups like ClearPath Action to sector-specific lobbies touching every energy industry, including oil and gas, coal, solar, wind, nuclear, and energy efficiency. In a letter to House and Senate appropriators this week, they’re asking Congress to continue scaling up energy R&D funding over the next five years, to ensure the U.S. is a global technology leader and to help address climate change.

“Without continuing to expand federally supported RD&D we further imperil our prospects to lead the global energy transition,” the groups write.

DEMOCRATS SEEK TO TIE TRUMP’S HANDS ON OIL BAILOUT: Three Senate Democrats, including Sanders, say they want to make sure Trump can’t use the coronavirus pandemic as an excuse to help fossil fuel companies.

Legislation introduced Friday by Oregon Democrat Jeff Merkley, joined by Sanders and Massachusetts Senator Ed Markey, would scrap the Interior Department’s ability to lower or eliminate royalty rates for fossil fuel companies. Their bill comes amid reports the Trump administration could seek to help oil and gas companies hit hard by coronavirus and an oil price war.

FERC CANCELS MARCH MEETING: The Federal Energy Regulatory Commission voted Friday to cancel its meeting scheduled for Thursday, March 19 to protect against coronavirus.

Chairman Neil Chatterjee said all FERC staff have been “highly encouraged” to telework starting today until further notice.

The Rundown

New York Times In a Texas oil town, pain but no panic as prices crash

Reuters Few US shale firms can withstand prolonged oil price war

Wall Street Journal Oil crash is bad news for regional banks that went big on energy

Bloomberg Airline carbon plan takes a step forward while carriers suffer

Calendar

TUESDAY | MARCH 17

House is out. Senate is considering coronavirus legislation.