In the News - Oil Reserves

Show Notes

Nia and Aughie discuss the Strategic Petroleum Reserves of the United States, and criticisms of it from all sides of the political spectrum.

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Nia Rodgers: Hi, Aughie.

John Aughenbaugh: Morning Nia, how are you?

Nia Rodgers: I'm excellent. How are you?

John Aughenbaugh: Not bad. Thank you very much.

Nia Rodgers: Yeah.

John Aughenbaugh: Once again listeners you'll be pleased to know, of course, Nia is probably more pleased because she's got to talk to me. I am fully caffeinated.

Nia Rodgers: Wow, we're ready to start.

John Aughenbaugh: Yeah.

Nia Rodgers: I have a question for you.

John Aughenbaugh: Okay.

Nia Rodgers: You know that box of gross pasta that's made of carrots that your mom got on sale, that's in the back of the cabinet and she says to you, ''Don't eat that. We may need it at some point.''

John Aughenbaugh: Yes.

Nia Rodgers: I'm thinking, yeah, during the zombie apocalypse we might need that. There's no other time we're going to need that. That is how I think of the strategic petroleum reserve of our country. Would you say that I am in the neighborhood of how we think about it in terms of its sits at the back of the cabinet?

John Aughenbaugh: Yeah, it falls into the category.

Nia Rodgers: How the gross is not have not used for a while.

John Aughenbaugh: Only opened in times of emergency.

Nia Rodgers: Break glass when needed.

John Aughenbaugh: Yeah, right.

Nia Rodgers: It's not stored in glasses, that would be terrible.

John Aughenbaugh: No.

Nia Rodgers: Okay.

John Aughenbaugh: What we're talking about when we're recording this podcast episode, this has been a big item in the news. The media refers to it as the US oil reserves, but it's an official title. Again, because we are talking about the government that has to be an acronym. We're talking about the SPR, the strategic petroleum reserve and this is, as Nia just gave us an analogy, it's the emergency stockpile of petroleum maintained by the United States Department of Energy. Okay?

Nia Rodgers: It's measured in terms of barrels, even though we don't keep it in barrels because we'd like to confuse the issue. I looked up how many barrels like what's the measurement of that? It is 42 gallons.

John Aughenbaugh: Yes.

Nia Rodgers: So one oil barrel equals 42 gallons of liquid.

John Aughenbaugh: Petroleum.

Nia Rodgers: Petroleum.

John Aughenbaugh: It's not refined yet.

Nia Rodgers: Right.

John Aughenbaugh: It's not been defined yet and listeners 42 gallons. Think about your gasoline tank on your automobile, according to the National Highway Transportation Safety Board. Well, is that a mouthful? The average American vehicle has a gasoline tank that holds little more than 17 gallons of gas, okay?

Nia Rodgers: Yeah, I drive a smaller car, so mine is like 11, but yeah.

John Aughenbaugh: Yeah.

Nia Rodgers: I imagine have 25, not Mac trucks but F10 raised up.

John Aughenbaugh: Yeah. Your regular pickup trucks usually hold over 20.

Nia Rodgers: Okay.

John Aughenbaugh: The average is somewhere around 17.

Nia Rodgers: Okay.

John Aughenbaugh: You're basically talking about each barrel holds about two-and-half gas tanks worth of petroleum.

John Aughenbaugh: Now, listeners, you may be wondering, Nia and I, the reason why we're doing this short episode is that Nia and I have received a lot of questions from friends, family members, students. What is this oil reserve that the media is talking about? When we're recording this podcast episode, the week before President Biden announced that he was going to tap into the US oil reserve.

Nia Rodgers: Let's start with when did we get an oil reserve? Have we always had one since the beginning of oil?

John Aughenbaugh: No, we did not get one until 1975.

Nia Rodgers: Gas lines.

John Aughenbaugh: Very good.

Nia Rodgers: That's OPEC, right? That's OPEC and we're going to turn off the faucet and we went and we panicked.

John Aughenbaugh: Yeah, if for our younger listeners, Nia and I are at the age of the generation where when we were kids, we remember gas lines because in 19731 and 1974, OPEC, which is the organization, some would say the cartel of oil-producing nations decided that their primary form of leverage over the West was oil.

Nia Rodgers: Which we started, because I'm just going to tell you what in 1973, I was six years old and my parents drove a station wagon that probably got five miles to the gallon. It was this huge honking, heavy because they put a bunch of kids and dogs and whatever, and off we went on. It was like a tank. I assumed that it had the gas mileage of a tank, it was terrible.

John Aughenbaugh: By the way, listeners, it didn't matter if you had a large vehicle, which most vehicles in the United States had that tank.

Nia Rodgers: But were there even small vehicles then?

John Aughenbaugh: What I'm going to share with you is my family had a Chevy Nova.

Nia Rodgers: Nova.

John Aughenbaugh: We could barely fit the five of us in the car with the dog. It was cramped, but even the Nova only got about 11 or 12 miles to the gallon, right?

Nia Rodgers: Right. Most people were driving like Cadillac. Really big, Impalas, just huge cars because Americans were like, I want a real estate car. They want a big car.

John Aughenbaugh: Well, that was a sign of your status.

Nia Rodgers: Right, what it did cause was I remember sitting in gas lines. I remember sitting in the car with my dad while he waited on an off whatever the license plate like your license plate number had to do with when you could go and get, on Monday or Wednesday or Tuesday or Thursday.

John Aughenbaugh: You could only get five gallons at a time.

Nia Rodgers: Right.

John Aughenbaugh: Okay.

Nia Rodgers: It was a serious thing and there's Jimmy Carter in the White House telling us to put on sweaters and turn off, turn their [inaudible] .

John Aughenbaugh: Well, that was Jimmy Carter.

Nia Rodgers: That's later.

John Aughenbaugh: Later.

Nia Rodgers: That's right. That's later. This is where it was.

John Aughenbaugh: It was during the Nixon and then Ford administrations. They were like, we need to ration gas.

Nia Rodgers: My bad. Jimmy Carter was reacting to this later.

John Aughenbaugh: Yeah.

Nia Rodgers: This whole idea of being well, the whole idea of being, of owing other countries or having, or being vulnerable and that's what President Biden is talking about. Being vulnerable to other nations in this particular instance, Russia. Because as of recording Russia and Ukraine are having a fracas, then I can see where presidents would react by saying, ''You know what? We're not gonna be in this position again. We're not going to be in a position where some country or some group of people can stranglehold our oil supply.'' Who runs it?

John Aughenbaugh: The Department of Energy runs it. The Strategic Petroleum Reserve, and I'm just going to go with the acronym SPR, is actually stored in underground tanks in four sites in Louisiana and Texas and by the way-

Nia Rodgers: That's a good idea in hurricane country. Yeah, that's not dangerous at all. What's wrong with storing it in Iowa or Nebraska? Well, no. Then you've got tornadoes. I guess there's no good place.

John Aughenbaugh: Well, here was the thinking. Whereas most, there are three states that do most of the refining of petroleum in US.

Nia Rodgers: That makes sense. You'd not want to have to pump the crude very far in order to the refineries and that's Louisiana, Texas and-

John Aughenbaugh: You're not going to guess the third one.

Nia Rodgers: California?

John Aughenbaugh: No. New Jersey.

Nia Rodgers: Wow. Well, in New Jersey you have freezing temperature. There's all issues with doing it there too. There's no good place to do this. I see that near the refining makes sense.

John Aughenbaugh: Yes.

Nia Rodgers: Is there a lot?

John Aughenbaugh: Potentially, the SPR, the four underground tanks can hold 714 million barrels. As of December 4th of last year, the inventory was nearly 594. By the way, the reason why we were not at full capacity,.

Nia Rodgers: I was going to say I'm not math brilliant, but I'm pretty sure there's 200 million barrels missing there.

John Aughenbaugh: The reason why we're not at full capacity, and I had to do a little bit of digging. But I got this verified by multiple sources. Since 2015, and this has not been publicized. Congress has been selling some of the oil from the SPR to fund the deficits spending of federal government.

Nia Rodgers: Oh my gosh. Technically I'm seeing the front of the box of the pasta. But somebody has been eating out of the back of the box of the pasta. Even when we have a zombie apocalypse, when we go to make that box of pasta, it's not going to be as much as we thought. Nice Congress, Thanks.

John Aughenbaugh: Because we've had rats and mice eating from the back of the box, and we've been completely unaware of this.

Nia Rodgers: Congress, rats and mice, yes.

John Aughenbaugh: They have since 2017, held at least seven sales, where they have sold 132 million barrels, about 18 percent of what had been in the reserve.

Nia Rodgers: Who do they sell it to? Do they sell it to a gas companies?

John Aughenbaugh: No, they go ahead and sell it to other nations. They use it for strategic.

Nia Rodgers: I see.

John Aughenbaugh: For policy purposes.

Nia Rodgers: Friendly nations, probably mostly.

John Aughenbaugh: Yes,

Nia Rodgers: Otherwise it would have been found out by the Washington Post and exposed. But that's extremely unfortunate that we're almost 20 percent down from where we would normally be. Now, how many days? Well, you can't say how many days it would last exactly because we don't know exactly, but how many days do we think our oil reserves would last if and when they get tapped?

John Aughenbaugh: The capacity of releasing the oil is 4.4 million barrels per day.

Nia Rodgers: How much do we use per day?

John Aughenbaugh:: Very good question. Typically, we use 20.5 million barrels of oil a day.

Nia Rodgers: That leaves us a small but important deficit of 3/4 of what we need?

John Aughenbaugh: Yes. By by releasing oil from the SPR-.

Nia Rodgers: I need you to turn the faucet on. Dribble, dribble, dribble, dribble.

John Aughenbaugh: But again, that's what doesn't get reported. By tapping the SPR. All it would do is meet some of the demand. Not all of the demand.

Nia Rodgers: It's not a solution.

John Aughenbaugh: It's not a solution. It is a short-term fix to lower the price of gasoline in the United States. That's the reason why President Biden is contemplate here, decided to do this was that the price per gallon of gasoline has gone up pretty significantly for a number of reasons. The most prominent one is concerns over the amount of petroleum being produced and shipped around the world because Russia is one of the largest oil producers in the world.

Nia Rodgers: I would argue that corporate greed has something to do with it as well, but we can't get into that because that's a long episode, not a short episode.

John Aughenbaugh: There is some evidence of that. Let's also face it. When Americans are told there's going to be a shortage of something-.

Nia Rodgers: They go buy it all.

John Aughenbaugh: Yeah. Instead of actually doing the rational thing.

Nia Rodgers: Conserving

John Aughenbaugh: How do we change our behavior so that there isn't less supply? We actually increase our demand.

Nia Rodgers: We should probably stop doing that. I'm just going to say we should probably stop doing that.

John Aughenbaugh: It is fascinating how Americans.

Nia Rodgers: Once there's no toilet paper, I'm going to buy 400 rolls of it. Calm down. That's taken off a long time to get through.

John Aughenbaugh: We saw this at the start of the pandemic. You just mentioned toilet paper. I remember there was a run-on hand sanitizer. I'm just like guys. Just use hand soap and water. Just wash your hands. But no, I must get hand sanitizer.

Nia Rodgers: Or you could just get soap.

John Aughenbaugh: Yes. Just get some dial or whichever we're not sponsored. Whichever soap you want, Dove, dial, Irish, whatever. Whatever you want your hands to smell like.

John Aughenbaugh: Just wash your hands more and don't touch your face.

Nia Rodgers: Which touching your face is the hard part, or not touching your face is the hard way. If somebody tells you not to touch your face, it's like telling you not to look over your shoulder. Before we end because I know we need to wrap up here just in a couple of minutes for this short episode. I would think that a major problem to this whole system would be that those tanks that are buried in the ground cannot last forever.

John Aughenbaugh: That's a completely different episode. I would think that we would have to go ahead and talk about not only the storage tanks for petroleum, but the storage tanks for nuclear waste.

John Aughenbaugh: Superfund sites.

Nia Rodgers: Yes. We'll have to talk about it. We'll do an episode on that at some point.

John Aughenbaugh: But listeners I did want to go ahead and have us briefly talk about criticisms of tapping the SPR. By the way, there are criticisms from all over the ideological spectrum.

Nia Rodgers: I'm sure everybody hates this idea. I can just hear the liberal side saying-.

John Aughenbaugh: Go ahead.

Nia Rodgers: Saying, but we shouldn't keep oil in the ground. It's terrible. It's going to ruin the water. Environmentally, it's horrific. What are we doing here? I can hear that.

John Aughenbaugh: Keep on going. Because for the left, it's not only environmental concerns.

John Aughenbaugh: It's energy concerns. Why can't we run things by solar power? Why can't we run things by wind? Why do we have to use fossil fuels? Fossil fuels are evil, which by the way, I don't disagree with necessarily, but I'm just saying that would be a criticism of this would be. This does not force us as a culture and as a country to move away from fossil fuels if we stash fossil fuels. That's like saying, I'm going to start a diet, but I'm going to keep these Oreos here just in case. You're never going to make headway as long you keep eating the Oreos in addition to trying to, you know what I mean? Like it's just not going to work.

John Aughenbaugh: Because this creates what economists refer to as a moral hazard. You're not going to change your behavior if there are no consequences for not changing your behavior. If we're going to have the reserve to deal with this kind of situation, there's no good incentive for us to wean ourselves off of a reliance on fossil fuels.

Nia Rodgers: I think that's a legitimate criticism.

John Aughenbaugh: Sure. From the right and to petrol. Yes.

Nia Rodgers: Can I guess from the right? This is not letting the hand of the market. What is the invisible hand of the market work its magic. J.

John Aughenbaugh: It's Adam Smith.

Nia Rodgers: They are expensive. That will cause people to buy less of it, which will automatically cause them to conserve and that will take care of the problem. That's what we should be doing instead of tapping our reserve. J.

John Aughenbaugh: Yes. Those on the right and from the petroleum industry have gone ahead and said, by tapping the SPR, you are artificially affecting the conditions in the gasoline market. Instead of allowing the market to correct itself, the government is intervening and is making the market actually less efficient.

Nia Rodgers: Go ahead. I'm going to argue there's probably another point from some people on the right, which is, we should not be using our reserve for this purpose. We should be holding onto it for a time when it is what we think of as really, really bad. I'm not trying to be ugly, but five dollar gallon of gas is very different than what is the potential of seven or eight dollar a gallon of gas. If you let your reserves go too soon, then you won't have it for if things get truly remarkably bad. That is the prepper mentality on the right of the extreme, we should hold onto every bit of it and just tough it out for this. There's also that part that's probably on the right as well. J.

John Aughenbaugh: But then listeners, let us not forget the other criticism. This is coming from consumer groups, which is, why do we wait until gasoline prices are really high before tapping the SPR?

Nia Rodgers: Why you did have to go over four dollars? Why couldn't it be 350 or three? J.

John Aughenbaugh: Because we know this and study after study shows this, high prices for these types of goods. Gasoline, food, rent hit which class of Americans the hardest?

Nia Rodgers: Poor Americans. Poor working Americans get slammed the hardest. You try to go to work when your gas is four dollars a gallon and you can't live close to where you work because it's expensive to live close to where you work, so you live further out and you have to drive in, then it becomes a question of whether you go to work or not. J.

John Aughenbaugh: You cannot afford hybrids or other more gas efficient vehicles, because again, you're poor.

Nia Rodgers: You probably gotten a vehicle from somebody it's older. J.

John Aughenbaugh: Yeah. I was going to say it's older. You're not going to get the best gas mileage with your vehicle. You are even more dependent on purchasing gasoline that is now costing you more. It's cutting into the monies you would have for food, rent, and or mortgage, putting clothes on the backs of your kids, etc. There's a cascading effect here. Then there's the really cynical, and because I teach politics, I can't resist this one.

Nia Rodgers: I'm just going to say, is this your criticism? J.

John Aughenbaugh: This might fall into that category.

Nia Rodgers: I fall into this category. When I read your notes, I was like, that's why I don't like it. J.

John Aughenbaugh: Nia, what's happening later this year? This is 2022.

Nia Rodgers: I don't know. I would think that that would be maybe the off term elections. J.

John Aughenbaugh: Yeah. The midterm elections.

Nia Rodgers: The midterm election where I am sure that President Biden expects to take a shelacking because guess what? President Biden is going to take a shelacking because that's what happens to the sitting president in the midterm elections. It's feels to me a little greasy like maybe he's trying to, you know what I mean? Like maybe he's trying to say, but look, I did this great thing and it brought the prices back down and don't you love me? mwa! And I'm like. That's how I feel about that. Blah. J.

John Aughenbaugh: Again, this goes back to something we've talked about in numerous episodes. Congress gives the President almost unilateral authority to decide when to tap the SPR.

Nia Rodgers: Except when they're just selling it off on the side. Now, I don't even know they were doing that, and I loved the idea that they're like, "Hey man, want to buy some oil?" Just like they pull up in an unmarked van in front of another country and say, guess what I've got. I just think that's hilarious. No, I actually think in some ways that's appalling. It seems to me like there ought to be more of a public…to do. J.

John Aughenbaugh: That should have been made [inaudible] and the media should be covering that. We're willing to tap into our SPR to go ahead and deal with deficits spending.

Nia Rodgers: Yeah, that's a terrible idea. J.

John Aughenbaugh: Well, we deal with deficits spending.

Nia Rodgers: Exactly. Why don't we actually solve the problem instead of just, I'll just rob Peter to pay Paul, which is basically what you're doing there. Because at some point you're going to have to replace that oil. It's oil embezzlement. J.

John Aughenbaugh: Also, if you know you need an SPR, what does that tell you about your energy policy.

Nia Rodgers: There are so many things wrong with having this, but I'm glad that we got a chance to talk about it because I think it's important for people to have an idea of just what it is and what it does and really what's available. I do think that people should keep in mind something that the press is not saying, which is you said is that they can only release four... I'm assuming that they could change that, but they'd have to change it probably through law. J.

John Aughenbaugh: They would have to change it by law, but they would also have to spend a whole bunch of money to expand the capacity. I mean, just physically pulling up the petroleum tankers to the underground tanks to pull out the oil is a labor time-consuming process.

Nia Rodgers: It's not like we have truckers just laying around waiting for something to do. We don't. We have a huge tracker shortage in this country. J.

John Aughenbaugh: Which is one of the reasons why prices of other goods have gone up. Because even when the goods have been produced, they'd been shipped to this country. They are just waiting at docks be put onto 18-wheelers to be delivered to stores, the Amazon to Walmart, etc, so consumers can buy this stuff.

Nia Rodgers: Unless you live in the port of Washington. Your stuff was delivered by truck. J.

John Aughenbaugh: Yes.

Nia Rodgers: Just keep that in mind. Anyway. Thank you so much [inaudible]. I appreciate this is both interesting and nightmarish, and I would love for us to visit it again later after this whole thing settles and see where we end up with how much oil we have and what we think that's going to happen with policy in energy policy in the future. J.

John Aughenbaugh: Yeah, I would love to go on and talk about that because we've touched upon it on the periphery with a number of our episodes, but energy policy is just absolutely fascinating. As we say, it demonstrates so much of what goes into policymaking in the United States.

Nia Rodgers: It demonstrates how utterly schizophrenic Americans are about wanting clean energy, but wanting fossil fuel, but wanting this, but wanting that, wanting all the things from all the people. Because we're Americans, we just want it all. Thank you. J.

John Aughenbaugh: Thank you Nia. Great topic today. Thanks.