https://en.wikipedia.org/wiki/Global_strategic_petroleum_res...
Oil tankers that are converted to FPSOs and FSOs are among the most expensive storage available for crude.
[1] https://www.worldoil.com/news/2020/3/13/trump-to-fill-us-str...
Is there a point where not using the stored reserves by a certain year would make it unusable if bought today?
Not sure who took it out, but it seemed like a great opportunity.
On a consumer level, it would just delay the inevitable price decline of oil, heating fuel, diesel, gasoline, resid, and jet fuel, and that delay would be harmful to alternative energy investment and electric car sales. Not to mention it would benefit China, a place where industrial activity has already been rebooted.
The economy isn't down because oil prices are down. It's quite the opposite; the oil market is reflecting the economic reality. Prices were declining even prior to the OPEC+ meeting. If it were not for the market already softening, nobody would have been discussing additional production curbs at all. We had a mild winter, so heating fuel demand was low. Industrial production was interrupted, so that hurt demand for residual fuels that give energy to factories and power generation plants, as well as the ships that carry goods across oceans. Diesel was affected for the same reason. Jet fuel demand is down due to the complete standstill of the travel industry. Even bitumen and carbon black should see decreased demand because when people stop commuting and traveling, there is less need to resurface roads and replace tires. Plus, if you're not driving your car, you're not buying much gasoline.
Those are massive, natural reasons why demand is down for gasoline, middle distillates, and heavy residues. You can't bring that demand back by simply pumping a few-hundred-million barrels of oil into the ground for storage.
The way to induce a manufactured shortage would be by imposing import restrictions or tariffs.
2. Strategic reserves are generally in salt domes and other accessible underground formations, so there is actually a cost to filling them and also to pumping them empty. And you can't exactly "double capacity" without buying old wells from corporations. So what you are proposing would actually be a bailout for oil producers.
3. Petroleum reserves are not terribly useful to the economy, aside from two particular cases: war and natural disaster. In war, supply chains get interrupted and fuel demand goes up. In natural disasters, production and storage can be interrupted. Outside of those two things, the ability for frackers and other high-cost producers to come online and sell oil will naturally act as a resistance to skyrocketing fuel prices in times of supply shock.
4. This could be a massive moment for renewable energy; goods transportation costs are very low and many people will be seeking work once the pandemic abates, so the government could establish WPA-style programs to build wind farms, electrical grid improvements, and solar farms -- instead of spending that money on buying fossil fuels in order to pump them back into the ground. Instead of spending money in an attempt to cling to fossil fuels, we could use this moment as an opportunity to pivot.
5. The sooner the price of oil bottoms and a few overextended frackers devalue themselves by selling at a loss in order to generate cash flow, the more likely it is that Saudi Arabia will be satisfied with the results of its price war and will return to the negotiating table to re-establish output curbs. If you try to artificially boost the price by buying crude, all you will end up doing is delaying the natural solution. Low prices solve the problem of low prices, by pushing many market participants out of the supply side and allowing the survivors to push up prices again in an attempt to capture their larger market share at a price point with a favorable profit margin.
6. Strategic petroleum reserves aren't that big, and many of them were already quite full prior to the selloff. Even the US SPR had only enough capacity to absorb all Saudi production for less than two weeks.
It's not even clear that the US one is useful for war anymore. At the time it was built, the US was a net importer of about 5 million barrels/day of oil, so it made sense to have a buffer allowing the country to weather a few months of an embargo. But now the US is a net exporter. The strategic petroleum reserve can handle withdrawal of about 4 million barrels/day, compared to about 11 million barrels/day of regular US production, which is more than enough for total domestic demand. And the regular production is more geographically distributed and redundant. If anything, just leaving the oil in the ground in its original locations is a better strategic reserve nowadays, compared to pumping it out of one part of the US, only to pump it back into the ground in a different part of the US, into a facility that forms more of a single point of failure, and doesn't even have a faster withdrawal rate. That's just shuffling oil around between different holes in the ground as a kind of make-work job.
In my mind a bailout is cash in exchange for nothing. If you're paying someone for the usage of something they own, isn't that just commerce?
Companies can't actually produce oil for $5/bbl. In the long term that price would drive some of the producers out of the market and then the price would increase. It might go lower than it is right now before it goes back up, but it won't stay at $5/bbl in the long-term. They might give up the chance to pay $5/bbl instead, but it's unlikely they'd be losing money on the deal. Assuming they actually resell the oil when the price rebounds.
> This could be a massive moment for renewable energy; goods transportation costs are very low and many people will be seeking work once the pandemic abates, so the government could establish WPA-style programs to build wind farms, electrical grid improvements, and solar farms -- instead of spending that money on buying fossil fuels in order to pump them back into the ground. Instead of spending money in an attempt to cling to fossil fuels, we could use this moment as an opportunity to pivot.
WPA-style programs were never really efficient. They came out of the Keynesian argument that it's better to pay someone to dig holes and fill them back in than have them unemployed, because they're still not doing anything useful but at least then they have money to spend in the economy, and if you can get them to work doing anything even marginally useful then even better.
The biggest problem with it is that you're better off to just give them the money unconditionally (so they have it to spend) and then let them find a normal job with a normal level of productivity while still receiving the extra money, because there would be plenty of normal jobs now that everyone has some money to spend again and normal jobs are more productive than makework.
But that brings us back to the low oil prices. If you're going to stimulate employment by handing out cash, where does it come from? A carbon tax is a damn fine source, but even better when you have low oil prices, because then consumers don't feel it as much. And then you get your green jobs, automatically, because the carbon tax keeps oil and coal more expensive than electric cars and solar panels, and then there's a lot of demand for building electric cars and solar panels from all the people with money to spend because they're receiving the dividend from the carbon tax.
> The sooner the price of oil bottoms and a few overextended frackers devalue themselves by selling at a loss in order to generate cash flow, the more likely it is that Saudi Arabia will be satisfied with the results of its price war and will return to the negotiating table to re-establish output curbs.
I don't know about that. I think everybody sees the writing on the wall here -- we can't burn the known reserves we have in the ground or the world is totally screwed, so somebody is going to end up sitting on a whole lot of oil and coal that doesn't get sold before the world switches away from it. Nobody wants to be the ones holding the bag so everybody is now trying to sell their reserves for whatever they can get before one solution or another shuts down the demand permanently. That's not likely to change even if some of the producers go bust.
What gets price back up (some, maybe never fully to where they were) isn't the Saudis cutting production after the frackers go bust, it's just the frackers going bust. Which they'd still do even if we topped up the reserves, because that by itself wouldn't get the price up to where they'd need it to stay in business.
The real question is, if we top up the reserves, what are we supposed to do with them then? Do we want to be the ones holding the bag?
On another topic, unfortunately this is a 'massive moment for renewable energy' but not in a good way. Their great competitor, fossil fuels, have now just tripled their cost-effectiveness. And government subsidies for renewables are also being pinched to balance budgets.
In an interesting twist, the fossil fuel company I work at are now on the hunt for 'distressed assets' in the renewables industry.
I have no idea what our current situation means long term for climate change, but cheap oil is going to be with us for some time now.
Oil was above $60/bbl three months ago. A rebound wouldn't have to be $60, it could just be $20 or $30.
It would only stay around $5/bbl if we actually do the carbon tax or something of a similar nature. That could suppress demand to an arbitrary degree indefinitely and then wholesale prices might never rebound.
Electric cars are here, not in some far off hopeful environment with a few for rich people and nerds but here. Countries have mandated electric only in the near future. Coal mines are going broke. Renewable energy is often cheaper than fossil fuel energy.
This whole price crash is because two countries whose economies rely very heavily on oil profits can't really survive on $50 once they got used to $100 oil. Oil is $22 today because the monopoly was broken with North American oilsands kinds of production and enormous in ground capacity puts a price cap on oil.
We're watching two countries fight over the scraps of the oil market. Now this is on the scale of decades, but it's not just far off thinking but near-term risk of oil demand plummeting ... the current world economic shutdown is just a little extra nudge.
If we filled and doubled all of those strategic petroleum reserves, there would be serious doubt if they would ever – ever be used.
We are in the early stages of exponential growth of batteries replacing fossil fuels. After a generation, internal combustion will seem quaint.
Why oil price is crashing is simply variance in the greater scheme of things. Not some death knell to it, not in 2020. Industry will take far far longer to convert to electrical/alternative methods of energy.
Though I'll concede that oilsands/hydraulic fracking dealt a serious blow to oil prices worldwide.
Batteries are cheaper than electric peak plants. Solar and wind are cheaper than coal and still benefiting from economies of scale and technology development.
Getting energy from the sun and wind is already cheaper than some fossil fuel sources. Conversion will accelerate as that gap widens.
Maybe some are, but world coal consumption is actually increasing. Imho the bigger effect here is developed countries externalizing pollution and manufacturing costs (electric cars take a lot more energy to make) to countries that don't mind burning whatever they can find. China has enormous reserves of brown coal - they'll happily burn it to make our solar panels and wind turbines.
http://theconversation.com/explaining-the-increase-in-coal-c...
With the upcoming generation, driving an ICE car will be a social stigma, and electric a status symbol.
Growing global warming problems and anti-environmenalist population aging means there will be growing support for taxing ICE and incentivizing electric vehicles.
The used market will begin to include more and more electrics.
Electrics are far cheaper to operate, competition and economies of scale will make electrics cheaper because they are far mechanically simpler.
Some places already have plans for banning ICE vehicles, cost be damned.