New York (CNN Business)The Biden administration is releasing 1.5 million barrels of crude oil from America's emergency stockpile of oil as Louisiana's gas crisis worsens.
The decision to tap the Strategic Petroleum Reserve, or SPR, comes as two-thirds of the gas stations in New Orleans and Baton Rouge are out of gasoline in the aftermath of Hurricane Ida.
This will "alleviate any logistical issues of moving crude oil within areas affected by Hurricane Ida to ensure the region has access to fuel as quickly as possible," the Energy Department said in a statement.
The SPR, a complex of deep underground storage caverns in the Gulf Coast holding more than 600 million barrels of crude, is reserved for emergency situations — and the aftermath of Hurricane Ida appears to be one of those.
President Joe Biden hinted at the move earlier Thursday, saying he directed Energy Secretary Jennifer Granholm to consider using the Strategic Petroleum Reserve "to keep gas flowing to the pumps."
Releasing oil from the SPR, which holds more than 600 million barrels of crude, could ease some of the immense pressure on the region's energy system after taking a direct hit from the Category 4 storm.
Nine Louisiana refineries are partially or fully shut. Regulators said Thursday more than 93% of the Gulf of Mexico's oil production remains offline, up from around 80% on Wednesday. And gas prices have climbed by nearly four cents a gallon in the past week to $3.18, according to AAA. That's just shy of the seven-year highs hit last month.
"This makes perfect sense. Give refiners some oil if they need it right away, and they can get it back when things clear up," Tom Kloza, global head of energy analysis at the Oil Price Information Service, told CNN in an email.
An Energy Department spokesperson said the emergency move is aimed at easing logistical problems caused mainly by portions of the Mississippi River being closed as several sunken vessels are still blocking the river.
The relief is being structured as an exchange, like a loan. In this case, ExxonMobil's (XOM) Baton Rouge refinery will receive the 1.5 million barrels to meet a shortfall as it reopens. But Exxon will need to replace the oil, along with a premium, within about two to three months, the Energy Department spokesperson said.
'They're in a bad situation'
The Energy Department said it is encouraging refiners to prioritize gasoline to the affected region and remains committed to supporting those efforts through options including the SPR.
The SPR decision comes as the gas station outages in Louisiana linger and now some gas stations in Mississippi have begun to report smaller levels of outages on GasBuddy.
Drivers who find gas stations with fuel face very long lines that can last eight or nine hours.
"They're in a bad situation. They have no power. Roads aren't functional. That place got creamed," said Robert Yawger, director of energy futures at Mizuho Securities USA.
In August 2005, the Bush administration tapped the SPR after Hurricane Katrina cause severe damage to the energy industry. The Trump administration did the same after Hurricane Harvey in August 2017.
'Cut the bottlenecks'
Long before the hurricane struck, the federal government planned to sell crude out of the SPR this fall. Speeding that timing up could make crude available for refiners dependent on pipelines or waterways that haven't yet restarted or reopened.
Patrick De Haan, head of petroleum analysis at GasBuddy, told CNN that tapping the SPR could ease pressure on the system — especially if Louisiana refineries begin to reopen in the coming days.
"After a catastrophe, cut the bottlenecks," De Haan said, adding that he's heard from some refineries worried about where they will source oil from because of logistical problems caused by the storm. "Why not open the SPR? It's not perfect. But it may be an option for some refineries."
However, tapping the SPR won't be a magic wand, especially given the power outages and port closures.
Some analysts expressed skepticism about the move.
"The shortfall in gasoline is not due to a lack of crude oil supply. It is due to refinery outages," Richard Joswick, global head of oil analytics at S&P Global Platts, said in an email before the decision was announced. "Releasing crude oil from the SPR will not help gasoline."
Restoring power is key
Yawger, the Mizuho executive, doesn't think tapping the SPR will make sense because those barrels would still need to be refined. And barrels from the salt caverns of the SPR need even more refining than the average barrel.
Instead, Yawger said the federal government should offer emergency tax incentives to encourage gas tankers to transport more fuel to Louisiana. And he said authorities must get the power grid back online.
"You've got to get the electricity situation under control. You need power to make all these things work," he said.
Gas stations can't pump gas without power. Refineries can't produce more fuel without power. And if there's no power, tankers can't fill up at terminal racks that dispense fuel.
White House officials insist the administration is laser-focused on getting the power situation back online.
"We know that there is much to be done in this response on our part. We need to get power restored," Biden said Thursday.
EPA, truck driver regulations waived
The federal government has also taken other steps aimed at easing the fuel shortages.
The Internal Revenue Service late Wednesday waived certain tax penalties in Louisiana, clearing the way for more types of diesel to be sold at gas stations, many of which have run out of diesel.
Biden said he directed the Transportation Department to renew a declaration that will increase the number of hours a truck driver can drive. That's critical given the ongoing shortage of truck drivers in America.
The trade group that represents fuel marketers and convenience store chains applauded the Biden administration for renewing that declaration and including gasoline, diesel and jet fuel in the list of essential supplies.
"Allowing drivers to occasionally work more hours will reduce the number of trucks and drivers it takes to move the same amount of fuel," Ryan McNutt, a spokesman for the Society of Independent Gasoline Marketers of America (SIGMA), told CNN.
"Right now SIGMA believes the actions the federal government has taken to be sufficient," McNutt said, adding that if power outages continue additional actions could be required.
Citing "extreme and unusual fuel supply circumstances," the Environmental Protection Agency has also waived certain environmental regulations in Louisiana and Mississippi to help boost supply.
Kloza, the OPIS analyst, suggested the EPA should consider pulling the same lever elsewhere. "They could do in virtually all coastal states from Louisiana to Maine and not face a backlash," he said.
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