It is with incredible equanimity that the media has digested the announcement of a 5 million barrel ‘test’ release from the Strategic Petroleum Reserve on Wednesday, but the market certainly hasn’t – WTI crude plummeted $2.30 on the news.
It doesn’t take much analysis, however, to see that this is a weak attempt to flex some muscle to use the US energy boom as a wedge against Russian energy influence in Ukraine and the rest of Eastern Europe.
This ridiculous meme has gained traction in the last week and a half from mostly GOP leaders in Washington, suggesting that the United States ‘drill everywhere’ and begin exporting natural gas into Europe – a silly idea I’ve debunked several times this week in columns and on air – but now this fantasy has gotten support from real policy in the White House in this latest SPR release.
To put this in context, the last SPR release was in 2011 in response to a coordinated support of rebels in Libya, offsetting the 1 million barrels a day of lost Libyan supply caused by the war. Before that, the SPR was used in the aftermath of hurricane Katrina and before that, during Desert Storm in 1991. The pattern is clear: the strategic petroleum reserve was designed to be used in the national interest in moments of extreme market stress – which is why this release is being falsely called a ‘test’ by the DOE.
Test, nothing – this is President Obama looking to act tough and give credence to a wrong-headed and just plain wrong idea that the US energy boom can in any way be used to deter Russian influence throughout their old satellite states and into Eastern Europe and the EU.
Natural gas is where Russia holds their iron fist – in states like Finland, Latvia, Poland, Hungary, Romania and even in Turkey, a vast majority of the natural gas comes from Russia, with most of that gas flowing through Ukrainian pipes. This delivers a stranglehold of energy supply that no politics can overcome. Russia has shown the will and ability to change political minds using the spigot in 2006 and 2009, perhaps an even more persuasive tactic than troop placements can be.
US exports of Liquid Natural Gas (LNG) to loosen Russia’s grip on Eastern Europe is a laughable idea, requiring fresh and fast build outs of incredibly uneconomic and impractical export facilities that…