America to Sell More From SPR // Tanker Rates Soar 400% on Sanctions News // FERC Approves Western Resource Adequacy Program

America to Sell More From SPR

The Biden administration plans to sell off 26 million more barrels from the Strategic Petroleum Reserve in order to fulfill a 2015 budget mandate for this year.

"The congressionally mandated sale will amount to 26 million barrels of crude, according to people familiar with the matter. The sale is in accordance with a budget mandate enacted in 2015 for the current fiscal year, said a spokesperson for the Department of Energy," reports Bloomberg. "The Energy Department has sought to stop some of the sales required by 2015 legislation so that it can refill the emergency reserve, which currently has about 371 million barrels. After this latest release, the reserve will dip to about 345 million."

This decision follows criticism from Republicans over the administration's 180 million barrel drawdown last year, who saw the release as a campaign stunt to lower gas prices before the election. But some commentators have praised the wisdom of the SPR release for balancing the market in a time of crisis.

The US benchmark for crude, West Texas Intermediate, fell 1% to about $79 a barrel after the announcement of the new release.

Tanker Rates Soar 400% on Sanctions News

Last week, clean product tanker rates saw a 400% surge due to the European Union and G-7 nations imposing restrictions on Russian crude exports.

Russian energy flows have redirected from Europe to Asia in response to sanctions; the new routes rely more on tankers. This has led to a shortage of tankers for traditional routes, and the cost of freight has skyrocketed. The daily rates for clean product tankers have increased by 58% to $55,857, and about 400 tankers or 20% of the global fleet have switched to carrying Russian petroleum products.

"Furthermore, crude prices have edged over $86 a barrel following last Friday's announcement that Russia will reduce crude oil production by 500,000 barrels per day," reports Oilprice.com. "This is in response to Western price caps on purchasing Russian fuel."

FERC Approves Western Resource Adequacy Program

The Federal Energy Regulatory Commission (FERC) has approved a new regional resource adequacy program for Western utilities called the Western Resource Adequacy Program (WRAP).

The program, set to take effect in mid-2025, will allow utilities to share capacity, pool resources, and ensure sufficient power supplies for the Western US region through a regional approach that is expected to be more efficient and less expensive.

“Through increased coordination, we find that the WRAP has the potential to enhance resource adequacy planning, provide for the benchmarking of resource adequacy standards, and more effectively encourage the use of western regional resource diversity compared to the status quo,” FERC said.

"The WRAP includes two main components. Its 'forward showing program' requires participants to show seven months ahead of winter and summer seasons that they have enough capacity to meet a required planning reserve margin based on their peak load. They must also show they reserved at least 75% of the transmission needed to deliver energy from the capacity to their load, FERC said. Participants that fail to satisfy those requirements face penalties," reports Utility Dive. "The WRAP also has an 'operations program' to address shortfalls ahead of an operating day. Participants that lack needed supply can call on resources from other power pool participants with surplus capacity. During certain 'capacity critical hours,' participants with excess capacity must hold back that capacity and are required to sell it to participants without enough resources to serve their real-time load."

The program will anticipate power supply needs as thermal power plants retire and are replaced by variable renewable energy resources such as wind and solar, helping to enhance price formation in the Western Interconnection. But if every participant in WRAP commits to the transition to renewables resources, balancing problems will blossom into regional affairs that market interconnection will struggle to overcome.

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Conversation Starters

1. OPEC foresees growth in oil demand. "OPEC has raised its 2023 global oil demand growth forecast in its first upward revision for months, due to China's relaxation of COVID-19 restrictions, and trimmed supply forecasts for Russia and other non-OPEC producers, pointing to a tighter market," reports Reuters. "Global oil demand will rise this year by 2.32 million barrels per day (bpd), or 2.3%, the Organization of the Petroleum Exporting Countries said on Tuesday in a monthly report. The projection is 100,000 bpd higher than last month's forecast. A tighter supply and demand balance could support oil prices that have held relatively steady since December and stand at a little less than $86 a barrel."

2. The Dutch are looking into more LNG infrastructure. "Dutch gas grid operator Gasunie continues to explore the expansion of LNG import capacity at the northern Dutch port of Eemshaven and at the Gate terminal in Rotterdam, it said on Tuesday, " reports Natural Gas World. "In a statement, Gasunie said it had discarded the possibility of adding a temporary floating LNG terminal at the southern port of Terneuzen. Gasunie said it is targeting a fourth tank with capacity of 4 billion cubic meters (BCM) at Gate while expanding Eemshaven to 9 bcm capacity "before the end of this year" and later to 10 bcm, from 8 bcm currently."

3. Poland and Canada are pursuing SMR development together. "Canadian and Polish nuclear regulators have extended their cooperation under a newly signed memorandum on joint activities in the field of small modular reactors (SMRs), particularly the BWRX-300," reports World Nuclear News. "The agreement was signed by Andrzej Głowacki, acting president of Poland's National Atomic Energy Agency (Panstwowa Agencja Atomistyki, PAA)and Rumina Velshi, chair of the Canadian Nuclear Safety Commission (CNSC), on the sidelines of the International Atomic Energy Agency conference onEffective Nuclear and Radiation Regulatory Systems in Abu Dhabi."

Crom's Blessing