Strategic Energy Reserves

James Coleman, Law Professor at SMU's Dedman School of Law, joins Gus to discuss strategic energy reserves. Together they examine what a modern strategic energy reserve looks like,  how prices in different sectors are regulated, the need for geographically distributed storage, and much more.

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Transcript

Disclaimer: This transcript is auto-generated and has not been thoroughly reviewed for completeness or accuracy.

[00:00:00] Gus Herwitz: Welcome to Tech Refactored, a podcast in which we explore the ever-changing relationship between technology, society, and the law. I'm your host, Gu Horowitz, the Menard Director of the Nebraska Governments and Technology Center

On this episode, I'm speaking with James Coleman. 

[00:00:26] James Coleman: James Coleman. I'm a professor at SMUs Dedman School of Law that's in Dallas, Texas.

[00:00:33] Gus Herwitz: Professor Coleman's scholarship addresses regulation of North American energy companies focusing on how countries account for and influence regulation of fuel and electricity in their trading partners, and how global energy companies respond to competing pressures from investors and regulators in multiple jurisdictions. He also publishes the Energy Law Professor blog, and you can follow him on Twitter @EnergyLawProf. Our discussion is structured around. Current work that looks at the strategic petroleum reserve, what a modern strategic energy reserve [00:01:00] would look like, and the challenges of creating such a reserve. This all falls into the category of energy policy. So that is where our discussion begins.

What is energy policy? 

[00:01:13] James Coleman: Well, it encompasses actually a number of concerns, so I think often the thing that we hear about in law school, I'm a law professor, is the environmental policy aspect of that, which is how do we limit the impact of the energy system on our air, on our water, our climate? But I think probably politically most salient is the price of energy.

And there's a lot of ways that regulation attempts to change those prices. And really, when we talk about energy, we're talking about several different things. One big part of the energy system, you know, maybe just over a third in the US is electricity. The electricity that we use for lots of different purposes.

But another big part of the energy system, again, over a third in the United States [00:02:00] is transportation, which mostly means crude oil, which is turned into gasoline, diesel, jet fuel, et cetera. And so those are kind of two sides of the energy system, but there's also another, a lot of energy uses that are for heating, for industrial use, et cetera.

So, And there's different modes that the government has of trying to influence the price in those different sectors. So for instance, in electricity, To some extent, the government is setting prices. Now, sometimes it uses competition to set some aspect of those prices, and actually a majority of the us, but in some circumstances, it is just telling companies what prices it can charge.

Now, that doesn't happen. On the fuel side, but there still are things that the government can do in terms of, you know, releasing oil from the strategic petroleum reserve or otherwise to try and influences those prices you face for gasoline or diesel at the pump.

[00:02:56] Gus Herwitz: We'll want to, uh, come to the strategic petroleum reserve in a bit, [00:03:00] putting my economist hat on; I love prices. Prices, uh, uh, collect a whole lot of information in real time. They're really informative if you understand how they work, but I wonder. Do we focus too much on the price of electricity and the price of energy in our day to day policy discussions and big picture policy discussions? I know I turn on the radio and I listen to the news and they talk about gasoline prices, and they talk about transport prices and I mean, major geopolitical conflicts are over the amount of oil being produced, and that's about keeping the price of.

Down, keeping the price of gasoline down in many ways. Do we over focus on price to the exclusion of other energy policy factors in this country? 

[00:03:43] James Coleman: Well, that's a very difficult question. Uh, could because the price is undoubtedly very important. Because the price of these energy goods, of course, contribute to the price of everything else.

So, you know, one thing that as we've been watching inflation numbers change over the past year, we've seen that in some [00:04:00] cases the price of diesel fuel, which is necessary to transport every good across country or fuel oil, which is necessary to ship those goods overseas, or electricity, which is used to manufacture those goods, ends up contributing to the price of a million different things that we purchase at the store.

Really any good that you might purchase, including food, et cetera. And so those prices are incredibly important and I think the fact that people find them so important to me is a good indication that they are important. Now, I do think that at sometimes we. Use things that cost different amounts every day.

One of the prices that is most salient are gasoline prices because you see that they're advertised so prominently. Right? Whereas maybe, you know, you think less of. Buying a new iPhone that might be massively expensive compared to the, you know, pennies on, uh, gasoline prices. So at times, maybe those prices are [00:05:00] particularly salient, but that's only in certain parts of the energy system.

I mean, if you look at electricity, I think sometimes people don't think as much about their electricity bill. Some people do watch those carefully, but some less carefully might be surprised to find out how much they have been spending on that. So I would say that in general, I agree more with your first point and frame for this, which is that prices are a method of allocating scarcity prices.

Tell us what's difficult to produce, what it would be worth producing more of, et cetera. And so I think. There is an appropriately strong focus on price, both in energy policy and in politics.

[00:05:40] Gus Herwitz: So let's turn to one of the big levers that the government has to affect the price of fuel and energy in the country, and also.

To focus on other important strategic policy purposes, uh, or goals, the Strategic Petroleum Reserve. Can you just tell us what is the 

[00:05:56] James Coleman: spr? So the Strategic Petroleum Reserve was [00:06:00] established in the seventies and filled throughout the eighties and nineties, and it's effectively just a series of salt caverns near the Gulf Coast at four sites in Texas and Louisiana near the Gulf Coast that are full of oil and they have store a lot of oil So, They store can store about 700 million barrels of oil, which is roughly enough to get us through just over a month of US oil usage.

[00:06:27] Gus Herwitz: When you say these are soft caverns, these are just natural geological formations in the ground? 

[00:06:32] James Coleman: Yes, of course. Although the storage sites are, you have to drill, typically go down half a mile to reach a cavern, and then the cavern extends a further half. Below the earth so that you get to a total depth of about a mile.

So that's where the oil is stored. It can be stored there for years and can be used as necessary now, ever since, you know, we filled it up, we have been using it. If there are disruptions to the energy [00:07:00] system, and you know, the biggest disruptions you might look at is when there's a war in the Middle East, threatening Middle Eastern oil supplies.

So we, we have at a couple points released oil in response to those wars, but we've also released it in response to hurricanes that disrupted oil supplies because, We have a significant percentage of oil in the United States. If it was a state, it would be like the second or third biggest producer of oil that's producing the Gulf of Mexico.

As well as there's some state production near shore, so when a hurricane comes through, it can knock out a lot of that oil production. And US oil production is very important to the globe. We produce more than 10% of the world's oil, and so when that oil production gets knocked out, at times we've had a reserve releases as we'll.

Talk about, you know, one challenge with that is, Sometimes that means what we'd like to release oil from our reserve, but that's also on the Gulf Coast, and also the refineries that would turn that crude oil into the actual products that we need, and that [00:08:00] we're worried about the price of diesel gasoline also on the Gulf Coast, and really all of them can be knocked out by hurricanes.

So sometimes those releases in response to certain natural disasters are a little bit less effective if it's concentrated on the Gulf Coast. Which is where our reserves 

[00:08:14] Gus Herwitz: are. Why do we focus on a strategic oil reserve? Um, why? I know in my basement, I don't have a barrel of oil for when the power goes out, I've got batteries. 

[00:08:23] James Coleman: Okay. I know a guy, I, We can get that for you. That's okay. Yeah. So the reason we do that is because historically oil has always. Set the global price of energy, not just in the transport market, but also in the electricity market. And the reason for that is that oil is typically been our highest value energy commodity.

And that's because it's energy dense. It packs a lot of energy. Into a small space and into a small weight. And as a result, you can use it for any purpose. You can use it for gasoline for a car or for jet [00:09:00] fuel for a plane, but also if necessary in a pinch you can just burn it in a natural gas fired power plan for electricity.

And so that has meant historically that oil set a ceiling for global electricity prices. Because if electricity prices got very expensive, cuz it was a shortage of natural gas or other. Well just burn as much oil as you need to address that problem. And so historically, global energy crises have been driven by the price of oil, which at a maximum price for energy and electricity around the globe.

Now that's just changing just in the last couple years. And the reason it's changing is new natural gas plans, which typically set the price of electricity around the. For efficiency reasons are made so that they can't run on oil, and even if they could run on oil, we're having new policies that discourage use of oil when you could use natural gas because oil burns less cleanly and so you get more air pollution, more carbon dioxide, et cetera.

So, [00:10:00] Now we're seeing situations where natural gas prices are going higher than oil, and so oil is no longer a ceiling on prices. And so now the global price of natural gas can be almost as important as the price of oil, but historically it was oil, and so that's why we focused on storing that commodity.

Particularly, you know, a lot of this was motivated by the 1970s when we had big spikes in the price of oil with. OPEC for the first time really realizing it could raise prices significantly by constraining its production, and then the Iranian revolution in 79 80, uh, causing a further spike in oil prices.

[00:10:36] Gus Herwitz: When I think about the strategic petroleum reserve, two conflicting purposes come to mind and I wonder whether. Either is the, the right one or if it, it's just both. I think I probably always in the back of my mind think, uh, it's about military strategy. It's about making sure that we have a backup supply of oil, should we ever go to war.

But the way that you're discussing it, and I, I think that we [00:11:00] discuss it more day to day, is for price stabilization and helping to balance out the supply and demand needs with fluctuations in the market. Are both of those purposes or is. More important than the other? Or am I just wrong about the, the military aspect of it?

[00:11:13] James Coleman: No, I think you're right that it is, uh, I mean maybe not solely military, but for design, for kind of war level disruptions to the global energy system. And if you have shortages of energy, Things get very bad very quickly. If you can't have transport of goods, you can't deliver any of the products, food, et cetera, that people depend on for their lives.

And if you can't deliver electricity, you can't deliver the the heat that people depend on cetera. So, Energy security is serious business, and the strategic petroleum reserve, I think, was designed to address that level of crisis, I [00:12:00] think. So it could be caused by a war that the United States was in. It could, in theory, be caused by a war that the United States was not in.

So if there was a closure, To the Straits of Horror moves or otherwise, and you get, you know, more than 10 million barrels a day, just brought offline all of a sudden. Well, you know, absolutely. You could imagine it being used in that circumstance. What's unusual is that particularly in the past year, the Biden administration has, you know, more explicitly used it simply to lower.

Oil prices and there's a continuing debate about how appropriate that is. It, you know, has been successful along with some other trends in terms of lowering gasoline prices, lowering fuel prices, and lowering oil prices. I think a lot of folks would. Worry that it's potentially left us more vulnerable to one of those really severe kind of energy disruptions rather than just higher prices.

[00:12:55] Gus Herwitz: And am I remembering right that over the last six months or so we've [00:13:00] basically drawn down the strategic reserve by about half?

[00:13:01] James Coleman: Yeah, that's roughly correct. And we're. About to end that six month draw. Maybe there'll be a continuing one, we will see. But that draw down of the reserve has been by far the biggest that we've ever done.

And again, basically just in response to higher oil prices. And it has succeeded at lowering prices. But it has. Basically half emptied our reserve. So we built it up over the eighties, over the nineties, and the two thousands that reached a peak in the mid two thousands, and we have undone all that progress.

We're back down to 1984 levels of oil in the strategic petroleum reserve, which is potentially a danger if there were a disruption. 

[00:13:41] Gus Herwitz: But, but not 1984 prices for oil.

[00:13:44] James Coleman: No, no, no, exactly. That's exactly right. 

[00:13:46] Gus Herwitz: So, uh, I, I'd like to go back to a comment that you made about oil, historically setting a ceiling for the price of energy, and that's less true today, uh, with newer natural gas plants, and I expect also newer [00:14:00] renewable types of energy production and possibly other types of energy production. How are things changing in this? 

[00:14:06] James Coleman: I think the important thing to understand is that the price of electricity is rarely set by solar or wind power. Even though if you look globally and in the United States and, and Texas is really on the forefront of these trends, there's been a push to use more natural gas for electricity and more solar and renewables, and in some ways, Those two sources go together very well.

Um, they both can be pretty low cost sources, which is great. Natural gas is much cleaner than coal. It's substantially cleaner for carbon dioxide, you know, 50 to 60% of the emissions of carbon dioxide. But I think more importantly, you know, the most pressing global environmental problem is, yeah, I mean in cost benefit terms, in most terms, human health terms is air pollution rather than climate and air emissions from natural gas plants are just, [00:15:00] Minuscule compared to what you would get from a coal power plant.

So it's a huge improvement to air quality and a substantial improvement to carbon dioxide performance of the system. The other great thing about natural gas is that it can ramp up or down quite easily compared to a coal plant or a nuclear plant, which have a harder time doing that. The reason that's so important is because we're also using a lot of zero emission sources like solar and wind, which are great because they have zero emissions and they can be very cheap in terms of when they're able to produce electricity.

Unfortunately, the big challenge with those is they only produce electricity when the wind happens to be blowing or the sun happens to be shining. And so that means you need some other source there that's ready to ramp up from, you know, zero. Ideally, if you could just provide all your power at some time with solar and wind to a hundred percent, and so you know, in most markets the price that all.

Producers receive for their electricity is set by what those kind of on demand [00:16:00] producers can produce electricity for, Tends to be a much higher price and tends to be a price set by natural gas. And so that means that when we talk about electricity prices around the world, Even if solar and wind power can produce power cheaply, that doesn't set the price for consumers.

What sets the price for consumers is the price of natural gas, and so increasingly the price of natural gas is what's setting the price of electricity around the world.

[00:16:25] Gus Herwitz: So there's a bit of technology. Behind what you just said that, uh, we should probably put on the table. One of the challenges for electricity production is that you need to match supply and demand basically in real time.

If there's only an increase in demand from users, then you need to very rapidly increase production, uh, o. Otherwise, you might risk actually damaging the electricity production, the energy production equipment, and also on the supply side, especially with renewable technologies where you. Suddenly have clouds move in or the wind die down, uh, you need to have other generation [00:17:00] capacity responding in real time to those fluctuations.

So this is a complex balancing act in real time. Uh, and on the flip side, on the supply side, you can't overproduce for an extended period of time or you're going to be over aging the system and, uh, risk damaging consumer and. Applications. There's a, a change in time there, and I, I wonder how significant this has been on the supply demand matching side.

The calculus, historically, we didn't have these high fluctuation renewables in that mix. It was just matching production to match consumer or user demand. But now on the production side, You need to be matching your oil, natural gas, real time, easily adjustable and easily controllable production with the production of solar and wind as well.

How has that made the process of balancing the supply and demand side more complicated?

[00:17:53] James Coleman: Yeah, it's become much more complex and you know, frankly it's making the system a little bit more [00:18:00] fragile, even as we grow cleaner. So I, I think it's worth emphasizing the point you mentioned about instantaneous matching of supply and demand on the grid, because I think that's, Commonly not understood by folks that don't think about energy policy all the time.

So I think, you know, when people think about energy, they think of, Oh, gasoline. You know, just buy it when you ha happen to be convenient to buy it. You know, if you buy it when it's cheaper, all the better and you can use it down until you need to fill up again. That is not at all how the electric grid operates.

Every time you plug in your laptop, plug in your phone, turn on your tv, your air conditioning kicks up, your dishwasher turns on. Every time any of those things happens. That has an effect on the grid and grid managers need to instantaneously balance that. And exactly as you said, they have to exactly balance by providing not any less electricity than is required and not any more, uh, electric energy than is required because if there [00:19:00] is an even a tiny imbalance where there.

More power being pulled off the grid than being put on the grid. That will change the frequency of the grid. Now our grid operates at a frequency of 60 hertz, which means 60 cycles per second. And if you have an even slight imbalance, things start to break, right? I mean, it's like hearing, you know, two musical notes that are.

Almost identical, not quite. Remember, the way that the grid is kept at 60 hertz, that alternating cycle is because you have thousands of power plants operating with actual machines spinning at 60 hertz. And if the frequency of the grid deviates from the frequency that they're spinning at, it starts to cause, you know those beats and those cause physical damage to those plants.

And basically what happens is if the frequency is not exactly at 60 hertz, those plants. Turn off the grid, disconnect from the grid, and that creates, of course, a bigger imbalance in terms of how much power is being put on and how much is [00:20:00] being produced. And over time, that leads to a chain reaction that can lead to catastrophic blackouts.

This actually happened in Texas, which was one of the significant reasons. For the week of outages that we had in February, 2021, which were completely catastrophic, but it was because you had the frequency dip by about 1% for just four minutes. I think it's worth emphasizing how fragile that system is in a certain way, because you know, if you think about oil markets in 2021 for the entire year, the whole world was consuming.

100 million barrels per day of oil. The whole world was only producing 98 million barrels per day of oil. So that means we were 2 million barrels per day of oil short every day of 2021. And did the economic system collapse? Did, were there, you know, widespread, You know, you couldn't get gas at the gas station?

No. It kept [00:21:00] operating because, We were able to live off stores, so in the oil system we can be 2% short for an entire year. Prices go up a little bit, but things continue to function in the electricity system. If for even four minutes, you have a slight imbalance of power provided and power demanded. The whole grid may go down.

Uh, you know, we basically had a, the grid half go down in Texas for four days. And so it's a much more fragile system and it puts a real premium on balancing always. Exactly. Now, as you suggested, that is gonna be much harder with solar and wind because, you know, we can try to project when they are gonna provide power.

And we can do that a couple days in advance. But you know, seasonally it's very difficult. And one thing that's happened, you know, that we're seeing increasingly is. When the grid is under stress, if you hear, you know, the grid is under stress in Texas, uh, or Europe, go check out what power sources are being produced.

And I think what you'll find is [00:22:00] those are typically times when wind, you know, when basically renewable power doesn't provide much power. So, you know, for instance, in Texas, during the winter storm, Wind power, which typically provides 25% of power, was only able to provide 2% of power. You know, and people say, Oh, well that means it's wind's fault.

Well, that's not really right, because the, it's important to understand, We know we can't count on wind power and, and so wind power isn't supposed to be that reliable source of supply. The only source of supply that's supposed to be reliable is natural gas power. It's supposed to be able to ramp up to meet it and one problem during the winter storm.

Is that, you know, we discovered that, well, there's a lot of vulnerabilities in the natural gas system as well. So unlike coal and oil, which are very easy to store natural gas, we don't have that much storage of natural gas and the natural gas power plants rely on. Instantaneous deliveries of natural gas when they need it, as much as they need [00:23:00] in part to ramp up, to make up for those solar and wind sources, which may not be available.

So, uh, we're just moving to a system that's much more dependent on instantaneous balancing both natural gas, uh, and electricity supplies. And that's making our system much cleaner cuz we're not using those dirtier fuels. Oil or coal, but more fragile. So 

[00:23:20] Gus Herwitz: one more complexity I want to put on the table before asking you how we solve all these problems.

Again, can you talk a bit about, um, time of day variations in electricity demand and how that makes this even more complicated? 

[00:23:32] James Coleman: Yeah, so one challenge is that I think most people. No. Or would guess that solar power produces power when the sun is out, and so there's a peak of solar power availability during the middle of the day at solar noon.

I think fewer people know that wind also has diurnal variation, ie. It, you know, it varies. Has a daily pattern. And that daily pattern basically is that in most of the country, you get a peak of wind power [00:24:00] in the early morning hours. Now, unfortunately, neither of these energy sources tend to be particularly strong in the early evening hours.

When in much of the country we tend to have peak demand for electricity. And so, you know, if you look at California, uh, the same thing is true in Texas. You know, we're getting more and more electricity from solar power, which is great because we do run, we do use power during the middle of the day, we run our air conditioners, et cetera, and that allows us not to use those natural gas plants, which saves us money on fuel, saves us on air emissions, et cetera.

Problem is when the sun goes down, but the temperature stay high, so the air condition is still running. You come home, you plug in your phone, maybe turn on the tv, turn up the air conditioning. If you left it your house warmer during the day, uh, it may be plug in your electric vehicle now and there's a peak and electricity consumption when there's not renewable energy available and.

to a first approximation. Basically, you have to count on renewable energy to provide [00:25:00] effectively zero energy during that daily peak of electricity. And so we're totally relying on natural gas or increasingly we're trying to build battery storage, but battery storage has a long way to go. It's farther along in California, uh, than anywhere else.

But I would encourage you, you can go check out California's grid has been under a lot of stress. They've had some, you know, localized, uh, blackouts recently and look at how. Power has to be provided from natural gas versus, you know, the very limited contributions currently made from batteries. Now I'm hopeful that over time we'll get more and more efficient batteries and affordable batteries.

But you know, right now that's pretty much we're counting on natural gas to fill that gap. 

[00:25:41] Gus Herwitz: Can you say a bit more about what role batteries play? Batteries don't generate electricity. They store energy so that this isn't a new source of energy or a source of new energy. 

[00:25:49] James Coleman: Yeah, that's right. So I think when most people think of batteries, they think of, you know, your basic lithium ion batteries, right?

And, you know, you, you can use batteries from [00:26:00] old, uh, electric vehicles to then, you know, just basically agglomerating and plug into the grid. And batteries are increasingly being installed to shift production a couple hours now. Batteries aren't very efficient in terms of how much electricity goes in versus how much goes.

However they can make sense in areas like California and Texas where we have this huge amount solar power during the day, but then we have a lot of demand a few hours later at night. So you store that energy for a while and put it back on the grid. So those kind of batteries can be effective for that.

A bigger challenge is seasonal storage of electricity. Lithium ion batteries don't get you to seasonal storage and. , There's some ideas about how to do seasonal storage, but really nothing revolutionary yet. I mean, one of the big ideas is maybe we can store renewable energy is hydrogen, the energy. In hydrogen gas and use that hydrogen gas for vehicles or for other energy needs through hydrogen pipelines.

So that's a [00:27:00] possibility. You know, there are some areas where you can use pumped hydro storage, where you have two water reservoirs at different levels. You pump it up hill when you have extra electricity and let it run downhill. When you need electricity, I'd just say that there's really no silver bullets yet on the seasonal storage issue.

So basically you just need to have enough other power plans that can meet those needs for those seasonal peaks in demand when you're less likely to have those renewable resources. 

[00:27:26] Gus Herwitz: To make sure I'm understanding here, there are really two different variations that we're talking about. You've got day to day variations and seasonal and kind of the the gold standard.

The ultimate best outcome would be. If the average consumption over, let's say the course of any time period, I guess the course of a year, let's say, is 50 gigawatt hours per day. I've got no idea if that's a, a reasonable approximation for a state or whatever, but if that's your average production and you have some viable long term energy storage system battery, [00:28:00] you could just consistently generate.

50 gigawatts as base load and prevent to batteries and draw it up and down, up and down. But getting that sort of energy system that's sort of energy storage system, we don't have the technology to 

[00:28:13] James Coleman: do that today. Yeah, that's right. I mean, there are different technologies that people have proposed and people are trying and they're really trying absolutely everything.

So if you have a great idea, put it forward. I mean, some. Some of the ideas, you know, that have been around actually that are now, you know, more established include things like advanced rail energy storage, which to simplify slightly. Take a box car, put a bunch of rocks on it, run it uphill when you have extra electricity, let it run downhill.

When you need more electricity, I mean, you can judge yourself. How advanced that really is. Um, compressed air energy storage. You take a fan, put it in the mouth of a cave, blow air in when you have extra electricity. Put a stopper in. Take the stop route when you need extra electricity, Run the fan the opposite way.

Store, you know, weights or water on different levels [00:29:00] of an apartment building, running them up, the, you know, elevators up when you have extra electricity and letting them fall when you need more. I mean, there's really, there are, like every possible idea is being explored, and I'm hopeful that one of them will prove revolutionary, but right now there are just no, uh, there's sort of no easy answers.

[00:29:20] Gus Herwitz: Yeah, and I guess even technologies like fusion and nuclear, that they're really good at providing that base load, but they don't do much or they're not really great at the quick ramp up adjustment to fluctuations on a day to day basis. Are they? 

[00:29:32] James Coleman: No, that's exactly right. So, So generally nuclear power plants operate best if they're just run flat out.

Same thing is true with coal power plants. And so I think something that people don't always understand. I mean, I'm hopeful about the long term future of nuclear power. If you look at the safety record of nuclear power, it's pretty much better than any other energy source, you know, comparable to solar and wind in terms of the, you know, low, uh, impact of the facilities themselves.

[00:30:00] However, it's a basically base load. So in terms of like what kind of electricity is useful, least useful is kind of the intermittent solar and wind where it's like just provides power when it happens to be available. Uh, unfortunately second least useful is base load where it basically is just always the same amount.

I mean, that's fine, but it doesn't really help the challenge of having to balance. How much power people need every given second, cuz that fluctuates. And so then as we get towards more useful, like load following would be more useful. Work can kind of give you a little bit more power when necessary, or a little bit less power when necessary.

And that's something like, Hydro can be operated that way. Sometimes it's difficult for hydro to operate that way because there are other constraints on the level of the reservoirs that it uses. But in theory, it could be operated to sort of follow the loads, and then a real ramping resource like natural gas is indispensable, or batteries where you can basically just.

[00:31:00] Ramp up instantaneously to meet the current demand for energy. 

[00:31:04] Gus Herwitz: So you're, uh, working on, uh, a project right now looking at the future of the strategic petroleum reserve, or perhaps, I guess I'll phrase it, how strategic is the strategic petroleum reserve? And that's my question for you. And what strategic energy policies should we be thinking about in the future.

[00:31:22] James Coleman: Yeah, so this is something I've just started a paper on. There's no doubt that the strategic petroleum reserve has been a benefit to us, but the years have shown us, have revealed some shortcomings that I think we could address with it. But I think. Maybe a bigger issue is that we may need a strategic reserve of those cleaner energy commodities like natural gas and electricity that we're trying to move toward.

Because as it stands, they are leading to an energy system that is, you know, in many ways. More fragile, more brittle, more subject to price bikes [00:32:00] and, you know, reliability problems. And so I think that that could change if we had more strategic reserves of that, that took some of the pressure off instantaneously balancing our demand and production of these sources.

And so, so first, just on oil, uh, the strategic petroleum reserve has been pretty successful for storing oil. I would say a couple challenges. One I mentioned already, which is, One of the disruptions that we frequently face is a hurricane hits the Gulf Coast. When the hurricane hits the Gulf Coast, that takes out our oil production, but it also takes out our strategic petroleum reserve, or the pipelines that connect it to the rest of the system, as well as the refineries that turn that oil into the products that we all use like gasoline and diesel.

Cuz more than half of us refineries are in that Gulf Coast region. So basically when a hurricane hits. The strategic petroleum reserve doesn't really do as that much good. So I think things that we could do to address that one is we could have some reserves [00:33:00] more spread out around the country and, you know, maybe pipeline capacity to connect those to provide a little bit more geographical diversity.

Secondly, we could start storing refined products. So, you know, there are lots of private reserves of refined products in the United States. A reserve of refined products is a little bit different because unlike oil, it really has a shelf life that you know, can only be stored so for so long before it can't be used anymore, and so you'd have to rotate supplies through that, but still, those rotated supplies can be very important.

In fact, recently our Energy Secretary, Secretary Grantham was, you know, strongly urging the industry. To stop exporting so much diesel to ensure that we had sufficient domestic stocks. And you know, that was in some way surprising because our diesel exports are crucial to the affordability of diesel around the world.

And you may or may not know, like in. Diesel prices around the world are [00:34:00] causing, you know, riots, government instability, governments to fall, uh, et cetera, as well as, um, just terrible economic crisis throughout Europe cetera. So, Limiting US exports of diesel geopolitically seems like a very bad idea, except for it is true that it's potentially dangerous to lower our diesel stocks.

So if the government had its own diesel stocks, that would help solve that issue a little bit. So that's the oil side. But in terms of natural gas and electricity, I mean we, there's just a desperate need for more storage of these commodities. So if we look at oil, basically, as I said, we have like 40. A little over a month of oil storage.

In the government side, we have basically a similar amount, uh, a little more if you would count the refined products on, in the private market. Natural gas storage. In the US we're okay. Again, we have about a little over a month of natural gas storage, but it's all private. We don't have that government side to it.

[00:35:00] And you know, as we saw in the Texas. Storm, you can run outta gas and when you do, the consequences can be catastrophic and it would really help to have storage. It would also help with an environmental problem that I've written about, which is flaring, which is that sometimes we have more natural gas and we have infrastructure to get it to customers, and so then it's just burned off and which is an environmental harm with no benefit.

But if you had more storage, you'd be able to store it for when you, when you actually need it. Okay. So then on the electricity side, we really, we don't have a month of electricity storage. We don't have a week of electricity storage. We don't have a day of electricity storage. We don't have an hour. I mean, we have tiny, tiny, uh, Electricity storage because again, this is just much more challenging.

So obviously we'd have to begin with more modest goals. We're not gonna build a month of electricity storage anytime soon, but we need to build up toward that. And I think the government could play a role in this. I mean, there's a wider debate about whether the government really should have a strategic reserve of anything.

Some people say, That crowds out private [00:36:00] investment. I think, you know, if we're gonna have a strategic reserve in anything, it surely should be in these strategic commodities where it's potentially a huge crisis and we see that given the cost of that crisis, the private market is under invested in that.

And if that is true for oil, it is far, far more true for natural gas and electricity. And so I think we need to, uh, do that when we do that, when we have government natural gas storage. Electricity storage, and it could be done through private partnerships. There's a lot of ways to do it. You know, when we establish that policy, I think it's important from the start that it's geographically diversified, connected by power lines and natural gas pipelines to make it possible.

We may need a similar, you know, geographically distributed hydrogen reserves, et cetera. Um, if that, if we use that fuel more in the future. So that's the vision that I imagine for a new strategic energy reserve, you know, that goes far beyond a strategic petroleum reserve. 

[00:36:52] Gus Herwitz: Well I, uh, very much look forward to seeing how this project continues to develop.

If there's one thing talking to you has convinced me of, and I already [00:37:00] believe this, but I, I now believe it much more as these are really important topics. I, you, you make the point that there are energy crises and when they happen there are. There are wars. This is essential to geopolitical stability and just stability in your neighborhood.

So very, really glad that you're working on this and look forward to seeing how things can contain to develop. 

[00:37:20] James Coleman: Thank you so much.

Tech Refactored is part of the Menard Governance in Technology Programming series hosted by the Nebraska Governance and Technology Center. The NGTC is a partnership led by the College of Law in collaboration with the Colleges of Engineering, Business, and Journalism and Mass Communications at the University of Nebraska Lincoln. 

Tech Refactored is hosted in executive produced by Gus Herwitz. James Fleege is our producer. Additional production assistance is provided by the NGTC staff. You can find supplemental information for this episode at the links provided in the show notes. To stay up to date on what's happening with the Nebraska Governance and Technology [00:38:00] Center, visit our website@ngtc.unl.edu.

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