As the United States Strategic Petroleum Reserve approaches its 40th birthday and the world is awash in excess oil, the U.S. Department of Energy (DOE) and Congress are taking a serious look at the reserve and its almost 700 million barrels of crude oil stored in 62 salt caverns in Texas and Louisiana. Additional small reserves of low-sulfur diesel (home heating oil) and gasoline that are located in the northeast are not a current concern.
Congress evidently saw a piggy bank filled with more oil than our international commitments require and last year decided to sell 174 million barrels (one-quarter of the reserve) to fund government activities. The oil sales include 66 million barrels to support expenditures authorized in the 2015 Transportation Bill and 58 million barrels for deficit reduction in the 2015 Bipartisan Budget Act.
At about the same time, a DOE study suggested that the reserve requires $1.5-$2 billion in upgrades, which the 2015 Bipartisan Budget Act would fund by selling an additional 40-50 million barrels from the reserve.
Do We Still Need a Reserve?
This recent activity may lead one to wonder if we really need the reserve.
Senators Lisa Murkowski (R-Alaska) and Maria Cantwell (D-Wash.) as chair and ranking member, respectively, of the Senate Energy and Natural Resources committee have answered the question. In multiple hearings, white papers and statements, both senators have spelled out the need for a strong reserve. More importantly, they have included provisions to preserve and strengthen it in legislation (Senate Bill 2012) that they have shepherded through the Senate.
Justification for an emergency oil reserve:
- Oil reserves in the United States and other nations are intended to offset the economic damage of major supply disruptions.
- The reserve has made emergency releases. In 2011, in response to the disruption of oil production in Libya due to civil unrest, the U.S. reserve released more than 30 million barrels as part of the IEA coordinated release of 60 million barrels. Other coordinated releases were in 1990-91 for Desert Shield/Desert Storm and in 2005 after Hurricane Katrina.
- Even though U.S. oil and natural gas production is at near record highs, the United States is still an oil importer.
- The United States and other oil consuming nations are dependent on oil produced in politically unstable areas.
- After the 1973-74 Arab oil embargo, the major oil importing countries formed the International Energy Agency (IEA) to coordinate a collective response to oil supply disruptions.
- The United States and most other IEA member countries are now holding more than the 90 days’ supply required of IEA members. The U.S. storage surplus is primarily the result of declining imports as domestic oil production expanded. In addition, energy efficiency, renewable energy and natural gas consumption has reduced some of the need for oil imports in some countries.
International Petroleum Reserves
The IEA has 29 member countries. All except Canada are net oil importers and are required to hold or have access to reserves. Member countries are primarily in Europe, along with Korea, Japan, Australia and New Zealand in the Asia-Pacific area, as well as the United States and Canada.
Outside of the IEA, several countries have or are planning reserves: China has about 100 million barrels of storage constructed of a planned 500-million barrel reserve. The reserve will include aboveground and belowground storage in multiple locations. India started to build a 37 million barrel reserve in 2003. In Africa, Kenya and South Africa have petroleum reserves.
Future of the U.S. Strategic Petroleum Reserve (SPR)
A 2014 crude-oil test sale demonstrated inadequacies in SPR distribution infrastructure. In addition, many of the facilities are reaching the end of their design life.
The distribution infrastructure was designed when SPR needed to move crude to refineries in the U.S. interior. Today, refineries in the Midwest are well supplied by Bakken and Canadian oil. However, the SPR now needs more marine distribution capability to supply coastal refineries.
The 2015 Quadrennial Energy Review, “Transforming U.S. Energy Infrastructure in a Time of Rapid Change,” details the SPR deficiencies and estimates the upgrades and maintenance would cost $1.5–$2 billion.
Congress has seemed especially interested recently in drawing down SPR oil to pay for other government programs. However, Murkowski and others have opposed using the SPR like a piggy bank and have advocated for needed repairs and upgrades. SB 2012 passed the Senate in April and would require that the Energy Department conduct a full assessment of the reserve’s effectiveness and role in national security. Such congressionally-mandated studies are often the basis for future appropriations.