Strategic Petroleum Reserve (United States) Explained

The Strategic Petroleum Reserve (SPR) is an emergency stockpile of petroleum maintained by the United States Department of Energy (DOE). It is the largest publicly known emergency supply in the world; its underground tanks in Louisiana and Texas have capacity for 714Moilbbl.^[1] The United States started the petroleum reserve in 1975 to mitigate future supply disruptions as part of the international Agreement on an International Energy Program, after oil supplies were interrupted during the 1973–1974 oil embargo.^[2]

The current inventory is displayed on the SPR's website.^[3], the inventory was 346.8Moilbbl. This equates to about days of oil at 2019 daily U.S. consumption levels of 20.54Moilbbl/d^[4] or days of oil at 2019 daily U.S. import levels of 9.141Moilbbl/d.^[5] However, the maximum total withdrawal capability from the SPR is only 4.4Moilbbl/d, so it would take about days to use the entire inventory. At recent market prices ($58 a barrel as of March 2021),^[6] the SPR holds over $14.6 billion in sweet crude and approximately $18.3 billion in sour crude (assuming a $15/barrel discount for sulfur content). In 2012, the total value of the crude in the SPR was approximately $43.5 billion, while the price paid for the oil was $20.1 billion (an average of $28.42 per barrel).^[7]

Since 2015 Congress has mandated sales of oil from the reserve to fund federal spending. The U.S. Department of Energy has run at least seven sales since 2017, selling 132 million barrels, or about 18.2% of what had been in the reserve.^{[8] [9]}

On March 31, 2022, President Joe Biden announced that his administration would release 1 million barrels of oil per day from the reserve for the next 180 days, selling it at an average price of $96 per barrel. The 2022 release became the largest ever SPR sale and lowered the SPR to its lowest levels in 40 years.^[10] After oil prices declined during the second half of the year, in December the administration announced it would begin replenishing the SPR in early 2023, expecting to purchase oil at a lower price than it was sold, a process that would take months or years to complete.^{[11] [12] [13]} The Biden administration continued to release reserves in 2023, selling off 45% of the SPR by September 2023.^[14] The Department of Energy unveiled plans to purchase oil at a price of $79 per barrel or less, but has since purchased oil at higher prices. As of April 2024, further purchases were cancelled due to rising oil prices.^{[10] [15]}

According to legislation already in place, the amount of oil in the reserve could fall to 238 million barrels by 2028.^[16] This will be a 67% reduction to the oil in the reservoir since 2010.

Facilities

The SPR management office is located in Elmwood, Louisiana, a suburb of New Orleans.

The reserve is stored at four sites on the Gulf of Mexico, each located near a major center of petrochemical refining and processing. Each site contains a number of artificial caverns created in salt domes below the surface.

Individual caverns within a site can be up to below the surface. Average dimensions are wide and deep; capacity ranges from 6Moilbbl37Moilbbl. Almost $4 billion was spent on the facilities. The decision to store in caverns was made to reduce costs. The Department of Energy claims that it is approximately ten times more cost effective to store oil below the surface, with the added advantages of no leaks and a constant natural churn of the oil due to a temperature gradient in the caverns. The caverns were created by drilling down and then dissolving the salt with water.

Existing

• Bryan Mound: Freeport, Texas. 20 caverns with a storage capacity of 254Moilbbl with a drawdown capacity of 1.5Moilbbl per day.^{[17] [18]}
• Big Hill: Winnie, Texas. Has a capacity of 160Moilbbl with a drawdown capacity of 1.1Moilbbl per day.
• West Hackberry: Lake Charles, Louisiana. Has a capacity of 227Moilbbl with a drawdown capacity of 1.3Moilbbl per day.^[18]
• Bayou Choctaw: Baton Rouge, Louisiana. Has a capacity of 76Moilbbl with a maximum drawdown rate of 550000oilbbl per day.

Proposed

• Richton, Mississippi: This facility, if built as planned, would have had a capacity of 160Moilbbl with a drawdown capacity of 1Moilbbl per day.^[18] Former Secretary of Energy Samuel Bodman announced the creation of this site in February 2007.^[19] As of 2008, this site was facing some opposition.^[20] According to the DOE: "Activities towards the goal of expansion of the SPR to one billion barrels, as directed by Congress in the 2005 Act, were cancelled in 2011 after Congress rescinded all remaining expansion funds."

Retired

• Weeks Island: Iberia Parish, Louisiana (decommissioned 1999): Capacity of 72Moilbbl. This facility was a conventional room and pillar near-surface salt mine, formerly owned by Morton Salt. In 1993, a sinkhole formed on the site, allowing fresh water to intrude into the mine. Because of the mine's construction in salt deposits, fresh water would erode the ceiling, potentially causing the structure to fail. The mine was backfilled with salt-saturated brine. This process, which allowed for recovery of 98% of the petroleum stored in the facility, reduced the risk of further fresh water intrusion, and helped prevent the remaining oil from leaking into the aquifer that is located over the salt dome.

History

Background

The SPR was created following the 1973 energy crisis. On November 18, 1974, the United States became a signatory to the Agreement on an International Energy Program (IEP) and a founding member of the International Energy Agency that the IEP established. One of the key commitments made by the treaty's signatories is to maintain oil stocks of no less than 90 days of net imports.^[21]

Access to the reserve is determined by the conditions written into the 1975 Energy Policy and Conservation Act (EPCA), primarily to counter a severe supply interruption. The maximum removal rate, by physical constraints, is 4.4Moilbbl/d. Oil could begin entering the marketplace 13 days after a presidential order.^[22] The Department of Energy says it has about 59 days of import protection in the SPR. This, combined with private sector inventory protection, is estimated to equal 115 days of imports.

The EPCA of December 22, 1975, made it policy for the United States to establish a reserve up to 1 billion barrels (159 million m³) of petroleum. A number of existing storage sites were acquired in 1977. Construction of the first surface facilities began in June 1977. On July 21, 1977, the first oil—approximately 412000oilbbl of Saudi Arabian light crude—was delivered to the SPR. Fill was suspended in Fiscal Year 1995 to devote budget resources to refurbishing the SPR equipment and extending the life of the complex.

Domestic actions

On November 13, 2001, shortly after the September 11 terrorist attacks, President George W. Bush announced that the SPR would be filled, saying, "The Strategic Petroleum Reserve is an important element of our Nation's energy security. To maximize long-term protection against oil supply disruptions, I am directing the Secretary of Energy to fill the SPR up to its 700Moilbbl capacity."^[23] The highest prior level was reached in 1994 with 592Moilbbl. At the time of President Bush's directive, the SPR contained about 545Moilbbl. Since the directive in 2001, the capacity of the SPR has increased by 27Moilbbl due to natural enlargement of the salt caverns in which the reserves are stored. The Energy Policy Act of 2005 has since directed the Secretary of Energy to fill the SPR to the full 1Goilbbl authorized capacity, a process which will require a physical expansion of the Reserve's facilities.

On August 17, 2005, the SPR reached its goal of 700Moilbbl. Approximately 60% of the crude oil in the reserve is the less desirable sour (high sulfur content) variety. The oil delivered to the reserve is "royalty-in-kind" oil—royalties owed to the U.S. government by operators who acquire leases on the federally owned Outer Continental Shelf in the Gulf of Mexico. These royalties were previously collected as cash, but in 1998 the government began testing the effectiveness of collecting royalties "in kind"—or in other words, acquiring the crude oil itself. This mechanism was adopted when refilling the SPR began, and once filling is completed, revenues from the sale of future royalties will be paid into the federal treasury.

On April 25, 2006, President Bush announced a temporary halt to petroleum deposits to the SPR as part of a four-point program to alleviate high fuel prices.

On January 23, 2007, President Bush suggested in his State of the Union speech that Congress should approve expansion of the current reserve capacity to twice its current level.^[24]

On May 16, 2008, the U.S. Department of Energy (DOE) said it would halt all deliveries to the Strategic Petroleum Reserve sometime in July. This announcement came days after Congress voted to direct the Bush administration to do the same.^[25]

On January 2, 2009, after a sharp decline in fuel prices, DOE said that it would begin buying approximately of crude oil to fill the Strategic Petroleum Reserve, replenishing supplies that were sold after hurricanes Katrina and Rita in 2005. The purchase would be funded by the roughly $600 million received from those emergency sales.

On September 9, 2011, a Notice of Cancellation was published in the Federal Register after Congress rescinded funding for the expansion of the Strategic Petroleum Reserve, reversing the SPR expansion initiative previously directed under the Energy Policy Act of 2005.^[26]

On October 20, 2014, a report by the U.S. Government Accountability Office (GAO) recommended reducing the size of the Reserve. According to the report, the amount of oil held in reserve exceeds the amount required to be kept on hand given the need for imported crude oil had decreased in recent years. The report said the DOE agreed with the GAO recommendation.^[27]

On March 19, 2020, President Donald Trump directed the Department of Energy to fill the Strategic Petroleum Reserve to maximum capacity, when oil was priced at $24 per barrel. This directive was given to help support domestic oil producers given the impending economic collapse from COVID-19 and extreme drops in international oil markets.^[28] However, funding was blocked by Congress, with Senate Democratic Leader Chuck Schumer stating that Democrats had blocked a "bailout for big oil".^{[29] [30]}

In 2022, the Biden administration sold 180 million barrels of oil from the Strategic Petroleum Reserve over 6 months. The sale lowered the SPR to its lowest levels in 40 years and was the largest ever release of oil from the SPR.^[10] SPR drawdowns continued into 2023, lowering the SPR by 45% from January 2021.^[14] Since the 2022 sales, the Department of Energy bought back 32.3 million barrels of oil, aiming to purchase at a maximum price of $79 per barrel.^[10] However, oil has been purchased exceeding the $79 price cap in March 2024. As of April 2024, further SPR purchases were cancelled due to rising oil prices.^[31]

Emergency sales to Israel

According to the 1975 Sinai Interim Agreement signed by the United States and Israel, as a precondition for Israel's return of the Sinai Peninsula and its associated oil reserves to Egypt, in an emergency the United States was obligated to make oil available for sale to Israel for up to five years.^[32] Israel has never invoked the agreement, however. The agreement was extended in 1979, 1994, 2004, and, most recently, in 2015 for a ten-year period.^[33]

International obligations

As a member of the International Energy Agency (IEA), the United States must stock an amount of petroleum equivalent to at least 90 days of U.S. imports. The SPR contained an equivalent to 141 days of imports as of September 2016. The United States is also obligated to contribute 43.9% of petroleum in any IEA-coordinated release.

Limitations

The Strategic Petroleum Reserve is primarily a crude petroleum reserve, not a stockpile of refined petroleum fuels such as gasoline, diesel and kerosene. Although the United States maintains some extra supply of refined petroleum fuels, e.g., the Northeast Home Heating Oil Reserve and Northeast Gasoline Supply Reserve under the aegis of the Department of Energy (DOE), the government does not maintain gasoline reserves on anything like the scale of the SPR. The SPR is intended to give the United States protection from disruptions in oil supplies. In the event of a major disruption to refinery operations, the United States would have to call on members of the International Energy Agency that stockpile refined products, and use refining capacities outside of the continental United States for relief.

There have been suggestions that the DOE should increase its supplies and stockpile both gasoline and jet fuel.^[34] Some countries and zones have a strategic reserve of both petroleum and petroleum products. In some cases, this includes a strategic reserve of jet fuel.^[35]

Former Secretary of Energy Samuel Bodman said that the Department would consider new facilities for refined products as part of an expansion of 1Goilbbl1.5Goilbbl.^[36]

Drawdowns

Petroleum sales - Prior to 2015

• 1985: Test sale—1.1Moilbbl
• 1990–1991: Desert Storm sale—21Moilbbl
  • 4Moilbbl in October 1990 test sale^[37]
  • 17Moilbbl in January 1991 presidentially ordered drawdown
• 1996–1997: 28Moilbbl non-emergency sales for deficit reduction
• July–August 2000: 2.8Moilbbl to supply the Northeast Home Heating Oil Reserve.
• September–October 2000: 30Moilbbl in response to a concern over low distillate levels in the northeastern U.S.
• 2005 Hurricane Katrina sale: 11Moilbbl—Katrina shut down 95% of crude production and 88% of natural gas output in the Gulf of Mexico. This amounted to a quarter of total U.S. output. About 735 oil and natural gas rigs and platforms had been evacuated due to the hurricane.
• 2011 Arab Spring sale: 30Moilbbl—non-emergency sale to offset disruptions caused by political upheaval in Libya and elsewhere in the Middle East. The amount was matched by IEA countries, for a total of 60Moilbbl released from stockpiles around the world.^[38]

Petroleum exchanges and loans

Note: Loans are made on a case-by-case basis to alleviate supply disruptions. Once conditions return to normal, the loan is returned to the SPR with additional oil as interest.

• April–May 1996: 900000oilbbl lent to ARCO to alleviate pipeline blockage.
• August 1998: 11Moilbbl lent to PEMEX in return for 8.5Moilbbl of higher-quality crude.
• June 2000: 1Moilbbl lent to Citgo and Conoco in response to shipping channel blockage.
• October 2002: 296000oilbbl lent to Shell Pipeline Company in advance of Hurricane Lili.
• September–October 2004: 5.4Moilbbl lent to Astra Oil, ConocoPhillips, Placid Refining, Shell Oil Company, and Premcor after Hurricane Ivan.
• September–October 2005: 9.8Moilbbl lent to ExxonMobil, Placid Refining, Valero, BP, Marathon Oil, and TotalEnergies after Hurricane Katrina. Purchases of crude oil would then resume in January 2009 using revenues available from the 2005 Hurricane Katrina emergency sale. The DOE purchased 10.7Moilbbl at a cost of $553 million.^[39]
• January–February 2006: lent to Total Petrochemicals USA due to closure of the Sabine–Neches Waterway to deep-draft vessels after a barge accident in the channel.^[40]
• June 2006: 750000oilbbl of sour crude lent to ConocoPhillips and Citgo due to the closure for several days of the Calcasieu Ship Channel caused by the release of a mixture of storm water and oil. Repaid in early October 2006.
• September 2008: 630000oilbbl lent to Citgo, Placid Refining, and Marathon Oil due to disruptions from Hurricane Gustav.^[41]
• August 2017: 200,000 barrels of sweet crude and 300,000 barrels of sour crude were lent to Phillips 66 due to disruptions from Hurricane Harvey.^[42]

Drawdowns since 2015

Since 2015, Congress has been selling the oil in the reserve to fund the deficit, in unpublicized sales. The U.S. Department of Energy has run seven sales since 2017, selling more than 132 million barrels, or about 18.2% of what had been in the reserve.^{[9] [8]}

According to legislation already in place, the amount of oil in the reserve could fall to as little as 238 million barrels by 2028. This will be a 67% reduction of oil in the reserve since 2010.

The legislation is summarized below:

• The Bipartisan Budget Act (Section 404), enacted in 2015, includes authorization for funding an SPR modernization program to support improvements deemed necessary to preserve the long-term integrity and utility of SPR's infrastructure by selling up to $2 billion worth of SPR crude oil in fiscal years 2017 through 2020. Although the estimated volumes presented in the chart above are based on an assumed oil price of $50 per barrel, the actual final sales volumes will depend on how SPR decides to allocate the sales volumes across those fiscal years and the actual price of crude oil at the time of the sales. For the Section 404 sales, SPR must get an appropriation from Congress to approve its requested sales revenue target.^[43]
• Another section of the Bipartisan Budget Act (Section 403), enacted in 2015, mandates SPR crude oil sales for fiscal years 2018 through 2025 on a volumetric basis, rather than on a dollar basis, as specified in Section 404. The revenues from sales authorized under section 403 will be deposited into the general fund of the U.S. Department of the Treasury.^[43]
• The Fixing America’s Surface Transportation Act, enacted in December 2015, calls for SPR sales totaling 66 million barrels from fiscal years 2023 through 2025.^[43]
• The 21st Century Cures Act, enacted in December 2016, calls for the sale of 25 million barrels of SPR crude oil for fiscal years 2017 through 2019. The first portion of these sales is expected in late spring 2017.^[43]
• In December 2016, the DOE announced it would begin the sale of 190Moilbbl in January 2017.^[44]
• The Tax Cuts and Jobs Act of 2017, enacted in December 2017, calls for the sale of 7 million barrels over the two-year period of FY 2026 through FY 2027.
• The Bipartisan Budget Act of 2018, enacted in February 2018, calls for the sale of 30 million barrels over the four-year period of FY 2022 through FY 2025, 35 million barrels in FY 2026, and 35 million barrels in FY 2027.
• In November 2021, the White House announced the release of 50Moilbbl to address high gasoline prices.^{[45] [46]}
• On March 1, 2022, President Biden announced the release of 30 million barrels of oil from the reserve in response to Russia's invasion of Ukraine.^[47]
• On March 31, 2022, President Biden announced that his administration would release 1 million barrels of oil per day from the reserve for the next 180 days.^[48]

See also

• • Global strategic petroleum reserves
• Strategic natural gas reserve

Further reading

• Beaubouef, Bruce A. The Strategic Petroleum Reserve: U.S. Energy Security and Oil Politics, 1975-2005 (Texas A&M University Press, 2007).
• Strait, Albert L. Strategic Petroleum Reserve (Nova Science Publishers, 2010).

External links

• Official website

Notes and References

1. Web site: Office of Petroleum Reserves . United States Department of Energy . August 27, 2015 .
2. Web site: . July 2020 . Oil Security Toolkit . 16 May 2020 . IEA.
3. Web site: Strategic Petroleum Reserve Inventory . September 13, 2022 .
4. Web site: US Total Petroleum Consumption . Energy Information Administration .
5. Web site: US Total Crude Oil and Products Imports . Energy Information Administration .
6. Web site: WTI & Brent Crude Oil Prices .
7. Web site: Strategic Petroleum Reserve—Quick Facts and Frequently Asked Questions . United States Department of Energy . February 25, 2012 .
8. Web site: Energy Information Agency . U.S. Ending Stocks SPR of Crude Oil and Petroleum Products .
9. News: Timothy . Puko . Katy Stech . Ferek . Why Is Biden Tapping the Strategic Oil Reserve, and Will That Lower Gas Prices? . The Wall Street Journal . November 23, 2021 .
10. News: US strategic petroleum reserve replenishment slowed by rising oil price . Reuters . April 3, 2024.
11. News: Krauss . Clifford . Shear . Michael D. . Biden will tap oil reserve, hoping to push gasoline prices down . The New York Times . April 1, 2022 . A1.
12. News: Egan . Matt . Biden begins to refill Strategic Petroleum Reserve, while Keystone Pipeline leak prompts new emergency exchange . CNN . December 16, 2022.
13. News: Uberti . David . U.S. Scores $4 Billion Windfall on Oil-Reserve Sales . The Wall Street Journal . December 19, 2022.
14. News: Biden sold off nearly half the U.S. oil reserve. Is it ready for a crisis? . Politico . October 16, 2022.
15. News: Biden administration cancels buyback of 3 million barrels to replenish oil stockpile . The Hill . April 4, 2024.
16. Web site: Recent legislation mandates additional sales of U.S. Strategic Petroleum Reserve crude oil . Day in Energy . Energy Information Agency . February 21, 2018 .
17. News: Brett . Clanton . Go past guards for tour of U.S. oil reserve in Freeport . Houston Chronicle . May 27, 2008 . February 25, 2012 .
18. Book: https://web.archive.org/web/20081005012233/http://www.fe.doe.gov/programs/reserves/spr/Plan_for_Expansion_to_1_billion_barrels.pdf . October 5, 2008 . Strategic Petroleum Reserve Plan: Expansion to One Billion Barrels . 5 . United States Department of Energy . June 2007 .
19. Web site: DOE Takes Next Steps to Expand Strategic Petroleum Reserve to One Billion Barrels . United States Department of Energy . December 8, 2006 . February 25, 2012 .
20. Web site: Oil reserve site raises ire, Bush policy tested . . June 21, 2016 .
21. Web site: . July 2020 . Oil Security Toolkit . 16 May 2022 . IEA.
22. Web site: Strategic Petroleum Reserve . Energy.gov . en.
23. News: President Orders Strategic Petroleum Reserve Filled . White House Office of the Press Secretary . November 13, 2001 . December 26, 2014 .
24. News: Bush . George W. . George W. Bush . President Bush's 2007 State of the Union Address . The Washington Post . January 23, 2007 . January 24, 2007 .
25. Web site: DOE Stops Filling the Strategic Petroleum Reserve . United States Department of Energy . May 21, 2008 . February 25, 2012 .
26. Web site: SPR Quick Facts and FAQs . United States Department of Energy . December 24, 2014 .
27. News: U.S. Oil Exports Would Lower Gas Prices, Government Report Says . The Wall Street Journal . October 20, 2014 . October 20, 2014 . Christian . Berthelsen .
28. Web site: Department of Energy Executes on Direction of President Trump, Announces Solicitation to Purchase Crude Oil for the SPR to Provide Relief to American Energy Industry .
29. Web site: Strategic Petroleum Reserve Oil Stocks Declined Under Trump, Contrary to His Claim . Gore . D'Angelo . FactCheck.org . April 1, 2022 . April 4, 2022.
30. Web site: Biden May Buy Oil Just Below $80; Democrats Stymied Trump at $24 . Bloomberg . September 13, 2022.
31. Web site: US Cancels Latest Oil Reserve Refill Plan Amid High Prices . Bloomberg . April 3, 2024.
32. Web site: Phillips . James . The Iranian Oil Crisis . . February 28, 1979 . February 25, 2012 . dead . https://web.archive.org/web/20100126173509/http://www.heritage.org/Research/MiddleEast/bg76.cfm . January 26, 2010 .
33. News: US and Israel Sign Extension of Oil Supply Agreement . April 17, 2015 . Israel National News . June 21, 2016 .
34. News: Pilar . Tejerina . Senators propose gasoline reserve . CNN . September 30, 2005 . January 24, 2007 .
35. Web site: Oil Supply Security: The Emergency Response Potential of IEA Countries in 2000 . March 13, 2007 . French stockholding legislation requires that jet fuel stocks cover at least 55 days of consumption .
36. Bodman, S.W. (2007, January 23). Statement from Energy Secretary Samuel W. Bodman on the Expansion of the Strategic Petroleum Reserve to 1.5 Billion. Department of Energy. https://www.energy.gov/articles/statement-energy-secretary-samuel-w-bodman-expansion-strategic-petroleum-reserve-15-billion
37. Web site: History of SPR Releases . Department of Energy, Office of Fossil Energy and Carbon Management . February 1, 2022 .
38. News: U.S. to release oil from strategic reserve . CNN . Aaron . Smith . June 23, 2011 .
39. Web site: https://web.archive.org/web/20130408222706/http://www.fe.doe.gov/programs/reserves/spr/index.html . Strategic Petroleum Reserve – Profile . February 27, 2013 . April 8, 2013 .
40. Web site: Quick Facts about the Strategic Petroleum Reserve . United States Department of Energy . February 25, 2012 .
41. News: Oil ends up after dip below $100 . CNN . September 12, 2008 .
42. News: US taps strategic oil reserves . August 31, 2017 . The Mercury News . August 31, 2017 .
43. Web site: Strategic Petroleum Reserve sales expected to start this month . Today in Energy . Energy Information Administration . January 26, 2017 .
44. Web site: This Week in Petroleum . United States Department of Energy . December 21, 2016 . December 21, 2016 .
45. Web site: Biden To Announce Release of Oil Reserves In Effort To Lower Gas Prices . CNN . November 23, 2021 . November 23, 2021 .
46. Web site: U.S. challenges OPEC+ with coordinated release of oil from reserves . Reuters . November 23, 2021 .
47. Web site: Jacob . Fischler . Biden OKs release of 30 million barrels of oil from Strategic Petroleum Reserve . March 5, 2022 .
48. News: Biden ordering massive release of oil in bid to curb gas prices . Geman . Ben . Doherty . Erin . Axios . April 1, 2022 . April 4, 2022.