Ever since US Energy Secretary Ernest Moniz acknowledged at a Platts forum in December 2013 that the Strategic Petroleum Reserve merited a “re-look” at how it is structured, given the boom in US production and the resulting declines in imports and changes in crude flows, US officials have said they were studying the issue and would soon make recommendations on what to do about the 1970s era storage facilities.
So, last week’s much anticipated release of the Department of Energy’s Quadrennial Energy Review must have been a disappointment, then, for people who closely follow the SPR, as the report, which included a whole chapter devoted to the reserve, merely recommended … additional study.
Indeed, though the QER extensively noted how changing global domestic oil markets underscored the need to modernize the SPR, it contained no pronouncements about the future composition, structure, location or size of the reserve.
Instead, it calls on Congress to provide more funding to upgrade the SPR’s infrastructure, but not before the DOE analyzes “appropriate SPR size and configuration” and carries out “detailed engineering studies.”
The report also does not include any recommendations for creating additional refined product reserves, as some observers had anticipated. Rather, it calls for … again, more study.
“DOE should undertake updated cost-benefit analyses for all regions of the United States that have been identified as vulnerable to fuel supply disruptions to inform subsequent decisions on the possible need for additional regional product reserves,” the QER states.
Notably, however, the QER does not recommend getting rid of the SPR, as some have advocated in light of booming US oil production that has reduced imports.
“In spite of the changes in the US oil profile, the US economy will remain vulnerable to future international oil supply disruptions without the protection afforded by the SPR,” the QER states.
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The future of the SPR has been under the microscope over the past few years, as the shale revolution has dramatically changed crude flows in the US.
The boom in crude production in places like North Dakota, along with oil sands production in Canada, that dramatically shifted the North American landscape has prompted a growing chorus of experts to warn that the SPR may not be the energy security blanket that it once was.
Pipelines that once took crude from the Gulf of Mexico up to the Midcontinent have now been reversed to bring Bakken crude south, leading to questions about whether the SPR can effectively and efficiently deliver oil to where it’s needed most in a crisis.
And declining US crude imports have caused some to question whether a national reserve is needed at all.
The QER acknowledges all of those facts, noting that SPR infrastructure has not kept pace with the changes.
“New patterns of oil supply and demand among US oil producers and refineries, along with associated changes in the US midstream, have significantly reduced the ability of the SPR to distribute incremental volumes of oil during [a] possible future oil supply interruption,” the QER stated.
It estimated that the SPR would need $1.5 billion to $2 billion in infrastructure upgrades, including dedicated marine loading dock capacity, which would allow more efficient transfers onto vessels and prevent congestion at nearby ports.
The SPR was created in the wake of the 1973 oil embargo and an International Energy Agency agreement for consuming nations to stockpile the equivalent of 90 days of net imports of petroleum. It consists of 62 salt caverns in Louisiana and Texas and currently holds 691 million barrels of crude.
Besides the SPR, the US also has a 1 million barrel heating oil reserve and a 1 million barrel gasoline reserve, both in the Northeast.
Beyond addressing the SPR’s infrastructure, the QER also recommends that Congress provide the White House more flexibility in authorizing releases from the SPR to more nimbly head off price shocks from supply disruptions.
The QER explains that current law only allows the president to order a release after a supply disruption has already occurred, while the ability to tap the reserve in anticipation of outages would be more effective in stabilizing oil markets.
“In today’s fast-moving and globalized energy markets, the president should not have to wait until higher fuel prices have already damaged the US economy before the SPR can be used without restrictions,” the Quadrennial Energy Review stated.
But releases from the SPR — and non-releases, as it were — have been fodder for political criticism, with Democrats sometimes clamoring for releases during times of high gasoline prices and Republicans and the oil industry slamming such moves as harming national security and interfering with US crude markets.
Given how polarized Congress is these days, it would seem doubtful that lawmakers would be able to agree to loosen the politically fraught spigots.