Most Recent Action 
    Current Congress 
    Background 
Energy Policy and Conservation Act Reauthorization and Strategic Petroleum Reserve Update (12-13-00)

The Strategic Petroleum Reserve (SPR) is an emergency supply of crude oil designed to be the nation's first line of defense in the case that petroleum supplies are interrupted.  With the capacity to hold 700 million barrels (bbl), the SPR is the largest emergency oil stockpile in the world.  The oil is stored in huge underground salt caverns along the coastline of the Gulf of Mexico, in Texas and Louisiana.  The SPR represents more than a $20 billion national investment, including oil and storage facilities.  The Energy Policy and Conservation Act authorizes the President to withdraw crude oil from the SPR during an energy emergency.  In the case of such an event, SPR oil would be distributed by competitive sale.  Oil was withdrawn for the first and only time to date during Operation Desert Storm in 1991.  The SPR functions as a significant deterrent to oil import cutoffs and a key foreign policy tool.

Most Recent Action
President Clinton signed H.R. 2884, the Energy Policy and Conservation Act reauthorization bill, into law on November 9, 2000.  Congress passed the bill in late October.  After the House passed the bill in April 2000, the Senate sat on the bill for some time before the Senate Energy and Natural Resource Committee began consideration.  Senator Frank Murkowski (R-AK), Chair of the Senate committee, introduced an amendment in the form of a substation on the Senate floor.  The revised bill maintains the original purpose of the bill -- to reauthorize the president's authority to draw from the Strategic Petroleum Reserve and American membership in the International Energy Agency -- as well as establishes a permanent home-heating oil reserve in the Northeast.  The revised version clarifies language as to when the president can draw from these reserves, expands the Department of Energy weatherization assistance program, provision that requires the secretaries of the Interior and Energy to undertake a national inventory of onshore oil and natural gas reserves, and several other programs.  For independent drillers and marginal wells (those that produce under 15 barrels a day), the new law authorizes the Secretary of Energy to purchase oil from these sources at $15 per barrel if the annual domestic average is below this level.  Oil purchased through this program would go into the Strategic Petroleum Reserve  All these activities are authorized through 2003 under this act.

Current Congress
In September 1999, the House Commerce Committee began work on legislation related to the Energy Policy and Conservation Act (EPCA) that would specifically reauthorize the Strategic Petroleum Reserve and American membership in the International Energy Agency until 2003.  The Subcommittee on Energy and Power, chaired by Joe Barton (R-TX), held a hearing on the reauthorization bill (H.R. 2884) on September 23, 1999.  The Honorable Robert Gee, Assistant Secretary for Fossil Energy at the Department of Energy, gave testimony on the importance of expeditiously passing the reauthorization to allow the US to participate in a simulation "on the potential impact on world oil supply of Y2K-related computer problems."  Lee Fuller and Michael Canes, both representing the private petroleum industry, echoed Assistant Secretary Gee's sentiments on the need for reauthorization and continued filling of the SPR in their testimony.

At the hearing, an amendment in the form of a substitute was offered that not only extended EPCA, but also included language regarding purchasing oil from domestic marginal wells.  As defined for this legislation, marginal wells have an average daily production of 15 barrels or less.  The bill would authorize the Secretary of Energy to purchase oil from marginal wells at $15 per barrel  to fill the Strategic Petroleum Reserve (SPR) when the market price for oil is lower than $15 per barrel.  According to the Committee Report (H. Rept. 106-359), the purpose of this new language is "to assure that marginal wells, an important and significant source of oil, are not shut-down during periods of extraordinarily low oil prices."

Directly after the hearing, the subcommittee marked-up the bill and favorably passed it to the full Commerce Committee for consideration.  The following week, the full committee marked-up H.R. 2884, and after partisan discussion on the marginal-well amendment, reported favorably on the bill that now awaits floor debate and Senate approval.

In addition to H.R. 2884, two bills were introduced the previous February regarding SPR.  Rep. Lamar Smith (R-TX) introduced H.R. 490, a bill that requires the Secretary of Energy to purchase additional petroleum products for the SPR, that was subsequently referred to the House Commerce Subcommittee on Energy and Power, where the bill was the subject of one hearing.  On the same day, Rep. Mac Thornberry (R-TX) introduced H.R. 498, a bill to direct the Minerals Management Service to accept royalty-in-kind oil from the Gulf of Mexico to fill the SPR, that was also referred to the House Commerce Subcommittee on Energy and Power and the Resource Subcommittee on Energy and Mineral Resources.  Neither of these bills have seen action since their introduction and are not expected to move forward.

H.R. 2884, which reauthorizes the Energy Policy and Conservation Act (EPCA), was passed by the House on Wednesday, April 12, 2000.  H.R. 2884 authorizes appropriations through FY 2003 for the management and operation of the Strategic Petroleum Reserve (SPR), and reauthorizes the President to draw from the SPR when necessary.  It also provides funding, on the same time frame, for U.S. participation in the International Energy Agreement.  However, it was unclear when the Senate would begin action on the bill because Senate-Democrats had put a hold on the bill. According to Environment and Energy Daily, the main problem that the Senators have with the bill are small attachments that were made by Rep. Joe Barton (R-TX) and Rep. Ed Markey (R-MS).  Barton's language mandates the purchase of SPR oil from stripper wells  --  something that many Senators feel poses logistical problems.  Markey's amendment, along with several others, is in line with a number of new bills that were recently introduced in response to the high oil prices earlier this year.  Markey's amendment creates a home-heating oil reserve in the Northeast (Environment and Energy Daily, 4/12).  Another amendment to the bill extends the authority of the President to draw from the SPR in regional emergencies instead of solely national emergencies.  With accusations that the Organization of Petroleum Exporting Countries (OPEC) is engaged in price fixing, several Members of Congress have called on the President to take advantage of this country's petroleum reserves until the oil market stabilizes.

Related bills that were recently introduced:
H.R. 3644, a bill that would authorize the president to draw from the SPR during times of regional or state emergency (rather than a national emergency), was discussed during a House Judiciary Committee hearing on March 29th.  Rep. Robert Weygand (D-RI), who introduced H.R. 3644, is the not the only Member of Congress to see the SPR as a tool to curb rising oil prices. H.R. 3533 and H.R. 3543 , introduced by Rep. Gary Ackerman (D-NY) and Rep. John Larson (D-CT), respectively, would both give the Secretary of Energy the authority to draw from the SPR when oil and gas prices in the United States rise sharply because of anticompetitive activity.  The hope is that the profits produced from the sale of SPR oil would be used to help lower the cost of heating oil.  The bills would also require the President, through the Secretary of Energy, to consult with Congress regarding the sale of oil from the Strategic Petroleum Reserve.  S. 1951, introduced in the Senate by Sen. Charles Schumer (D-NY), has similar intentions.


Background
Different sections of the federal government recognized the need for a federal petroleum reserve starting as early as the 1940s but, despite the general call for a reserve, Congress did not authorize one until 1975, when the Energy Policy and Conversation Act (EPCA) was signed into law (Public Law 94-163) after the Arab oil embargoes.  EPCA authorized three primary programs: the United States involvement in the International Energy Agency (IEA), the Strategic Petroleum Reserve (SPR), and efforts to "reduce vulnerability through several energy efficiency and renewable energy and conservation programs."  The Department of Energy's efficiency and conservation programs were reauthorized in the last Congress through the year 2002 (Public Law 105-388).  Currently, the SPR and  IEA programs are in need of reauthorization.  Several members of Congress and the petroleum sector see a pressing need for reauthorization with the potential threat of a Y2K energy supply problem.

The Committee on the National Institute for the Environment has published a Congressional Research Service summary on the strategic petroleum reserve that gives background and current activity on the reauthorization events.

International Energy Agency

The International Energy Agency was established in 1974 as an autonomous agency within the Organization for Economic Cooperation and Development (OECD), an international organization of 29 countries whose goal is domestic and international economic growth. IEA's charter is the Agreement on an International Energy Program. The goals of IEA include:

Each member of the IEA is committed to maintaining a reserve that is equivalent to 90 days of net oil imports. Originally, the policy of IEA was to act as an emergency system based on allocation of available supplies among the oil importing countries. Currently, the U.S. maintains that the best response to rising prices associated with an emergency is to allow markets to balance supply and demand by injecting additional supply into the market "in a timely manner." Withdrawing oil from SPR early in a potential supply emergency can act as a deterrent to oil import embargoes and by doing this collectively, the mitigation impacts are greater than if each country acts alone.

Strategic Petroleum Reserve

The United States' SPR is made up of five oil storage sites located in underground salt domes along the Gulf of Mexico. This area was chosen for storage because there are 500 plus salt domes along the coast and many U.S. refineries are located there as well as numerous distribution points for tankers, barges and pipelines.  Major sites in the SPR storage network:

The Weeks Island site developed a naturally occurring geologic fissure or fracture and will be decommissioned by the end of 1999. To help cover costs of relocating the oil from the Weeks Island site to the Big Hill and Bayou Choctaw sites the Senate Energy Committee authorized the sale of up to 32 million barrels of oil in January 1996.  In March of 1996, DOE sold off only 5.2 million barrels of oil to finance this transfer.

The current supply in the SPR equals approximately 60 days of net imports, nearly 563 million barrels of oil. The remainder of the required 90 days of imports needed to meet the IEA obligation are from private inventories. Continued stockpiling was suspended in FY1995 so that the SPR budget could be used for the establishment of the Life Extension Program which refurbishes SPR equipment and extends the life of the storage facilities. The program goal is to maintain the reliability and availability of SPR and extend the life of the reserve through 2025. This program is to be completed by September 2000.

EPCA authorized a reserve of up to one billion barrels. At its peak in 1994, SPR held 592 million barrels. Decisions to withdraw oil from SPR are made by the President and if an emergency occurs, the SPR petroleum is distributed by competitive sale. SPR has only been used in one emergency to date, during Operation Desert Storm in 1991. Originally, 33.75 million barrels were slated for sale but this was later reduced to 17.3 million barrels when prices began to stabilize. There have been two non-emergency sales of SPR oil. In FY1996 $227 million worth of oil was sold and in FY1997 $220 million was sold. The revenue from these sales was used for deficit reduction.


Sources:  The Committee for the National Institute of the Environment website, Environment and Energy Weekly, CRS Report, OECD website, hearing testimony, House Commerce Committee website, Independent Petroleum Association of America NewsFax, and the Library of Congress website.

Please send any comments or requests for information to the AGI Government Affairs Program.

Contributed by Margaret Baker and David Applegate, AGI Government Affairs and Catherine Runden and Alison Alcott, AGI Government Affairs Interns.

Last updated December 13, 2000


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