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Strategic Petroleum Reserve Update (1-24-02)

The Strategic Petroleum Reserve (SPR) is an emergency supply of crude oil that was designed to be the nation's first line of defense in the case of petroleum supplies being 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 Texas and Louisiana.  The SPR represents a national investment of more than a $20 billion, including oil and storage facilities.  The Energy Policy and Conservation Act (EPCA), which was reauthorized during the previous Congress, 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  Oil was withdrawn from the emergency reserve for the first time during Operation Desert Storm in 1991.  It functions as a significant deterrent to oil import cutoffs and a key foreign policy tool.

Most Recent Action
According to a January 23rd Greenwire report, the Department of Energy has opened bidding for 22 million barrels of oil to fill the Strategic Petroleum Reserve.  Not only would this instalment fill the SPR to almost 574 million barrells, but also wouldThe oil would be royalty-in-kind payment from companies that produce

On November 13th, President Bush ordered Energy Secretary Spencer Abraham to fill the Strategic Petroleum Reserve (SPR) to its current capacity of 700 million barrels.  The President's directive will result in the addition of up to 108 million barrels of crude oil to the nation's emergency oil stockpile by way of an ongoing "royalty-in-kind" program, which allows producers operating leases on the federally owned Outer Continental Shelf to pay their royalties to the government in the form of oil instead of cash.  According to a  press release issued by the Department of the Interior, the first deliveries of about 60,000 barrels of crude oil a day are set to begin in April, and will increase to about 130,000 barrels a day by October.  Secretary Abraham said that potential terrorism and the current military campaign in Afghanistan were not key factors in Bush's decision, which he referred to as "a wise policy" that is not associated with "any kind of specific disruption threat."  A statement by President Bush reported that "our current oil inventories, and those of our allies that hold strategic stocks, are sufficient to meet any potential near-term disruption in supplies," and that filling the reserve will "strengthen the long-term energy security of the United States."  (11/14/01)

Previous Action
In September 1999, the House Commerce Committee began work on legislation (H.R. 2884) 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 bill was signed into law (Pub. Law 106-469) on November 9, 2000.  Information on reauthorization action from the last Congress is available at the Energy Policy and Conservation Act Reauthorization and Strategic Petroleum Reserve Update.

Interest in the SPR has risen because of the role it might play in events following September's terrorist attacks.  Reps. Billy Tauzin (R-LA), House Energy and Commerce Committee Chairman, and Joe Barton (R-TX), Energy and Air Quality Subcommittee Chairman, proposed legislation to authorize the Department of Energy (DOE) to fill the reserve to its 700 million barrel (bbl) capacity.  The SPR currently holds 544.7 million bbl of crude in storage facilities along the coast of the Gulf of Mexico.  Supporters of the proposal reason that current low oil prices make this the right time to fill the stockpile. (9/28/01)

On October 9th, the House approved H.Res.250, a non-binding resolution to fill the SPR to its authorized capacity of 1 billion barrels of crude oil, by a 409-3 vote.  The SPR currently contains about 545 million barrels of crude, and has a capacity of about 700 million barrels.  According to the resolution's sponsor, Rep. Joe Barton (R-TX), the measure would encourage, but not require, Energy Secretary Spencer Abraham to increase the SPR's capacity to the authorized 1 billion barrels..  Barton expects that U.S. military actions in response to the attacks of September 11th could cause the amount of oil imports into the U.S. to be reduced.  In an October 8th E&E Daily, Barton asserted that the nation "should do [its] part to make sure the SPR is full and ready to lease oil if necessary."  Filling the reserve to capacity could cost between $3 billion and $6 billion, which the Department of Energy (DOE) does not currently have.  (10/15/01)

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, Oil and Gas Journal,  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, AGI/AAPG Interns Catherine Runden and Alison Alcott, and Catherine Macris.

Posted September 28, 2001: Last Updated January 24, 2002.


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