The Strategic Petroleum Reserve (SPR) is the nation's first line of defense against an interruption in petroleum supplies. It is an emergency supply of crude oil stored in huge underground salt caverns along the coastline of the Gulf of Mexico.
Decisions to withdraw crude oil from the SPR during an energy emergency are made by the President under the authorities of the Energy Policy and Conservation Act (read statutory provisions).
In the event of an energy emergency, SPR oil would be distributed by competitive sale [see Standard Sales Provisions]. Although used for emergency purposes only once to date (during Operation Desert Storm in 1991), the SPR's current size (nearly 570 million barrels) and the U.S. government's stated policy to withdraw oil early in a potential supply emergency make the SPR a significant deterrent to oil import cutoffs and a key tool of foreign policy.
The need for a national oil storage reserve has been recognized for at least five decades. Secretary of the Interior Harold Ickes advocated the stockpiling of emergency crude oil in 1944. President Truman's Minerals Policy Commission proposed a strategic oil supply in 1952. President Eisenhower suggested an oil reserve after the 1956 Suez Crisis. The Cabinet Task Force on Oil Import Control recommended a similar reserve in 1970.
But few events so dramatically underscored the need for a strategic oil reserve as the 1973-74 oil embargo. The cutoff of oil flowing into the United States from many Arab nations sent economic shockwaves throughout the Nation. In the aftermath of the oil crises, the United States established the SPR.
President Ford set the SPR into motion when he signed the Energy Policy and Conservation Act (EPCA) on December 22, 1975. The legislation declared it to be U.S. policy to establish a reserve of up to 1 billion barrels of petroleum.
The Gulf of Mexico was a logical choice for oil storage sites. More than 500 salt domes are concentrated along the coast.
It is the location of many U.S. refineries and distribution points for tankers, barges and pipelines. In April 1977, the government acquired several existing salt caverns to serve as the first storage sites. Construction of the first surface facilities began in June 1977.
On July 21, 1977, the first oil was delivered to the SPR. Approximately 412,000 barrels of Saudi Arabian light crude were unloaded and sent to the West Hackberry storage site near Lake Charles, LA. Fill of the Nation's emergency oil reserve had begun.
Today, the SPR holds almost 570 million barrels of crude oil and has the capacity to hold 700 million barrels. It is the largest emergency oil stockpile in the world. Together, the facilities and crude oil represent more than a $20 billion national investment.
Fill was suspended in FY 1995 to devote budget resources to refurbishing the SPR equipment and extending the life of the complex through at least the first quarter of the next century. In 1999, fill was resumed in a joint initiative between the Departments of Energy and the Interior to supply royalty oil from Federal offshore tracts to the Strategic Petroleum Reserve.
The major sites in the SPR storage network are:
· Bryan Mound near Freeport, Texas
· Big Hill near Winnie, Texas
· West Hackberry in Cameron Parish, Louisiana
· Bayou Choctaw in Iberville Parish, Louisiana
The Desert Storm Drawdown:
Stockpiling crude oil in the SPR reduces the nation's vulnerability to economic, national security, and foreign policy consequences of petroleum supply interruptions. The SPR proved its value in 1991 when a partial drawdown, coupled with a coordinated international supply response, dampened oil price hikes during the Persian Gulf War.
On January 16, 1991, coinciding with the international effort to counter the Iraqi invasion of Kuwait, President Bush ordered the first-ever emergency drawdown of the SPR. The Department of Energy immediately implemented a drawdown plan to sell 33.75 million barrels of crude oil, the United States' portion agreed to by the International Energy Agency.
The drawdown proceeded on schedule and without major complications. Between the initial authorization and the final sale, however, world oil supplies and prices stabilized, and the United States reduced the sales amount to 17.3 million barrels which were sold to 13 companies.
The Desert Storm drawdown and the price stability that resulted in world markets showed the merits of the U.S. policy of announcing its intent to draw upon its emergency stockpile early and in large quantities should the U.S. oil supply be threatened.
In managing the Strategic Petroleum Reserve Program, the Office of Fossil Energy's overriding objective is to maintain the readiness of the oil stockpile for emergency use at the President's direction.
From 1993-2000, the Department of Energy's top priority was to ensure the continued readiness of the Reserve through at least the year 2025 by conducting a major life-extension program. This included replacing or refurbishing pumps, piping and other key components at the SPR's Gulf Coast sites. The program was completed in March 2000 on schedule and below original cost estimates.
Source: United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)