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DOE reviews future SPR options
The U.S. Department of Energy has released a new review of the U.S. Strategic Petroleum Reserve. The strategic review, mandated by Congress, examines the operation of the SPR, current operational issues and potential routes for addressing those issues. The reserve, by storing large volumes of crude oil, provides the United States with an oil supply buffer capable of mitigating oil supply disruptions. The reserve also enables the country to meet its commitment to maintain emergency oil reserves under the terms of the International Energy Program.
The bulk of the reserve, currently amounting to about 695 million barrels, is stored in underground salt caverns at four major sites on the Gulf Coast. In addition, as part of the SPR, the Northeast Gasoline Supply Reserve holds 1 million barrels of crude oil, while the Northeast Home Heating Oil Reserve holds 1 million barrels of ultra-low sulfur distillate.
The Bipartisan Budget Act of 2015, passed by Congress as a consequence of federal budget negotiations, involves the sale of some SPR oil to close a budget gap. The act requires a drawdown of the reserve by 58 million barrels between fiscal years 2018 and 2015. The act also authorizes the sale of up to $2 billion worth of worth of crude oil between fiscal years 2017 and 2020 to fund an SPR modernization program.
The FAST Act, also passed by Congress in 2015, to fund improvements to the U.S. surface transportation infrastructure, requires a further SPR drawdown and oil sale of 66 million barrels between fiscal years 2023 and 2025.
Against this background, the new DOE strategic review has come to a number of conclusions, with associated recommendations.
Old infrastructure and connections The review says that the critical infrastructure used for moving oil in the SPR has exceeded its serviceable life, resulting in an increasing frequency and severity of equipment failures. This issue justifies the planned sale of oil for the funding of a modernization program, the review says.
The review also comments that dramatic changes in the pattern of U.S. oil supplies, as a consequence, in particular of shale oil development, have triggered corresponding changes in the flows of oil supplies around the nation. For example, the oil flows through some pipelines have been reversed, causing some midstream flow congestion. As a consequence, with the connections between the SPR and the U.S. oil supply infrastructure being designed for an outdated oil supply pattern, the forcing of SPR oil into the distribution system would require the curtailment of some crude oil supplies from domestic sources, thus undermining the purpose of using the reserve.
As a result, in certain situations the effective oil distribution capacity of the SPR could be at least 2 million barrels per day less that the design drawdown capacity of 4.4 million barrels per day, the review says.
One option for addressing this problem would be to use modernization funds from oil sales for a project to enable the marine distribution of reserve oil. An assessment of risks to the world oil market, and the need for effective U.S. intervention in that market in response to a global oil supply crisis, coupled with a need to deal with the current constraints on the distribution of oil from the SPR in the United States, all indicated that this marine distribution funding would be justified, the assessment says.
Managing drawdowns However, while the planned drawdown of some of the SPR stocks is projected to bring significant economic benefits to the nation, any further drawdown in stocks would require a fuller analysis of costs and benefits. Moreover, in terms of the modernization program funded by some of the drawdowns, the modernization of the SPR’s distribution infrastructure must take precedence over adding dedicated marine terminals. And, while drawing the reserve down below 530 million barrels would significantly reduce the SPR’s effectiveness, the benefits gained from the SPR level off at volumes above 600 million barrels, the review says.
The storage capacity at the existing storage sites is gradually falling, as geological forces cause the storage caverns to shrink during periods of maintenance-related reduced cavern pressures. Projected cavern volumes are sufficient to handle anticipated SPR inventories, given the planned inventory drawdowns. But any strategy to rebuild the inventory back to levels above 598 million barrels in the future would require investment in cavern development. Moreover, decisions over which caverns to drawdown in the upcoming drawdown cycle will impact any future ability to rebuild the inventory, the review says.
However, in the interests of avoiding a permanent reduction in the SPR capacity and to maintain the SPR’s operational flexibility, all four existing SPR sites should remain in operation, the review says.
The review also recommends some changes to the Energy Policy and Conservation Act, the original 1975 act authorizing the SPR. The president’s drawdown authority under the act could usefully be expanded to allow a full drawdown of the reserve in the event of a severe energy supply interruption. And the oil release authorities of the Northeast Gasoline Supply Reserve and the Northeast Home Heating Oil Reserve need to be aligned, the review says.
- ALAN BAILEY
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