http://www.npr.org/2016/06/21/482785440/low-oil-prices-fuel-reconsideration-of-petroleum-reserves
The U.S. Department of Energy is considering the future of a public asset worth tens of billions of dollars: the Strategic Petroleum Reserve.
The SPR was created after a 1973-'74 oil embargo
of the United States and other countries. Arab oil-producing countries
stopped selling crude to the U.S. because they were upset over its
support for Israel. The embargo led to steep price increases, rationing
and long lines of frustrated drivers at gas stations.
The
purpose of the reserve is to prevent this from happening again, by
keeping at least a 90-day supply of oil imports on hand. Then, if
there's another supply disruption, the government can step in and avoid a
shortage.
Currently the U.S. has enough to cover almost five months of
imports. All that oil is stored in underground salt caverns in Texas and
Louisiana. Most of them are shaped like huge test tubes, the tops of
which are at least 2,000 feet underground.
"Salt is very good
for underground oil storage," says Robert Corbin, deputy assistant
secretary for the Office of Petroleum Reserves at the Department of
Energy. He says it's impermeable so the oil doesn't leak out and the oil
doesn't dissolve the salt.
One question some people have is whether the oil goes bad over time.
"In
underground storage caverns such as what we have at the SPR, the oil
could sit in there — literally — indefinitely," Corbin says.
Some
of the oil in storage has been there since the 1970s. Corbin says it's
warm that far underground, so the crude moves around and mixes itself.
Robert Corbin (left), deputy assistant energy secretary for
the Office of Petroleum Reserves, speaks at the Bryan Mound site near
Freeport, Texas, on June 9. He says the Strategic Petroleum Reserve
fills a vital economic role.
Jeff Brady/NPR
The reserve has been used for its intended purpose three times: at
the start of the Gulf War in 1991; after Hurricane Katrina in 2005; and
in 2011 when oil supplies from Libya were disrupted because of that
country's civil war. Each sale was controversial and some argued the
releases were not really needed.
That raises the question of
whether the SPR should exist at all. Managing the reserve requires a
staff of 126 federal employees and about 800 contract workers. Congress
appropriated $212 million for the program in fiscal 2016.
Tom Kloza, global head of energy analysis with the Oil Price Information Service, calls the SPR a 1970s anachronism.
"You might as well be wearing bell-bottoms as having 690 million barrels in storage," Kloza says.
Actually,
it's 695.1 million barrels, and at current oil prices (just under $50
per barrel) the government-owned oil is worth about $34 billion.
Kloza believes the reserve doesn't need that much oil in it — he suggests reducing it by about half. Others want it sold off altogether. They argue proceeds from the oil could be used to pay for anything from road repairs to investing in renewable energy.
Kloza
warns that any sales would have to be conducted carefully so they don't
hurt a domestic oil market already hobbled by relatively low crude
prices.
The oil market has changed a lot in the four decades
since the SPR was created. Because of technologies like hydraulic
fracturing, U.S. oil production is on the rise again and oil imports have declined.
Kloza and others argue that oil companies could now make up the
shortfall if another country stopped shipping crude to the U.S.
"Should
there be some sort of interruption in the Mideastern supply that sends
prices skyward, we would see a very, very quick ramp-up," he says.
Because oil prices are low now, companies in places like Texas and
North Dakota have drilled wells but not pumped the crude out yet. So
there's essentially a private reserve of oil now that can be tapped
along with the public one.
DOE's Corbin says the SPR still
fills a vital role for the U.S. economy. If there's a supply disruption
like the one in the 1970s, that likely would send prices skyrocketing
again.
"You want to try and bring those prices back down as
quickly as possible," Corbin says. "The SPR can do that by releasing a
large volume of oil in a short period of time."
He says oil can move from the reserve onto the market in less than two weeks.
The SPR also fills requirements for U.S. membership in the International Energy Agency.
As
the Energy Department completes its review of the SPR, the reserve's
existential question likely will get some attention. The results of the
review — due out any day now — also will focus on the SPR's aging
infrastructure. Some maintenance projects have been put on hold in the
past, mostly for budget reasons.
The Obama administration has
asked Congress to allocate $375.4 million to perform that work. It would
be paid for by selling some of the oil in the reserve.
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