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Foreign governments may rent US SPR space, commercial leasing may be too costly: DOE official

Increase font size  Decrease font size Date:2019-10-21   Views:58
A US Department of Energy study on the future of the Strategic Petroleum Reserve is likely to recommend leasing unused portions of the reserve to foreign governments, but will show the high cost of leasing space to companies, Steven Winberg, DOE's assistant secretary for fossil energy, said Thursday.

The study, originally scheduled for release in late 2018, will be released before the end of this year, Winberg said during a Senate Energy and Natural Resources Committee hearing on the SPR.

The study will likely recommend leasing space to foreign governments, Winberg said. Australia and the US are in talks to store potentially millions of barrels of crude in the SPR in order to meet International Energy Agency obligations.

But Winberg indicated the high cost of leasing SPR space to commercial partners may not be worth it.

Unlike governments, who would store oil in the SPR and release only for potential global supply shocks, companies would like want to inject and withdraw oil from the reserve on a fairly regular basis. These frequent withdrawals would likely damage the SPR's salt caverns and would likely require installation of a brine drive system, Winberg said.

"That would require a fair amount of capital ... it would be fairly expensive," he said.

In September 2018, the US House of Representatives passed a bill which would have allowed DOE to lease unused portions of the SPR to private companies. The bill was never taken up by the Senate.

A July 24 report from the Congressional Research Service pointed out that renting out SPR space to commercial clients may not fit the "physical capabilities" of the SPR.

"The salt domes that contain SPR crude oil are suitable for long-term oil storage and they may be less suitable for short-term injections and withdrawals," the report stated.

"Oil is drawn from the SPR storage caverns by injecting brine into the caverns and causing the contained oil to rise, and then exit, the facility. Frequent brine injection and withdrawal could result in accelerated structural deterioration of the caverns."

Leasing space to foreign governments would not represent the same risk since withdrawals by governments would likely be far less frequent, the report added.

Thursday's hearing focused on the need for the SPR in light of changing market dynamics, including the growth of US shale output and increased risk of another attack on oil projects in the Middle East.

Following the September 14 attack on Saudi oil facilities, US President Donald Trump said he may approve a release from the SPR, which analysts said may have helped keep an increase in oil prices in check.

While an SPR release was not ultimately approved, Winberg said Thursday that the SPR is a "disincentive to any actor looking to disrupt the world's supply of crude oil and is a moderating factor to keep prices for products such as gasoline, diesel fuel, and jet fuel from rising higher than they would otherwise in supply disruptions such as the recent attacks."

As of last Friday, the SPR held 643.3 million barrels of crude, including 250.3 million barrels of sweet crude and 393 million barrels of sour crude.
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