The US Energy Department will conduct a comprehensive review of the Strategic Petroleum Reserve, which could result in changes to the size, location and even the composition of the crude it contains in light of changes in the US and world oil markets, according to an agency letter released publicly Monday.
DOE is in the initial stages of this review which will look at what the "optimal configuration and capabilities" of the SPR should be, Christopher Smith, a principal deputy assistant secretary with DOE's Office of Fossil Energy, wrote in a letter dated September 17.
The DOE review is expected to examine the type of crude kept in the SPR as production of light US oil continues to climb and may look at whether the SPR is best positioned along the Gulf Coast as US energy infrastructure has shifted with the dramatic increase in oil production in the northern US, primarily North Dakota.
This review will look at the composition, volume and location of the SPR, as well as "infrastructure requirements, distribution capability, and performance criteria," Smith wrote.
Smith's letter was in response to a US Government Accountability Office report on the impact of crude exports. The report, which highlighted four studies this year which claimed dropping current restrictions on US crude exports would result in lower consumer fuel prices and increases in domestic production, was released Monday by Senator Lisa Murkowski, an Alaska Republican. Murkowski, a leading supporter of US crude exports, is expected to chair the Senate Energy and Natural Resources Committee if Republicans win control of the Senate in next month's elections.
The report recommends that DOE look at the size of the SPR, which was established in tandem with US export restrictions to shield fuel consumers from global crude price shocks. The GAO report argues that the SPR has not reflected the ongoing increase in US production, and the resulting drop in imports, and is currently maintained at a level nearly three times the size mandated by the International Energy Agency.
If the US drops or weakens its current restrictions on crude exports and production climbs, as previous studies suggest, imports will likely be reduced even more, further diminishing the need for a substantially sized SPR, the GAO said.
As a member of the IEA, the US is required to keep public and private reserves of at least 90 days of net imports, but the GAO claims as of May the SPR held reserves of 106 days, worth roughly $73 billion, while private industry in the US held an additional 141 days of reserves, for a total of 247 days.
The SPR currently holds 691 million barrels of crude in underground salt caverns in Louisiana and Texas and is authorized to hold up to 1 billion barrels. From fiscal 2000 through fiscal 2013, the federal government spent $500 million to purchase crude and another $2.5 billion to operate and maintain the reserve, according to DOE.
Instead of maintaining such relatively large reserves, the US could sell this oil to fund other priorities, as it did in 1996 for federal budget deficit reduction, GAO said.
"If, for example, DOE found that 90 days of imports was an appropriate size for the SPR, it could sell crude oil worth about $10 billion," the report said.
DOE may also consider moving the SPR, the study suggested, since infrastructure changes, such as pipeline reversals to accommodate the Bakken oil boom, have made it more difficult to move SPR oil to refineries in the US Midwest and West.
The report also suggests that DOE look at whether the SPR should include heavier oil, since the majority of recent domestic production growth has been in light crude, a point Smith indicated in his letter the agency was examining.
Since the US oil boom began DOE has taken some steps to look at the impact of changing market conditions on the SPR, including a test sale of SPR crude oil in March and the announcement of a plan to set up a Northeast Regional Refined Petroleum Product Reserve in New York Harbor and New England. The agency is also studying the need for additional regional product reserves.
