Andrews Specialist in Energy and Defense Policy
Robert Pirog Specialist in Energy Economics
authorized the Strategic Petroleum Reserve (SPR) in the 1975 Energy Policy and Conservation
Act (EPCA) to help prevent a repetition of the economic disruption caused by
the 1973-1974 Arab oil embargo. EPCA specifically authorizes the President
to draw down the SPR upon a finding that there is a “severe energy supply
interruption.” The meaning of a “severe energy supply interruption” has
been controversial. The authors of EPCA intended the SPR only to
ameliorate discernible physical shortages of crude oil. Historically,
increasing crude oil prices typically signal market concerns for supply
availability. However, Congress deliberately kept price trigger
considerations out of the President’s SPR drawdown authority because of the question
about what price level should trigger a drawdown, and the concern that a price
threshold could influence market behavior and industry inventory
practices. International Energy Agency member countries (which include the
United States) have committed to maintaining emergency reserves equal to
90 days of net crude oil imports, developing programs for demand restraint in the
event of emergencies, and agreeing to participate in allocation of oil
deliveries among the signatory nations to balance a shortage.
The Department of Energy (DOE) manages the SPR, comprised of five underground
storage facilities, solution-mined from naturally occurring salt domes in
Texas and Louisiana. The 2005 Energy Policy Act authorized SPR expansion
to a capacity of 1 billion barrels, but physical capacity expansion of the
SPR has not proceeded beyond 726.6 million barrels. The SPR’s maximum
drawdown capacity is 4.4 million barrels per day, based on the capacity of the pipelines
and marine terminals that serve it. Legislation restricts SPR sales to no more
than 30 million barrels over a 60-day period for anything less than a
severe energy supply interruption.
Congress initially appropriated funds to fill the SPR through crude oil
purchases, but ended that practice in 1994. In 2000, the Department of
Energy began acquiring oil to fill the SPR through the royalty-in-kind
(RIK) program. In lieu of paying cash royalties on Gulf of Mexico leases, producers
diverted a portion of their production volume to the SPR. The Secretary of the
Interior terminated the RIK program in 2011.
Sales and loans of crude from the SPR have been carried out for several
different reasons. The 1990 Energy Policy and Conservation Act Amendments
expanded SPR drawdown authority to include responding to short term supply
interruptions stemming from situations internal to the United States. U.S.
Presidents have authorized emergency sale of SPR crude during the 1990 Persian
Gulf War, in the aftermath of Hurricanes Katrina and Rita in 2005, and after a
prolonged disruption of Libyan crude in 2011. After civil unrest in Libya
curtailed its crude oil production in the spring of 2011, and speculative
bidding began driving up global crude oil prices, President Obama ordered
an SPR auction to satisfy International Energy Agency treaty obligations. In addition
to these emergency sales, the Department of Energy, from time-to-time, has
conducted drawdowns to test the SPR system, make loans to help refiners
bridge temporary supply disruptions, and generate revenue for budget
The 30.64 million barrel SPR sale in 2011 reduced the SPR’s inventory from
726.6 million barrels to 695.9 million barrels. The SPR currently holds
the equivalent of 80 days of import protection (based on 2012 data of 8.72
million barrels per day of net petroleum imports).
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