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CRS: The Strategic Petroleum Reserve: History, Perspectives, and Issues

Author: Robert Bamberger
June 6, 2008

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Summary


Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and Conservation Act (EPCA, P.L. 94-163) to help prevent a repetition of the economic dislocation caused by the 1973-1974 Arab oil embargo. The program is managed by the Department of Energy (DOE). The capacity of the SPR is 727 million barrels, and it currently holds around 704 million barrels of crude oil. In addition, a Northeast Heating Oil Reserve (NHOR) holds 2 million barrels of heating oil in above-ground storage. At issue in recent years has been whether SPR capacity
should be expanded and whether the reserve should continue to be filled.

During the period FY1999-FY2007, roughly 139 million barrels of royalty-inkind (RIK) oil were added to the SPR. An estimated 19.1 million barrels was to be acquired during FY2008. RIK oil is turned over to the U.S. government in lieu of cash royalties on offshore oil production from federal leases that would otherwise be paid to the Treasury. The Energy Policy Act of 2005 (EPACT, P.L. 109-58) permanently authorized the SPR and permits fill only if it can be established that adding to the SPR is not placing upward pressure on prices. However, the Bush Administration continued RIK fill. With gasoline prices exceeding, on average, $3.60/gallon, and approaching $4.00/gallon in some regions, some policymakers proposed that Congress take action to halt RIK deliveries. On May 13, the House and Senate passed H.R. 6022, suspending RIK fill. President Bush signed the legislation into law (P.L. 110-232) on May 19. However, a few days earlier, on May 16, DOE announced it would not accept bids for an additional 13 million barrels of RIK oil that had been intended for delivery during the second half of 2008. An energy bill (H.R. 3044) scheduled to reach the Senate floor during the week of June 9 includes language requiring suspension; presumably, this title will be dropped.

The SPR comprises five underground storage facilities, hollowed out from naturally occurring salt domes in Texas and Louisiana. EPCA authorized drawdown of the Reserve upon a finding by the President that there is a "severe energy supply interruption." Congress enacted additional authority in 1990 (Energy Policy and Conservation Act Amendments of 1990, P.L. 101-383), to permit use of the SPR for short periods to resolve supply interruptions stemming from situations internal to the United States. The meaning of a "severe energy supply interruption" has been controversial. However, the statute intends use of the SPR only to ameliorate discernible physical shortages of crude oil. The sharp and sustained increase in crude prices during 2008 is attributed to a "tight" market that has added new complexities to decision making on when to fill and to use the SPR.

The Energy Policy Act of 2005 (EPACT) required expansion of the SPR to its authorized maximum of 1 billion barrels. Congress approved $25 million in the FY2008 budget for land acquisition for a site in Richton, Mississippi, that would add 160 million barrels of capacity, but rejected spending for other expansion work. In FY2009, the Administration is again seeking funds for this purpose, for which there still appears to be limited support. The FY2008 request was $331.6 million; Congress approved spending of $186.8 million. The FY2009 request is $346.9 million.

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