Page added on June 21, 2016
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.
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.
14 Comments on "Low Oil Prices Fuel Reconsideration Of Petroleum Reserves"
Boat on Tue, 21st Jun 2016 10:54 am
$80 seems like a decent selling price. To go beyond that we should be drilling thousands of wells on government lands when prices are low and selling the oil when prices are high. A side benefit is helping to stabilizing the oil work force during low price periods.
efarmer on Tue, 21st Jun 2016 11:17 am
China recently completed their own version of the SPR. It is filled and built and cheap to maintain. The only rationale I see for abandoning it is to play to those who would be enriched by a supply shock requiring a long price spike while the horizontal drillers and frackers ramp back up capitalized fresh by the price spike. Of course the capitalization would come from the American consumer and their Type O (the universal donor) dollars. The same guys who have $34B in the SPR to protect them to some degree now.
shortonoil on Tue, 21st Jun 2016 11:30 am
We have just completed some new work, and the results are shocking! We have developed a means to calculate what the cost of extraction for crude has been from 1960 to the present. The extraction portion of the petroleum industry is in serious trouble. In 2015, as WTI averaged $48.67/ barrel the extraction portion of the industry lost $2.3 trillion. Further more, that part of the industry has been consistently losing money for quit a few years. The profit that the industry has realized has been in the processing and distribution area of the industry.
This raises the very serious question as to how much longer the world’s producers will be able to continue operations. Thus, selling off the SPR at this stage, regardless of the price, would be a most fool hardly thing to do. We suggest that it be expanded to as great a size as is possible while the oil is still available to fill it. The very continuous of our society is very likely to depend on it. We are now at a very critical junction!
http://www.thehillsgroup.org/
Go Speed Racer on Tue, 21st Jun 2016 11:53 am
Get rid of our reserve supply? More proof that everybody is stupid.
steveo on Tue, 21st Jun 2016 11:54 am
These so-called experts who want the SPR eliminated don’t seem to understand the difference between short term and long term.
The SPR can be tapped literally over night.
“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.”
Bringing new production on line can months or years (I’m sure our real experts like Rockman can give better numbers). By the time that happens the economic damage has been done and the production may never come on line at all do to lack of capital.
tagio on Tue, 21st Jun 2016 12:28 pm
Jeezuz short, as if your prior results weren’t shocking enough. Will you be updating your depletion presentation?
This helps explain, however, why gas prices are still “high” in comparison to the price of a barrel of oil and haven’t come down more or less proportionally with the fall in the price of oil. The industry is subsidizing extraction with higher priced finished product. Since all producers are more or less in the same boat, they don’t need a conspiracy to do this, no big player will break ranks with a lower price. Just a guess, I’m not in the biz.
Boat on Tue, 21st Jun 2016 12:36 pm
Another reason for SPR
Past Exchanges
Sept 2012 – exchanged 1 MMB with Marathon Oil following Hurricane Isaac due to disruptions to the commercial oil production, refining and distribution operations in the Gulf Coast.
Sep/Oct 2008 – two test exchanges were conducted following Hurricanes Gustav and Ike totaling 5,389,000 barrels. Deliveries were made to Marathon, Placid, ConocoPhillips, Citgo and Alon USA.
June 2006 – exchanged 750 thousand barrels of sour crude with ConocoPhillips and Citgo due to the closure for several days of the Calcasieu Ship Channel to maritime traffic. The closure resulted from the release of a mixture of storm water and oil. Action was taken to avert temporary shutdown of both refineries.
January 2006 – exchanged 767 thousand barrels of sour crude with Total Petrochemicals USA due to closure of the Sabine Neches ship channel to deep-draft vessels after a barge accident in the channel. Action was taken to avert temporary shutdown of the refinery.
Sep/Oct 2005- exchanged 9.8 million barrels of sweet and sour crude due to disruptions in Gulf of Mexico production and damage to terminals, pipelines and refineries caused by Hurricane Katrina.
Sep/Nov 2004 – exchanged 5.4 million barrels of sweet crude due to disruptions in the Gulf of Mexico caused by Hurricane Ivan.
Oct 2002 – exchanged 98,000 barrels with Shell Pipeline Co. to secure Capline storage tanks in advance of Hurricane Lili.
Sep/Oct 2000 – exchanged 30 million barrels in response to concern over low distillate levels in Northeast.
July/August 2000 – exchanged 2.8 million barrels of crude oil for 1st-year tank storage and stocks for 2 million barrel Northeast Home Heating Oil Reserve.
June 2000 – exchanged 500,000 barrels each with CITGO and Conoco, due to blockage of the ship channel that allowed incoming crude oil shipments to those refineries. Action taken in order to avert temporary shutdown of both refineries.
August 1998 – exchanged 11 million barrels of lower quality Maya crude in SPR with PEMEX for 8.5 million of higher quality crude (more suitable for U.S. refineries)
April/May 1996 – exchanged 900,000 barrels of SPR crude with ARCO to resolve company’s pipeline blockage problem.
http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-quick-facts-and-faqs
Boat on Tue, 21st Jun 2016 12:36 pm
Another reason for SPR
Past Exchanges
Sept 2012 – exchanged 1 MMB with Marathon Oil following Hurricane Isaac due to disruptions to the commercial oil production, refining and distribution operations in the Gulf Coast.
Sep/Oct 2008 – two test exchanges were conducted following Hurricanes Gustav and Ike totaling 5,389,000 barrels. Deliveries were made to Marathon, Placid, ConocoPhillips, Citgo and Alon USA.
June 2006 – exchanged 750 thousand barrels of sour crude with ConocoPhillips and Citgo due to the closure for several days of the Calcasieu Ship Channel to maritime traffic. The closure resulted from the release of a mixture of storm water and oil. Action was taken to avert temporary shutdown of both refineries.
January 2006 – exchanged 767 thousand barrels of sour crude with Total Petrochemicals USA due to closure of the Sabine Neches ship channel to deep-draft vessels after a barge accident in the channel. Action was taken to avert temporary shutdown of the refinery.
Sep/Oct 2005- exchanged 9.8 million barrels of sweet and sour crude due to disruptions in Gulf of Mexico production and damage to terminals, pipelines and refineries caused by Hurricane Katrina.
Sep/Nov 2004 – exchanged 5.4 million barrels of sweet crude due to disruptions in the Gulf of Mexico caused by Hurricane Ivan.
Oct 2002 – exchanged 98,000 barrels with Shell Pipeline Co. to secure Capline storage tanks in advance of Hurricane Lili.
Sep/Oct 2000 – exchanged 30 million barrels in response to concern over low distillate levels in Northeast.
July/August 2000 – exchanged 2.8 million barrels of crude oil for 1st-year tank storage and stocks for 2 million barrel Northeast Home Heating Oil Reserve.
June 2000 – exchanged 500,000 barrels each with CITGO and Conoco, due to blockage of the ship channel that allowed incoming crude oil shipments to those refineries. Action taken in order to avert temporary shutdown of both refineries.
August 1998 – exchanged 11 million barrels of lower quality Maya crude in SPR with PEMEX for 8.5 million of higher quality crude (more suitable for U.S. refineries)
April/May 1996 – exchanged 900,000 barrels of SPR crude with ARCO to resolve company’s pipeline blockage problem.
http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-quick-facts-and-faqs
Boat on Tue, 21st Jun 2016 1:17 pm
stevo
“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.”
Maximum drawdown capability – 4.4 million barrels per day
Time for oil to enter U.S. market – 13 days from Presidential decision
http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-quick-facts-and-faqs
shortonoil on Tue, 21st Jun 2016 1:39 pm
“U.S. oil production is on the rise again and oil imports have declined. “
US oil production is down 900,000 b/d according to the EIA. Where do you get your figures, WalMart?
“This helps explain, however, why gas prices are still “high” in comparison to the price of a barrel of oil and haven’t come down more or less proportionally with the fall in the price of oil. “
Between 1960 and 2005 according to the Texas RRC the cost of crude was between 68 to 71% of the cost of gasoline. It is now running at less than 57%. Some one had to come up with the $1 trillion that was poured into the Shale fiasco. “American consumer we thank you for your support, The Shale Industry”. Also known as; “just bend over, we’ll do the rest!”
Apneaman on Tue, 21st Jun 2016 2:03 pm
Boat, here is the latest from Tom Lewis (The Daily Impact – CHRONICLING THE CRASH OF THE INDUSTRIAL AGE) – I know how much you appreciate his ideas and writings.
The Days After Tomorrow 4: Paiute Morning
“And our society is all about creative choices. Our children are bombarded from birth with messages about choices: “you can be anything you want to be.” You can choose your occupation, your religion, your political party, even your gender. In this welter of choices, the most important of which you are expected to have made by the age of 18, the one shared value is money — you are expected to make a lot of it.
As this complex, cobbled-together culture, an embodiment of greed and narcissism, comes apart under us, its premises exposed as lies, its parts as shoddy, where shall we look for a replacement? To a different business plan with a new chain of command?”
http://www.dailyimpact.net/2016/06/20/the-days-after-tomorrow-4-paiute-morning/
PracticalMaina on Tue, 21st Jun 2016 2:16 pm
Maybe it would be good if the SPR couldn’t respond to a sudden oil production halt in SA or something. It might teach the US that at least 1/2 of the gainfully employed workforce are not vital for the function of our society. We live in a world where hospitals are understaffed and it is prohibitively expensive to see a health care professional, but there are tens of thousands of plastic surgeons, dieticians, pharmaceutical reps, also pronounced poison salespeople.
Plantagenet on Tue, 21st Jun 2016 8:13 pm
The morons in the Obama administration have been trying to sell off the SPR for years. Hopefully we can keep their grubby mitts off it for another 7 months until Obama is out of power.
Cheers!
Kenz300 on Wed, 22nd Jun 2016 9:21 am
Electric cars, trucks, bicycles and mass transit are the future…..fossil fuel ICE cars are the past…………..
Think teen agers vs your grand father…………………. cell phones vs land lines…….
NO EMISSIONS……..climate change is real………
Save money……no stopping at gas stations…..no oil changes……..less overall maintenance……
Climate Change is real………fossil fuels are the cause…
Britain Gets No Power From Coal for First Time Ever, UK EV Drivers Soon to Sell Electricity Back to Grid
http://ecowatch.com/2016/05/11/britain-no-coal/