to replace or not to replace the released SPR oil?

The 30 million barrels of light sweet crude sold from the US oil stockpile this summer has long since flowed into buyers’ refineries and storage facilities. Despite grousing by Republicans about the Obama administration’s decision to label the Libyan civil war a global oil supply emergency, they haven’t followed through with promises to investigate Strategic Petroleum Reserve policy and clamp down on future releases.

The Department of Energy sees no urgency to refill it, spokeswoman Jenny Hakun said.

And Frank Rusco, chief of the Government Accountability Office’s natural resources and environment team, said that’s not a bad call. With 696 million barrels still socked away in Gulf Coast caverns, the US more than meets its obligation with the International Energy Agency to maintain global reserves of oil or petroleum products equaling 90 days of net imports.

“If everything stopped today, we would still have quite a bit that is still just in the marketplace,” Rusco said in an interview. “That gets us up to the 90 days and beyond.”

But that doesn’t mean Congress or the administration should ignore the SPR and worry about refilling it later, Rusco said. The current budget woes present an opportunity to possibly fill the treasury and the stockpile at the same time.

“What I think would be prudent, especially in this time when we’ve got all of these fiscal constraints and the huge budget deficit and growing debt, it would make sense to consider the financial aspects of a draw-down and refill before just making a decision based on a mechanical decision-making process,” he said.

In a GAO report to Congress in 2006, Rusco recommended the government keep a bigger share of heavy crude in the stockpile. He said that shift would still make sense, allowing the government to make money by selling some of the lighter oil and replacing it with less expensive heavy supplies, resulting in reserves that more closely match Gulf Coast refiners’ capacity to process higher-sulfur crudes.

“I would hope the SPR office would at least seriously consider expanding further how much heavy oil they have in the reserve,” Rusco said. “You’d get a bigger bang for your buck if you had more heavy oil in the system. To the extent the draw-down allows you to reconsider that, I hope that they would.”

DOE declined to comment on the recommendation. “There are no plans to refill the SPR and no decisions have been made with regard to acquiring heavy crudes,” Hakun said in an e-mail.

Plenty else has changed in the five years since Rusco’s report. Falling demand for crude and gasoline–driven by high prices in 2008, upgrades to federal fuel efficiency standards and the prolonged recession–coupled with rising domestic production from North Dakota and other shale plays, means a smaller stockpile meets the three-month supply target. Those factors led to DOE scrapping a proposal to expand the strategic stockpile.

“We thought we would need to go to a billion [barrels], now we don’t need to increase the size of it,” Rusco said.

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There are other reasons not to put off decisions about refilling the SPR indefinitely, said Randa Fahmy Hudome, DOE associate deputy secretary under former President George W. Bush. A critic of the release, she said the missing Libyan barrels didn’t rise to the level of an emergency worthy of tapping the stockpile. And it makes her wonder whether the Obama administration has a willingness to open the SPR spigot more often.

“When they made the decision last time, people were really taken by surprise,” Fahmy Hudome said. “What’s to prevent them from doing it six months from now or even during the election cycle? You’re creating a precedent in which you not only do this in an emergency but for economic purposes to manipulate the market and for political purposes. That’s dangerous.”

If the move does foreshadow more frequent releases, Fahmy Hudome said DOE should replace the recently sold barrels.

“In case there really is a true emergency here in the United States, it’s not going to be 30 million,” she said. “It’s going to be much more. Then you’re starting at a negative 30 million, because you drew it down and didn’t replace it.”

Fahmy Hudome said the Obama administration likely doesn’t feel the urgency to refill it because they’re not contemplating natural disasters in the US or even an attack on Saudi Arabia’s critical infrastructure.

“If something does happen then they’ll have to give some serious thought because what we can’t do is ride low on our Strategic Petroleum Reserve,” she said. “It’s very dangerous. It’s a risky way of living.”

Rusco said the reserve has plenty of oil to handle small disruptions, and an event requiring DOE to sell a substantial portion of it is extremely unlikely.

“We wouldn’t ever expect anything like that to happen,” he said. “Our imports come from many, many countries through many, many channels. So it would be hard to imagine a situation in which we lost all the net imports.”–Meghan Gordon in Washington

Platts