Recently enacted laws call for the sale of SPR oil to reduce the budget deficit and fund new infrastructure projects
The Strategic Petroleum Reserve (SPR) is a U.S. Government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. The caverns have a design capacity of 714 million barrels and store emergency supplies of crude oil owned by the U.S. Government.
Two recently enacted laws authorize the sale of 174 million barrels of crude oil from the U.S. Strategic Petroleum Reserves to fund infrastructure projects. According to the Energy Information Administration (EIA), the SPR currently holds more than 659 MMBO, or about 96% of its 727 MMBO design capacity.
The Bipartisan Budget Act authorizes the sale of 58 MMBO from the SPR between FY 2018-2025 to be used for deficit reduction, and an additional 40-50 MMBO from FY 2017-2020 to fund SPR modernization. A second bill, the Fixing America’s Surface Transportation Act, authorizes the sale of 66 MMBO in FY 2023-2025 to help support the Highway Trust Fund.
According to the Office of Fossil Energy, the average price paid for oil in the SPR is $29.70 per barrel, and the investment to date is “about $27.8 billion ($7 billion for facilities based on replacement value; $20.8 billion for crude oil based on accounting value).”
Background of the SPR
As a member of the International Energy Agency (IEA), the U.S. is obligated to maintain stocks of crude oil and petroleum products to provide at least 90 days of import protection and to collectively participate in the release or sale of oil supplies to help balance shortages among IEA members in the event of severe energy supply disruptions.
According to the EIA, the SPR holds crude oil stocks equivalent to 156 days of import protection. Including average levels commercial stocks over the past five years, total days of import coverage provided by strategic and commercial stocks is currently 450 days.
The U.S. has participated in releases of strategic petroleum stocks on three occasions. The first occasion arose in 1991 with the commencement of Operation Desert Storm, which resulted in a release of 17.2 million barrels of oil from the SPR. The second release came after Hurricane Katrina in 2005, with 11 million barrels of SPR oil sold. The third release occurred in June 2011 in response to oil supply disruptions driven by hostilities in Libya, which resulted in a release of 30.6 million barrels of oil from the SPR.
Periodic test sales of the Strategic Petroleum Reserve
The U.S. government has conducted three test sales of the SPR in order to test for readiness for sales in the past. The first time one of these test sales took place was in 1985 when the Department of Energy sold roughly 1 MMBO, the second, undertaken during Iraq’s invasion of Kuwait in August 1990, was for 3.9 MMBO, and the third took place in May of 2014, and involved 5 MMBO.
The DOE is required by law to buy back petroleum products from test sales within one year of completion of the sale.
The SPR’s In kind oil exchanges
The SPR also conducts petroleum exchanges, which function in a similar way as financial interest. The DOE releases barrels of oil from the SPR, which the borrower, usually an oil refiner, returns along with a premium of an additional quantity of oil. These exchanges have taken place during severe weather events like hurricanes, pipeline blockages and ship channel closures.
A complete list of the SPR’s previous sales and exchanges is available at the SPR Quick Facts web page.