The Strategic Petroleum Reserve: History, Perspectives, and Issues

Publication Date: September 2008

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Energy

Type:

Abstract:

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). Physically, the SPR comprises five underground storage facilities, hollowed out from naturally occurring salt domes in Texas and Louisiana. The SPR could be drawn down initially at a rate of 4.3 million barrels per day (mbd) for up to 90 days; thereafter, the rate would begin to decline.

The capacity of the SPR was reported to be 727 million barrels in 2005. In addition, a Northeast Heating Oil Reserve (NHOR) holds 2 million barrels of heating oil in above-ground storage. On August 8, 2005, the President signed the Energy Policy Act of 2005 (P.L. 109-58). The act permanently authorized the SPR and required, "as expeditiously as practicable," expansion of the SPR to its authorized maximum of 1 billion barrels. Within one year of enactment, the Secretary of Energy is to select sites -- from among those that have been previously studied -- for the expansion. Among other provisions, the Secretary is also required to develop procedures for achieving the fill objective without "incurring excessive cost" or placing upward pressure on prices.

EPCA authorizes drawdown of the Reserve upon a finding by the President that there is a "severe energy supply interruption." This is deemed by the statute to exist if three conditions are joined: If "(a) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; (b) a severe increase in the price of petroleum products has resulted from such emergency situation; and (c) such price increase is likely to cause a major adverse impact on the national economy." Congress enacted additional drawdown authority in 1990 (Energy Policy and Conservation Act Amendments of 1990, P.L. 101-383), permitting the President to use the SPR for a short period without having to declare the existence of a "severe energy supply interruption" or the need to meet obligations of the United States under the international energy program overseen by the International Energy Agency (IEA). In addition, P.L. 94-163 provided authority for exchanges of SPR oil where oil is loaned and then returned with additional oil as a premium.

There are differences of opinion as to what should be termed a "severe energy supply interruption." A spike in crude and product prices often stirs calls for use of the SPR. However, the SPR is intended by statute to ameliorate discernible physical shortages of crude oil. The sharp rise in prices following Hurricanes Katrina and Rita in 2005 was not a response to any shortage of crude, but to shortages of products owing to the shutdown of major refining capacity in the United States and an interruption of product transportation systems. Demand growth that has strapped refinery capacity has, at other times, quite divorced product prices from crude supply, a departure from the past. It has complicated reconciling developments in markets with possible use of the SPR.

This report will be updated as events warrant.