The Strategic Petroleum Reserve

The Congressional Research Service recently produced The Strategic Petroleum Reserve: History, Perspectives, and Issues (May 15, 2008)(pdf). Here's the 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 slightly more than 700 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, with an estimated 19.1 million barrels to be acquired during FY2008. This is oil 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 Senate, by a vote of 97-1, and the House, by a vote of 382-25, approved suspension of RIK fill. President Bush indicated that he would not veto the legislation. There were reports on May 14 of further SPR legislation that might be introduced in the House. The bill would reportedly initiate an exchange of SPR crude and direct SPR funds from a prior sale to be used to fund energy research and development programs.

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. A spike in crude and product prices often stirs calls to use the SPR. However, the statute intends use of the SPR only to ameliorate discernible physical shortages of crude oil. The dynamics of world oil markets, and price sensitivity to planned or unplanned events that temporarily reduce refinery production, have added new complexities to decision making on when to fill and to use the SPR. 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. Further environmental assessment of the site is underway.