The Who, What, Where, Why and When of the Strategic Petroleum Reserves
What is the Strategic Petroleum Reserve:
The Strategic Petroleum Reserve (SPR) is the United States’ emergency oil stockpile, and it is the largest emergency petroleum supply in the world. The reserve stores about 700 million barrels of crude oil in underground salt caverns at four sites along the Gulf of Mexico. A barrel contains 42 gallons or 159 liters of oil. Each cavern is about 2,000 feet deep and holds about 10 million barrels of oil. The government uses salt caverns because it costs less than storing oil in aboveground tanks and because the pressure from the earth will seal up any leaks that might develop. The Energy Department also says that the temperature difference in the caverns, which are 2,000 feet below the surface of the earth, keeps the oil circulating so that the petroleum maintains its quality.
Where are the reserves located:
The government chose to put the oil near the Gulf of Mexico because there are many oil refineries nearby and because shipping is readily available. The sites are Bryan Mound near Freeport, Texas; Big Hill near Winnie, Texas; West Hackberry near Lake Charles, La.; and Bayou Choctaw near Baton Rouge, La. The reserve could store up to 700 million barrels. Most of the oil in the reserve comes from Mexico and the North Sea.
Why does the US need a Strategic Petroleum Reserve:
The United States started the petroleum reserve in 1975 after oil supplies were cut off during the 1973-74 oil embargoes. The embargo was
a shock to the U.S. economy, and the government decided that the country should never be caught short again. The United States uses almost 19 million barrels of petroleum every day, and more than half of that oil comes from imports. A reserve of 60 days’ worth of petroleum could help keep the oil flowing in case of a cutoff. The last time that the United States used oil from the reserve was during the Persian Gulf War in 1991 to keep oil plentiful and prices stable. That drawdown is different from the exchange authorized recently because the companies who bid for it will return the oil this time.
When did we last the SPR:
In June 2011 the Obama Administration decided to release 30 million barrels of oil from the Strategic Petroleum Reserve. This amount was matched by 30 million barrels from the International Energy Agency members. The decision was prompted by the threat that crude exports from Libya could be hurt by the civil war there. Within a little over a month after the announcement, the price of West Texas Crude fell from about $100 to just above $80. The impact of the decision may have been as much psychological as a matter of supply and demand. Whatever the reason for the outcome, it is time to make the same decision again.
When Should the SPR be used:
The SPR contains approximately 700 million barrels. A release of 10% of that amount, in concert with another action by the IEA, might not push crude to $90 or $95, but it could stop the move that has taken the price from about $94 to $110 in less than three months. To consumers and business that are threatened by $4 a gallon gasoline and higher prices for industrial oil and petrochemicals, the decision would say that the U.S. government will not stand idly by as concerns about Iran and a possible blockade of the Strait of Hormuz push WTI crude to $120 or higher. The price rise although only a temporary upswing because of a supply disruption, will have negative effects on the US economy. Although Saudi Arabia has promised and has already begun to increase product to cover the shortages, the price increase is none the less real. The US economy cannot afford a shock like this in its weakened state. The reason for the Reserves is to prevent economic chaos.
Who makes the decision:
Decisions to withdraw crude oil from the SPR are made by the President under the authorities of the Energy Policy and Conservation Act. In the event of an energy emergency, SPR oil would be distributed by competitive sale. The SPR has been used under these circumstances only twice (during Operation Desert Storm in 1991 and after Hurricane Katrina in 2005). Its formidable size (700-plus million barrels) makes it a significant deterrent to oil import cutoffs and a key tool of foreign policy
Originally posted here
