Stop Filling the SPR?

To me, some of the most humorous ideas for relieving high oil prices are the perpetual calls to release oil from the Strategic Petroleum Reserve (SPR). Note what the SPR is actually for:

The Strategic Petroleum Reserve (SPR) is the world’s largest supply of emergency crude oil. The federally-owned oil stocks are stored in huge underground salt caverns along the coastline of the Gulf of Mexico.

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.

So, it is supposed to protect us from oil import cutoffs, and yet every time oil prices rise, politicians want to tap it for political purposes. They wanted to do it when oil “sky-rocketed” to $20, and there have been calls to tap it every time oil climbs a few dollars. Imagine that we had tapped it when oil hit $20, and today found ourselves with a depleted SPR and oil at $120. We might as well not have a strategic reserve.

Maybe the politicians have finally figured out that there isn’t going to be a release, so they are trying a new strategy:

Suspend deliveries to U.S. oil reserve, lawmakers say

With fuel costs becoming a crucial election-year issue, members of both parties — separately — pitched their ideas Wednesday for bringing down prices.

Democrats called for a windfall profits tax on oil companies, rolling back tax breaks for the industry and new protections against price-gouging, while Republicans urged increased exploration for new domestic oil sources. About the only proposal their plans had in common was to stop the delivery of 70,000 barrels of oil a day for the emergency stockpile.

First thing, let’s fact check. I have heard this 70,000 barrel a day number repeated again and again, so I decided to check:

U.S. Weekly Crude Oil Ending Stocks SPR (Thousand Barrels)

Turns out that the rate isn’t correct. In the past 5 weeks, the SPR has been filled at the rate of 45,171 barrels a day. In the past 2 weeks, the rate of fill has been 14,214 barrels a day. So I am not sure where people have come up with the 70,000 barrel number. Even if we look over the past 12 months, the rate of fill is only 33,000 barrels a day. So, first thing, the rate of fill has been overstated.

Second, the capacity is 727 million barrels. How much is in there now? Over 701 million barrels. So, it is already over 96% full. But at the average rate of fill over the past year, it is going to finally be full in just a little over 2 years.

So, what’s my point? Given that the SPR is already almost full, yet the rate of fill is so slow, it really isn’t going to make much difference if they stop filling it. The daily rate of fill over the past year is less than 0.2% of the average daily oil usage in the U.S. – and only about 0.05% of the total daily usage of the world. That’s like noise in the system; there would be no discernable effect if we stopped filling the SPR. It’s a pretty meaningless political gesture, which has a chance to backfire if 1). Oil prices continue to rise; or 2). We have a national emergency. What are the odds of that, you might ask? Well, the SPR has only been tapped twice for national emergencies:

The Desert Storm Drawdown

On January 16, 1991, coinciding with the international effort to counter the Iraqi invasion of Kuwait, President George H.W. Bush ordered the first-ever emergency drawdown of the SPR. The Department of Energy immediately implemented a drawdown plan to sell 33.75 million barrels of crude oil, the United States’ portion agreed to by the International Energy Agency.

The drawdown proceeded on schedule and without major complications. Between the initial authorization and the final sale, however, world oil supplies and prices stabilized, and the United States reduced the sales amount to 17.3 million barrels which were sold to 13 companies.

And, who can forget:

Hurricane Katrina Drawdown

The SPR’s second emergency drawdown occurred after Hurricane Katrina caused massive damage to the oil production facilities, terminals, pipelines, and refineries along the Gulf regions of Mississippi and Louisiana in late August 2005. All Gulf of Mexico production was shut in initially, which equated to about 25% of domestic production. Gasoline prices spiked nationwide in reaction to the disruptions, and the supply levels of gasoline and other refined products were impacted.

On September 2, 2005, in a coordinated action with the International Energy Agency, President George W. Bush issued a Finding of a Severe Energy Supply Interruption and directed the Secretary of Energy to draw down and sell crude oil from the SPR. Secretary Samuel W. Bodman immediately authorized a Notice of Sale for 30 million barrels of crude oil to the U.S. markets. The on-line sale was held from September 6-9, 2005. DOE evaluated each bid and determined that five companies had submitted acceptable offers for 11 million barrels.

To conclude, I am not strongly against the idea, I just don’t think it will have any impact. (On the other hand, I am very strongly opposed to tapping the reserve just to bring down oil prices for political purposes). I also think we could save more oil by maintaining the air pressure of our tires on every car that stops by. In fact, from a recent essay I wrote, it is estimated that we waste 1.2 billion gallons a year due to low tire pressure. This is is three times what we put in the SPR in the past year – but have you heard one government official talking about an intiative to air up our tires?

8 thoughts on “Stop Filling the SPR?”

  1. Not much to say here. We elected folks who are, by and large, idiots.
    What does it say about us?

    As always, you ask good questions.
    This is a column I would love to see in USA Today…of course, it would have to be dummed down a bunch.

  2. If we started using oil from the SPR it would show OPEC that they can’t hold us over a barrel. Oil prices would drop back to $40.

  3. Anonymous said…

    And we πŸ˜† πŸ˜† πŸ˜†
    It is a funny joke.

    1.2 billion gallons = 1.2 billion/42 gallons = approx. 286 million barrels of gasoline. The average conversion of oil to gasoline is not one to one, but this is an approximation.

    We added 33,000 barrels of oil a day over the last year or 12 million barrels in total. This is a lot less than a third of the savings from tire air pressure optimization inside the US.

    Side note: globally, the benefits from air pressure optimization would be about 4.5 times the American benefits.

  4. Robert Rapier, what is your best estimate of global oil production in 2008 and 2009? Might oil production exceed current global estimates?

    Part of what might be useful to calculate oil production going forward would be a more descriptive model of shale and oil sand costs per barrel of oil extracted.

    A model that included:
    a) residual cost per barrel
    b) water volume per barrel (that can be multiplied by the estimated cost of water)
    c) energy input per barrel (that can be muliplied by the estimated cost per unit of the various energy inputs)
    d) the volume of other inputs required (that can be multiplied by the cost per unit of the various inputs.)

    A model like this would enable us to better determine shale and oil sands oil output going forward.

  5. Robert Rapier, what is your best estimate of global oil production in 2008 and 2009? Might oil production exceed current global estimates?

    Depends on whose estimates you are talking about. I think production can rise for a few more years, but I also think we are close to a top. I watch the Megaprojects list pretty closely. It is now available at Wikipedia:

    Oil Megaprojects List

    A couple of things to bear in mind. First, this list does not account for depletion. Second, there is a tendancy for projects to not come in on time. So the numbers you see for 2008 are not likely to materialize. I do think, though, that we will see record production this year.

    Cheers, RR

  6. Didn’t Clinton do something to release some in 1999 or 2000? I can’t remember if it was an actual release or just an order and nothing was released, but I seem to remember something around that timeframe.

  7. We have known deposits of oil we haven’t developed such as ANWR and off the Atlantic coast of the Carolinas.

    Aren’t those are REAL strategic petroleum reserves? Of course the infrastructure isn’t in place to get that oil to the surface in the hurry in the event of an actual strategic emergency.

    Instead of buying very expensive oil to fill the existing SPR, wouldn’t it be better to put that money into developing the necessary infrastructure at ANWR, so that if we ever REALLY need that oil–such as war in the Middle East destroying the oil infrastructure in the KSA–we could start pumping from ANWR in a hurry?

  8. RR,

    This might be more than you know about the SPR, but I’ve always wondered how the bureaucrats decide day-to-day how much oil to buy for the SPR. Are they authorized to buy as much as can physically be deposited into storage? Are they authorized to spend a set amount of money per week or month? Or do they have a flexible policy to buy more or less oil depending on the price point?

    Obviously when the purpose is to guard against the unexpected, you keep filling even if prices are historically high. But every time the SPR becomes an issue, I wonder if the fill rate of the SPR might in some way reflect the government’s expectations of future higher or lower oil prices.

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