Widgetized Section

Go to Admin » Appearance » Widgets » and move Gabfire Widget: Social into that MastheadOverlay zone

Running on Empty? No—We Have the Strategic Petroleum Reserve!

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Robert Brescia
July 25, 2022

Hear Ye! Hear Ye, Good People of the Nation:

WASHINGTON, D.C.— The U.S. Department of Energy (DOE) today announced the fourth Notice of Sale of 45 million barrels of crude oil from the Strategic Petroleum Reserve (SPR). This Notice of Sale is part of President Biden’s announcement on March 31, 2022, to release one million barrels of crude oil a day for six months to 1) Address the global supply disruption caused by Putin’s war on Ukraine and, 2) Help stabilize volatile energy costs for American families

That’s roughly 180 million barrels or 7,560,000,000 gallons (1 barrel = 42 gallons) of oil. If this worries you, you are not alone. Large SPR releases (sales) like this one could cause great concern over the nation’s ability to meet future needs for oil under emergency conditions.

Oil Production 101

The United States became the world’s top crude oil producer in 2018 and maintained this lead through 2020. United States based oil refineries obtain crude oil produced in the United States and in other countries. Crude oil is produced in 32 U.S. states and in U.S. coastal waters. In 2021, about 71 percent of total U.S. crude oil production came from five states. The top five crude oil-producing states in 2021 were: Texas: 42.7 percent, New Mexico: 11.3 percent, North Dakota: 9.6 percent, Alaska: 3.9 percent and Colorado: 3.5 percent.

Crude oil is somewhat useless in its initial state; it needs to be refined. Refineries take that crude and produce mostly transportation fuels. One barrel of crude can make 19 to 20 gallons of motor gasoline, 11 to 13 gallons of diesel fuel and 3 to 4 gallons of jet fuel. About a dozen other petroleum products are also made by refineries for the petrochemical industry with asphalt being another major byproduct.

The largest oil refiner is currently owned by Saudi Aramco (Motiva Enterprises LLC). Located at Port Arthur, Texas it can refine 626,000 barrels a day. The other refiners sport names that are recognizable by most Americans: Marathon Petroleum Corp, ExxonMobil Corp, British Petroleum (BP) PLC, Citgo Petroleum Corp and Chevron. They are almost all located in the Gulf areas of Texas and Louisiana, with a few other small ones in California and New Jersey.

At the pump, you are generally paying for each gallon: 11 percent for taxes, 5 percent for distribution and marketing, 26 percent for refining and 59 percent for the crude itself. The price of crude, therefore, is the most important factor of the price at the pump.

Strategic Petroleum Reserve 101

So, what is this thing that we call the SPR? Let’s take a moment to review. The SPR has had a singular and direct mission since 1975: to protect the United States from severe petroleum supply interruptions through the acquisition, storage, distribution and management of emergency petroleum stocks, and to carry out the U.S. obligations under the International Energy Program. Note well the second prong of this mission: to fulfill U.S. obligations to the International Energy Program (IEP).

There is no statutory minimum SPR stockholding requirement, but limited drawdown authority is subject to stock levels. The United States is required to hold reserves equal to 90 days of net petroleum imports during the previous calendar year. Because we were a net petroleum exporter in 2021, the United States is therefore not required to hold emergency reserves in 2022. There are no statutory requirements for SPR sales and no specific market conditions either. The U.S. Congress works with the Executive Branch to devise SPR restocking strategy.

The SPR is stored in 60 underground salt caverns at four major oil storage facilities in the Gulf Coast region of the United States, two sites in Texas (Bryan Mound and Big Hill) and two sites in Louisiana (West Hackberry and Bayou Choctaw). These caverns offer great security, affordability and overall capacity for 714 million barrels.

The International Energy Agency (IEA) established the IEP after the 1973 energy crisis caused by the Organization of Petroleum Exporting Countries (OPEC) embargo designed to punish those who had supported Israel in the Yom Kippur War. IEP signatories include Austria, Belgium, Canada, Denmark, England, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, Spain, Sweden, Switzerland, Turkey and the United States. Note here that China is not part of the IEP. Therefore, to send oil from the United States SPR to China does not appear to conform to the mission statement of the SPR.

The IEA coordinates oil releases (contributions) for each member based on consumption. Proceeds from emergency SPR sales should fund replacement oil acquisitions. The Biden Administration has indicated intent to restock the reserve.

Summary

The SPR is an emergency source of crude and is subject to both national needs and international agreements. As such, it is not only a tangible resource to be used in national crisis situations, but also an international political tool. We are not required to maintain an SPR at present, but wise national strategy and planning dictates the need for this valuable resource. Releases (sales) from the SPR should be reconstituted as soon as possible.

Recommendations:

  • Establish a statutory minimum of SPR stockholding requirement.
  • Publish a more detailed public notice of mandatory sales requiring the producers and refiners to employ most of this oil for national purposes only.
  • Establish a statutory requirement that all sales must be exchanges within specified time frames.

Author: Dr. Robert Brescia respects the wisdom of generations, promotes the love of learning, teaches ethics to university students, government & politics to AP seniors, and leadership to organizations. He is a candidate for National Board for Certification of Teachers (NBCT) at Stanford University. The Governor of Texas appointed him to the State Board for Educator Certification (SBEC). Bob has a doctoral degree with distinction in Executive Leadership from The George Washington University. Contact him at [email protected] or on Twitter at @Robert_Brescia.

1 Star2 Stars3 Stars4 Stars5 Stars (3 votes, average: 4.67 out of 5)
Loading...

Leave a Reply

Your email address will not be published.