United States Strategic Petroleum Reserves, 1977-2016

United States Strategic Petroleum Reserves 1977 2016

Source: US Department of Energy, Energy Information Administration, International Energy Annual Report.

As a consequence of the First Oil Shock, the U.S. Government (Department of Energy) initiated the Strategic Petroleum Reserve (SPR) program in 1976. In an age of growing oil dependency and instability of international markets, it was perceived that a reserve was of strategic importance for national security. It would enable the United States time to intervene if a major crisis compromising oil supplies was to develop. About 50 huge underground reservoirs, of 6 to 30 million barrels in capacity each, located in Texas and Louisiana store the strategic reserve. The maximum drawdown level is about 4.4 million barrels per day, but it would take about 13 days for this oil to reach the markets once a release has been authorized. Instead of buying oil on markets the Department of Energy receives oil in exchange for royalties owed by producers that drill on government holdings in the Gulf of Mexico (royalty-in-kind transfer). The oil thus comes from fields nearby the strategic reserve.

The SPR began to fill up in 1977 and by 1994, it had reached 592 million barrels, out of a potential total capacity of about 727 million barrels. 1981 was the year when the largest amount was added, 120 million barrels, an outcome of the uncertainties of the Iranian Revolution and of the Iran/Iraq War. Since then, the SPR was called upon on four times; in 1991 (Gulf War), 1996, 2000 (when President Clinton authorized about 5% of the SPR, 30 million barrels, to be released in an effort to push the price of oil down) and in 2005 after the disruptions related to hurricane Katrina. In November 2001, facing geopolitical instability, President Bush ordered an expansion of the SPR with the addition of 108 million barrels, which would fill it to capacity. In 2005, a new legislation, the Energy Policy Act, was enacted, boosting the authorized capacity of the SPR to 1 billion barrels. However, this process came up to a standstill in late 2005, first with the devastation of oil and gas facilities along the Gulf of Mexico due to hurricane activity and then with surging oil prices and tighter supplies linked with the peaking of global oil production. As of 2013, the SPR stands at 696 million barrels, which close to its official capacity. Overall, the SPR has enough oil to supply the United States for about 60-70 days at current rates of consumption. However, allocation priorities, if such circumstance arise, would obviously be towards the military and other emergency services.