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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 around 704 million barrels of crude oil. In addition, a Northeast Heating Oil Reserve (NHOR) holds 2 million barrels of heating oil in above-ground storage. 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. However, EPCA intends use of the SPR only to ameliorate discernible physical shortages of crude oil. At issue recently has been whether a drawdown of SPR oil would place downward pressure on the price of crude oil and reduce gasoline prices in excess of $4.00/gallon. On July 24, legislation (H.R. 6578) to require a 10% drawdown of SPR oil failed to achieve a two-thirds majority in the House under suspension of the rules (226-190). It is unclear what sort of effect a roughly 70 million barrel draw on the SPR would have on markets. In a market where there is no physical shortage, oil companies may have limited interest in SPR oil unless they have spare refining capacity to turn the crude into useful products, or want to build stocks. A unilateral draw on U.S. stocks would also have less impact on the world oil market than a coordinated drawdown of the sort that occurred after Hurricanes Katrina and Rita in 2005. Additionally, it is possible that producing nations might reduce production to offset any SPR oil delivered into the market. Until mid-May 2008, the SPR was being filled with royalty-in-kind (RIK) oil. RIK oil is 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. On May 13, the House and Senate passed H.R. 6022 (P.L. 110-232), suspending RIK fill. On May 16, DOE announced it would not accept bids for an additional 13 million barrels of RIK oil that had been intended for delivery during the second half of 2008. The Energy Policy Act of 2005 (EPACT) required expansion of the SPR to its authorized maximum of 1 billion barrels. 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, but rejected spending for other expansion work. The Administration is again seeking funds for this purpose, for which there still appears to be limited congressional support. The FY2009 request is $346.9 million.
