US to tap strategic petroleum reserve

WASHINGTON — The Obama administration will release 5 million barrels of sour crude from the United States’ emergency stockpile in what officials described as a “test” of the nation’s ability to respond to oil supply disruptions around the globe.

The Energy Department said the move was necessary to verify how new pipelines and other infrastructure might affect the government’s ability to transport the crude out of underground caverns in Texas and Louisiana.

Energy Department spokesman Bill Gibbons said the drawdown was ordered “to appropriately assess the system’s capabilities in the event of a disruption.”

“Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred — including pipeline expansion, construction of new infrastructure, reversed flow of existing pipelines and increased use of domestic crude oil terminals,” Gibbons said.

The move comes as some pundits and policymakers call for the U.S. to tap its emergency stockpile in a bid to send global crude prices lower and hurt Russia, as the oil-producing nation moves to annex Crimea from Ukraine.

But an Energy Department official said staff there had been discussing the planned release internally for many months and that the test sale is timed to allow refineries to take advantage of the auction to replenish crude stocks in preparation for their annual switch to producing summer grades of gasoline.

White House Press Secretary Jay Carney swept aside suggestions that the move was designed to show the United States is ready and willing to use its surging oil and gas production as a cudgel against Russia.

“This action was taken consistent with the requirements by law of the (Department of Energy) to evaluate the Strategic Petroleum Reserve and its drawdown capacity,” Carney said. “It’s a test for operational reasons.”

Under the “notice of test sale” published Wednesday, energy companies, traders and other interested buyers will be able to make offers on the available crude in mid-March, with actual deliveries expected about a month later. Four million barrels of sour crude are expected to come from the West Hackberry, La., site, with another 1 million drawn from the Big Hill, Texas cavern.

Companies can hope for a discount on the oil, though the U.S. will not sell it for less than 95 percent of market prices for comparable Southern Green Canyon crude.

The test sale will be the first time the U.S. has tapped its Strategic Petroleum Reserve since 2011, when it released 30 million barrels of crude in a coordinated dump of worldwide oil stockpiles spurred by the civil war in Libya. The emergency oil ultimately was sold to 15 traders and oil refiners, delivering about $3.3 billion to the federal government.

Winning bidders included Exxon Mobil, Shell, and BP, as well as independent refiners Valero Energy Corp., and Tesoro, and energy traders such as Barclays Bank, Hess Energy and Vitoil Inc.

The last test sale was in August 1990, when the United States auctioned off 4 million barrels.

The U.S. currently has 696 million barrels stashed away in underground salt caverns in Texas and Louisiana that make up the reserve, just shy of its 727 million barrel capacity. At current demand, that represents about 94 days of U.S. oil imports.

The reserve was first established in the 1970s to insulate the U.S. from oil supply disruptions and resulting price spikes.


 Also on FuelFix:

Pain at the pump? Smile. At least you don’t live in Norway.