Move over SPRO: it's a gasoline reserve

The Strategic Petroleum Reserve is something even casual observers of the energy business may have heard of — the large below-ground storage areas for crude oil spread throughout the Gulf Coast as an emergency back-up source. The reserve has a capacity of 727 million barrels and is currently close to that level with about 722 million barrels, or 62 day supply cushion (or “maximum days of import protection” in SPR parlance).

saltdome3 Not just sweet or sour, but regular and premium, too! A Department of Energy worker walks by heat exchangers at the Strategic Petroleum Reserve Bryan Mound facility near Freeport. (Sharon Steinmann/Houston Chronicle)

The U.S. Senate Energy and Natural Resources has decided its time to do that one better. Last week it passed S. 967, the Strategic Petroleum Reserve Modernization Act of 2009, which has the Department of Energy creating 30 million barrels of storage capacity for refined products, like diesel and gasoline.
The bill came about in part because of the country’s growing reliance on the import of not just crude but finished products and the impact on supplies from recent hurricanes. According to a summary of the bill:

Hurricanes Gustav and Ike in September 2008 took much of the U.S. Gulf Coast infrastructure offline, and shortages of gasoline and diesel were experienced throughout the Southeast through October of that year. The SPR was of limited use in mitigating these shortages because refineries affected by the storms were not able to process SPR crude oil into gasoline and diesel.
Including a small volume of refined petroleum products in the SPR would provide a cushion to affected markets while damaged infrastructure is brought back online, or until imported gasoline and diesel could arrive to service the area.

The bill would also put the power to release oil from the SPRO in the hands of the Secretary of Energy, versus the current law that only permits the president to make an emergency sale of oil. The reason?

Experts believe that this requirement creates a disincentive to use SPR oil for the purposes for which it is intended, as the President would not want to alarm the public by announcing that the country is in an oil supply emergency. Moving the SPR drawdown authority to the Secretary of Energy would allow SPR policy decisions to be made closer to the oil markets that the SPR serves.

This facility might go toward taking care of an issue that investment banker Matt Simmons mentioned to us in a recent conversation. Known to many for his thoughts on peak oil, Simmons thinks the current gasoline inventory numbers that the industry relies on are misleading because so much of the volume is actually in the form of additives needed to meet regional air quality standards. He argued the amount of refined motor gasoline in stock is at its narrowest margin in years – about 8.9 days.
“We’ve essentially created a just-in-time fuel delivery system,” he told us last week.
That means another strong hurricane that takes a few refineries offline or even a string of minor problems with some of the nations refined products pipelines could lead to lines at gas stations.