WASHINGTON — The Senate Energy and Natural Resources Committee on Tuesday examined the future of the nation’s emergency oil stockpile, amid calls to sell off some of the stored supplies as a revenue-raiser and an Obama administration push to stash more refined petroleum products alongside raw crude.
Energy Secretary Ernest Moniz broadly agreed with senators and expert witnesses that changes are needed to ensure the Strategic Petroleum Reserve remains a valuable insurance policy against global crude supply disruptions.
That includes bolstering some of the infrastructure surrounding the salt caverns in southwest Louisiana and southeast Texas that make up the reserve, so that 4.4 million barrels per day can be pulled out of in an emergency and delivered to the market. A test sale in March 2014 revealed that while the SPR actually can hit that target drawdown rate, there isn’t enough takeaway pipeline capacity to keep up with it.
“The SPR remains an extremely powerful and valuable energy security tool,” Moniz told the Senate panel. But, 40 years after the reserve’s creation in the wake of the OPEC oil embargo, its facilities “are currently due for major life extension improvements.”
“Basically, it’s old, and we need to extend its life,” Moniz said.
A broad government analysis of U.S. energy infrastructure, released in April, suggested modernizing the SPR, including changes to the triggers for tapping it, and some $2 billion in projects to improve marine distribution capability and extend the life of the storage facilities.
The United States is obligated to maintain a reserve of crude oil or production products equivalent to at least 90 days worth of net imports as part of U.S. membership in the International Energy Agency. But the United States is well above that threshold now, with 99 days’ worth of raw crude in storage and 137 days worth of both unprocessed oil and refined petroleum products.
The excess has prompted some policymakers and analysts to call for selling off some of the stockpiled crude. And at least two bills advanced in the House seek to use a sale of SPR crude to fund unrelated programs.
Several senators hit back hard against that idea Tuesday, with the panel’s chairwoman, Lisa Murkowski, R-Alaska, insisting that the SPR “is not an ATM for new spending or a vestige of our national energy policy.”
Sen. Elizabeth Warren, D-Mass., called proposed SPR sales “a high-cost gimmick.”
“Mandating massive, inefficient and inflexible selloff of the Strategic Petroleum Reserve years in advance is just one more bad idea for how to finance government,” she said.
The committee’s top Democrat, Sen. Maria Cantwell of Washington, insisted that the Strategic Petroleum Reserve’s value hasn’t diminished since its creation 40 years ago. “We need it just as much today as we did then,” Cantwell said.
Some European countries satisfy the IEA reserves quota with privately held reserves — not government-maintained stockpiles. While current privately held oil and petroleum product stocks now equal about 208 days of net imports, it’d be wrong to lean on those instead of the SPR, Moniz suggested.
Those numbers reflect current economic conditions and the relatively low price of oil; in general, companies ry to minimize inventories, Moniz said. And other countries that rely on privately held reserves generally have mandates dictating that private sector behavior, Moniz added.
Sen. Mike Lee, R-Utah, questioned the SPR’s annual operating costs, about $200 million annually, in light of its infrequent emergency use.
“My home fire insurance — I hope to use it zero times,” Moniz shot back.
Murkowski told Moniz she was skeptical of the administration’s argument for some sort of “preemptive release” capability that would allow the SPR to be tapped in anticipation of possible price spikes — not after the disruptions have already materialized.
The nation’s oil reserves policy should reflect changing market conditions, analysts and energy experts said.
Oil itself “plays a different role in the economy than it did” when the SPR was created, noted Sarah Ladislaw, director of the energy and national security program at the Center for Strategic and International Studies.
Then, about 35 percent of oil consumption was for transportation, compared to about 50 percent today, she said. Meanwhile, oil trade flows are shifting, with crude increasingly traveling east instead of west from major production centers. Crude is more frequently refined near the place where it is extracted. And OPEC now makes up a much smaller share of global oil supply, having produced half the world’s oil in 1974, compared to around 40 percent today, Ladislaw said.
“Policymakers should take advantage of current low oil prices to upgrade and modernize the SPR,” said Adm. Dennis C. Blair, co-chair of a group of former high-ranking military, diplomatic and national security officials that works to reduce U.S. dependence on oil.
“Just having the petroleum in the salt caverns is not enough,” Blair said. “To make the SPR effective, it must be able to deliver the oil it holds to the right place in the complex petroleum refining infrastructure of this country.”
Kevin Book, managing director at ClearView Energy Partners, cautioned against making long-term decisions about the size and shape of the SPR on the basis of recent climbs in domestic crude production. “It’s tempting to think the future looks like the recent past,” he said, but “it’s important to look at long-term trends.”