Are Strategic Oil Reserves obsolete?

The Strategic Petroleum Reserve (SPR) is a pool of crude oil that we squirreled away over the years, to help us out in time of crisis.

OilPump_imgRecently, President Obama suggested that some of this resource might be used to help out our consumer public in their awful stress with high gasoline prices.

Just how important is the SPR, anyway?   Is the SPR  political candy, to be popped into voters mouths when they become squirmy?  Or, shall we combat threats of recurring rises in international oil prices by  flooding the markets with a gusher of oil  (if done, would pricing return to its proper $40/bbl)?  … Or  what exactly?
(1 bbl is one barrel of oil;  exactly 42 US gallons, or to within 0.008 %,  159 liters. )

ChinaSPR_img

2009 map of SPR, China (China Daily)

National SPR sites exist all around the world,  for example, Australia, China and India each operate at least one. Most were built to supply military needs in times of stress.   Although the US has the largest reserve in the world, it seems that there is little national consensus about its reason for existence.


I never paid much attention to our SPR.   It was authorized by the Energy Policy and Conservation Act (EPCA) of 1975 as a backlash to the Saudi oil embargo and required many decades to fill.  A discussion of the facility is in  A1 Background.

I thought it had to do with military security, sort of like Eisenhower’s authorization of the interstate system for troop mobility during wartime.  There was little word about it until it supported hurricane recovery in the 2000’s.  Now, gasoline prices are rising again and the Obama is considering spending it to make things a bit more comfy.  Is the SPR worthwhile, or should we convert init to cash as quickly as possible?

Current situation:  We have 726 M bbl in our reserve, 159M m3.  How and when should we spend it?   My graph, below,  is drawn from data taken at the SPR website, shown.

SPRgrowth_gph

Timeline for growth


Several points become clear.  The SPR was steadily filled though the end of Pres Reagan’s years.  In 1991, it was used to support our military excursion into Kuwait. The level wiggled, actually fell during the business-oriented Pres Clinton years  due to 2 political drawdowns.  Pres Bush-2 held it in benign neglect until the 9-11 terrorist attacks in 2001.   It was brought to full fill level by the end of 2009.  It had sufficient resources to be of help during the natural disasters of the 2000’s.  The formal procedures to fill and withdraw are in A2- Rules.

What’s it all about?  There are two numbers that are important to our SPR:  it stores 727 M bbl, and it can release oil at 4.4 M bbl/day.  Note, capacity is authorized to 1 G bbl.

Use_tblFrom the table (data from the EIA), the SPR holds about 10% of our current annual usage.
727/7000= 0.104  ≈  10%.

In the event of an aggressive embargo, the SPR could supply (3.7 Gbbl)/(7.0 Gbbl) or about 53% of annual import need.  That is, it could supply about 193 d of crude to our refineries, if provided at needed rates.

On the other hand, we could only supply (4.4 Mbbl/d)/(10.27 Mbbl/d)  ≈ 43% of current inflow.  The best we could do is to withdraw oil at the SPR maximum  rate (not the needed rate of last paragraph) and maintain that rate until the wells made empty-bottle sucking sounds.  We could keep this up for about 5.5 months:   (727/4.4) = 165 days, almost 5.5 mo.

Final Assessment of current capability:   The Strategic Petroleum Reserve is capable of supplying 43% of our current daily need  for about 5.5 months.

Final Assessment if capacity increased to 1 Billion bbl:   If all storage cavities were drained in parallel, the withdraw rate would increase to about 6.0 M bbl/d.  This would provide oil at 58% of our current daily need for about 5.5 months ( 1000/6 = 167 days ).

If we faced such an embargo, it would be warfare conditions and the reserves would be rationed for essential services;  it would last much longer.

End Note

Some countries are building petroleum reservoirs for military use.  Our Reserves are meant to keep society together.  This  is a valid reason for existence and should not be wasted.  Even if we never have another war (bets, anyone?), it is a huge protection against acts of nature. The drawdown of the last century to support invasion was pretty clearly illegal.  There is nothing that says that the President may authorize an emergency Finding to support an invasion.  Our military are on their own, I am certain that this has occurred to the Chiefs of Staff before now.

BryanMnd_img

BryanMound SPR facility

If we were to use the SPR in an attempt to drop the price of oil, it would have not much effect, because oil producing countries could reduce their own output to drive the prices back up.  Such an effort by our President would be ineffective at best, and  possibly a violation of the EPCA-1975  (only the Supreme Court could decide that).

The last paragraph assumes that our oil supply is boundless.  Although we will not know until as much as 10 years after the event,  we are at least close to the peak in world oil production.  It is nearly certain that the rise in gasoline prices is due to peak oil situations rather than massive human greed.  It was purchased when prices were much lower  and would be impossible to replace at the that price. (India announced halting its SPR purchases because of the steep cost increases.)

If President Obama were to release oil onto the market (as he is considering), he would waste a resource that will be hard (or impossible) to replenish.  Oil production-peaking will skyrocket its price;  global warming will release energy for violent events – ones that demand emergency intervention.  We note that some in Congress have called for  ending  the program (the hyperlink is to a call to stop the final  part of the reservoir fill).

click for all our discussions about oil resources

The SPR is not obsolete, it is among our most precious national possessions. We should be considering protecting and expanding the emergency oil reserve, not terminating it.

What should we do?

  • Let congress know that the SPR is for emergency use only, trivial withdrawals would waste it and make it unavailable when truly needed.  We should keep it in its fully filled state.
  • Expand the SPR system to the full 1 billion barrels as authorized, then fill it.

The Strategic Petroleum Reserve is a huge asset.  We must accept this truth , if our part of this last technical society is to continue to endure.

—————

Charles J. Armentrout, Ann Arbor
2011 Jun 7
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A1: Background – Strategic Petroleum Reserves 

SPR_map

Four sites make up the U.S. SPR

This reserve was first proposed in 1944 as a massive military dump for  refined-fuel,  but was not authorized until after the oil embargo or 1973.   President Ford signed the Energy Policy and Conservation Act of 1975 and filling began in 1977.  Originally,  the Reserve was authorized with a final capacity of one giga barrel (159 M m3).     (1 G bbl = 109 bbl = 1,000,000,000 bbl)

One site ultimately developed leakage and was abandoned in 1996.  Current capacity is 727 M bbl (115 M m3 ) from 62 chambers spread about 4 separate sites.

System   The SPR reached full capacity in December of 2009.  The oil has been paid for by a program begun in 1999,  the Royalty In Kind (RIK) program (see next Appendix).  With RIK, the reserve fill cost did not impact on the federal budget.  To date, we have spent 5 G$ on facilities and 17 G$ on oil, for total expenditure of 22 G$.

This works out to a net cost of $30.26/bbl for our 727 M bbl reserve.  BTW, this is a great price for the oil.

FYI:
Flow start
: 13 days after a Presidential Finding.
Flow rate: 4.4 M bbl/day maximum. This max has never been tested.

Cavuity_Dgm

Salt dome cavity

How to make your own reserve:  The SPR consists of 62 caverns that were leached milled from solid underground salt deposits. First salt deposit was drilled into, then clean water was injected into the volume and  dissolved salt. The resulting brine was removed from the growing cavity.

After sufficient time, an approximately cylindrical chamber 200 (dia) by 2000 feet was formed.  Oil is pumped in and the remaining brine removed.  Note:  oil will not leach salt, it is trapped in cavity.

Dealing with cavities in salt domes has been a learning experience; for example, it is now known that abandoned salt mines are not good for seepage-free storage.  (The Week’s Island facility was an old salt mine and  had to be closed in 1996.)

Once stored in the cavity, how should it be removed?  One way is to inject water and push it out. Unfortunately, this causes renewed leaching of the salt and an uncontrolled enlargement of the cavity.  Neither the dome nor the cavity is geometrically regular and the leaching will expand in unexpected directions.  It could cross the boundary, and allow future oil storage to escape into the surrounding earth matrix.    Back

——————————————————–

A2:  Rules of engagement – When can withdrawals be made?

BryanMound_img

SPR facilitiy at Bryan Mound TX

The Energy Policy and Conservation Act of 1975  (EPCA) was submitted by Sen.  Skip Jackson (D-WA) with 13 co-spons0rs;  President Ford it signed into law by the end of that year.

The EPCA was a direct response to the Arab Oil Embargo (1972 – 73) and set up a framework to mitigate the impact of future embargoes. Among its provisions were the first automotive fuel economy standards, and the ground rules for a strategic oil reserve.

The following is my summary of the provisions, based on a number of analyses, one of which is from the Department Of Energy.

Bighill_img

SPR at BigHill site

SPR Buildup:  Petroleum may be acquired by 3 methods
A Purchase  …

Volume of oil purchased at current market value.  Most of the oil has been acquired this way

B  Exchange  …

Volume of oil provided up front for repay by  larger volume of oil (of equal or better quality) at later date.

C  Royalty In Kind  …

Transfer of oil to SPR as payment for leasing rights in the Gulf of Mexico.  Amount of levy  in range of 2.5% to 16.7% of production. Volume to be valued at current market prices.  RIK started in 1999, was highly controversial during operation, and was ended in 2009.  Much of the final several hundred million bbls was obtained this way.

SPR Drawdown:  Petroleum may be withdrawn by one of 3 methods.
A President issues Finding  …    [EPCA, Sect 161(h)]
> of significant shortage in the National energy supply
    –     Finding based on 3 factors  [EPCA, Sect 3(8)]

  1. Significant scope and duration of emergency:
    not to exceed 30 M bbl reduction, 60 day duration
  2. Shortage might have adverse impact on National economy
  3. Shortage is, or expected to be, result of interruption
    of supply:  sabotage or Act of God

Point one is as shown.  This  must place limits on the amount of response to an emergency; it cannot mean emergency withdrawal is ok if there is a 20 M bbl oil shortage, but must be  ignored if the shortage is 50M bbl shortage.

B  President issues Finding  …   [EPCA, Sect 161(d)]
    >  of  severe interruption in National energy supply,   or
    >  of  “obligations under  International Energy Program”
    –     Finding based on 3 factors 

  1. The country is in an emergency situation involving
    significant reduction in supply with significant scope
    and duration,  as under Point A, Shortage. [Sect 3(8)]
  2. Severe price increase has resulted from interruption
  3. Result of B will, or will likely, cause “major adverse
    impact on National economy”

2 and 3 are based on section 161(d) of the EPCA.

C  Test Sale …    [EPCA, Sect 161(g)]
–     Decision by Secretary of Energy
–     Amount not to exceed  5 M bbl

Conclusion 1:  SPR is not for national security.  There are no provisions for a Presidential Finding on using the petroleum to support a war effort.   This was clearly meant to be a mechanism to keep society operating for a short time.  One must guess that the various military services have their own strategic supplies.

Slide_img

SPR is not a marketplace tool

Conclusion 2:  SPR is not a tool to control the market.

This slide is from a 2007 presentation at an International Energy Association meeting by Dr. Jim Hart of the U.S. DOE.
Click the image to see larger version
.

These two points are a nice overview of the legal status of the of this appendix. Back
___________________________

About LastTechAge

I am a physicist with years of work in fusion labs, industry labs, and teaching (physics and math). I have watched the tech scene, watched societal trends and am alarmed. My interest is to help us all improve or maintain that which we worked so hard to achieve.
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