The Strategic Petroleum Reserve keeps foreign oil suppliers from putting the United States over a barrel.
In late January, a barge moving through the Sabine Neches Ship Channel along the Gulf of Mexico near the Texas-Louisiana border spilled 94 concrete pilings into the waterway, closing down traffic to deep-draft vessels. For Total Petrochemicals USA Inc., the accident might have been financially disastrous. The company's refinery in Port Arthur, Texas, processes 240,000 barrels of crude oil per day-oil that's delivered to the company's facilities through the channel. But no such disaster occurred. Instead, Energy Secretary Samuel W. Bodman approved an emergency loan of 871,000 barrels of crude oil to the company from the Strategic Petroleum Reserve. "In providing this loan, the SPR is doing exactly what it was intended to do-mitigate any supply disruption and minimize, to the extent possible, the effect any disruption would have on the American people," Bodman said in a January statement.
The U.S. Strategic Petroleum Reserve is a collection of underground salt caverns in Texas and Louisiana holding the largest stockpile of crude oil in the world. It was created by the 1975 Energy Policy and Conservation Act after Arab nations cut the supply of crude oil to the United States during the 1973-74 oil embargo, spawning gas lines nationwide and sending shock waves through the economy. The 1970s embargo wasn't the first time federal officials realized how vulnerable Americans are to oil supply disruptions. During World War II, Interior Secretary Harold Ickes pushed unsuccessfully for a crude oil stockpile. Twelve years later, President Dwight D. Eisenhower made a similar suggestion after the 1956 Suez crisis.
But it wasn't until July 1977, two years after President Gerald Ford signed the legislation creating the stockpile, that it became a reality. That summer, Saudi Arabia delivered 412,000 barrels of light crude oil to caverns on the Gulf Coast. The Gulf Coast was the logical location for the underground reserve. It's close to major refining centers and its geological formations are ideally suited for underground oil storage. While the law called for creating a reserve capacity of up to 1 billion barrels, the four sites subsequently selected have the capacity to hold only 727 million barrels.
In the meantime, the nation has become addicted to oil, as President Bush said in his 2006 State of the Union address. Data compiled by the Energy Department show that during the 1973 oil embargo, the United States consumed about 17.3 million barrels of oil a day, compared with 20.6 million barrels per day today, with the percentage of imported oil nearly doubling to 60 percent during that period.
Last year, the Bush administration decided to extend the reserve's capacity to 1 billion barrels of oil. The 2005 Energy Policy Act requires the Energy Department to expand at least one of the existing four sites and to select an additional site from among five previously considered for the reserve in Texas, Louisiana and Mississippi.
Exactly how much protection does the current 700-million-barrel reserve buy?
About two months' worth, according to the Energy Department. By drawing on private reserves in the United States, the country could get by for about four months without oil imports. Of course few, if any, analysts believe the United States would be cut off from oil imports. That's because oil exporters are as dependent on selling oil as importers like the United States and China are on buying it. In Iran, for example, oil sales account for more than 90 percent of the nation's revenue.
According to data compiled by the International Energy Agency, of which the United States is a member, government-owned oil stockpiles in member nations exceed 1.4 billion barrels. When all stocks are counted, including industry-held reserves, the total stockpile is about 4.1 billion barrels. With the capacity to draw upon nearly 13 million barrels a day, members could offset any conceivable supply disruption, the IEA maintains.
In 30 years, the U.S. strategic reserve has many times made emergency loans to petroleum producers to avoid economic disruptions. Only twice, however, has the reserve been tapped for national emergencies. The first time was in 1991, during the Persian Gulf War, when the United States and other IEA member nations coordinated crude oil releases from government stockpiles to calm jittery markets. The second time was last fall, after Hurricane Katrina, followed by Hurricane Rita, wiped out most of the Gulf Coast's oil production capacity. But neither emergency oil drawdown sucked much from the reserve-neither exceeded 30 million barrels. Nonetheless, most analysts believe the strategic reserve is a critical tool in maintaining economic equilibrium in times of crisis.
Daniel Yergin, a leading oil expert, wrote in The Wall Street Journal last September after Katrina and Rita, "The [Strategic Petroleum Reserve] is certainly demonstrating its value here. Without it, people would be apprehensively asking how deeply into recession the resulting $80- or $90-a-barrel oil would push the United States. While the trigger for its use is not what was anticipated, the [reserve] is proving its role-not as a tool of market management, but to offset a major disruption, protect GDP and maintain the viability of our economy."
With the start of another hurricane season only a few months away, most agree that's a worthy investment.