Congress presents an­other bot­tle­neck for the Strate­gic Petroleum Re­serve

The En­ergy Depart­ment needs Congress to green­light up­grades “You get to a point where it’s start­ing to age”

Bloomberg Businessweek (Asia) - - CONTENTS - Brian Wing­field

Bryan Mound, nes­tled in a 500-acre marsh­land south of Hous­ton, is among the heav­ily guarded salt cav­erns on the Gulf Coast of Texas and Louisiana. There, the gov­ern­ment keeps the na­tional emer­gency oil stash, known as the Strate­gic Petroleum Re­serve (SPR), stored more than 2,000 feet un­der­ground. The pipe­lines at Bryan Mound are ca­pa­ble of de­liv­er­ing 1.5 mil­lion bar­rels a day into the mar­ket to off­set price or sup­ply shocks if every­thing is in work­ing or­der.

That’s a big if. In May 2015 the roof on a 1970s-era stor­age tank at Bryan Mound col­lapsed. It still hasn’t been re­paired, be­cause Congress hasn’t ap­proved the fund­ing. Cor­ro­sion ate through a wa­ter pipe at one of the Texas sites in April. Every day, salty, hu­mid air gnaws at the net­work of pipe­lines and pumps that criss­crosses the wet­lands. Thun­der­storms put ex­tra stress on the sys­tem. Changes in the

earth’s pres­sure al­ter the ca­pac­ity of the caves hous­ing the re­serves. “It’s a very com­plex in­fra­struc­ture, and when you get to a point where it’s start­ing to age, then you just start to see prob­lems,” says Robert Corbin, the U.S. Depart­ment of En­ergy’s deputy as­sis­tant sec­re­tary for the Of­fice of Petroleum Re­serves.

The re­serve, cre­ated in the aftermath of the Arab oil em­bargo of the early 1970s, holds 695.1 mil­lion bar­rels of crude, the equiv­a­lent of three months’ worth of im­ports. The stock­pile’s dis­tri­bu­tion sys­tem was de­signed with a 25-year life span, but it hasn’t been up­graded since the 1990s. A test sale of 5 mil­lion bar­rels from the re­serve in 2014 un­cov­ered bot­tle­necks that would hin­der the gov­ern­ment’s abil­ity to re­lease oil.

In April, Pres­i­dent Obama re­quested $375.4 mil­lion to be­gin a $2 bil­lion mod­ern­iza­tion pro­gram that will be funded with sales from the re­serve and in­cludes build­ing three ter­mi­nals for putting re­serve oil in tankers. Depart­ment of­fi­cials say a sys­temwide over­haul is needed to fa­cil­i­tate mas­sive dis­tri­bu­tions from the re­serve, in­clud­ing 124 mil­lion bar­rels that the Repub­li­can­led Congress sched­uled to start selling in fis­cal 2018 to help close the fed­eral deficit and pay for high­way main­te­nance. In 2005, when the depart­ment sold 20.8 mil­lion bar­rels to cush­ion the mar­ket after hur­ri­canes Ka­t­rina and Rita, it took 20 days to start mov­ing oil.

Some law­mak­ers may be wor­ried about up­set­ting do­mes­tic oil pro­duc­ers bat­tered by low mar­ket prices, says John Shages, a for­mer deputy as­sis­tant en­ergy sec­re­tary who used to over­see the oil re­serve: “There are a lot of hurt­ing com­pa­nies out there who will not wel­come the United States gov­ern­ment be­com­ing a com­peti­tor.” But Congress has only it­self to blame for cre­at­ing that con­flict when it de­cided to use the SPR as a piggy bank for re­plen­ish­ing the high­way trust fund, says Repub­li­can Lisa Murkowski of Alaska, who chairs the Se­nate En­ergy and Nat­u­ral Re­sources Com­mit­tee: “They didn’t care that it was bad tim­ing. Boy, they shoulda lis­tened.”

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