NOT NEEDED?
Some are asking if it’s time to shut down the Strategic Petroleum Reserve.
WASHINGTON — Does the United States still need to store vast quantities of crude oil to hedge against global supply disruptions?
That’s a question getting asked more and more in Washington as revived domestic production makes the nation less dependent on foreign oil, and the Department of Energy, which over sees the Strategic Petroleum Reserve, seeks more than $375 million to overhaul and upgrade the reserve’s aging pipelines, pumps, storage areas and transportation facilities. The reserve was created after the 1973 Arab oil embargo as a way to ease shortages and price shocks by adding oil to the marketplace should war, future embargoes, natural disasters or other international incidents interrupt supplies.
In a much-anticipated report last week, the Energy Department said the system of old salt caverns, pipelines and pumps that make up the Strategic Petroleum Reserve is in need of immediate repair and inventories must not shrink beyond what Congress has already ordered. Lawmakers last year autho- rized the sale of 160 million barrels in coming years.
Right now the reserve, which is housed in underground caverns along the Texas and Louisiana Gulf coasts, holds close to 700 million barrels.
In the report, energy officials warned that further reductions would limit the reserve’s ability to meet its intended purpose. Significant quantities of the reserve have been sold before to ease potential shortage sand moderate prices, most recently when civil war broke out in Libya. The reserve also made emergency releases after Hurricane Katrina in 2005, which crippled Gulf producers, refiners and pipelines, andthe1991 wari n Iraq.
“While the reduction in crude oil imports in recent years has reduced U.S. exposure to physical supply shortages,” the report said, “crude oil is a globally traded commodity, and disruptions anywhere in the world result in price spikes that harm the American economy.”
But the functionality of the reserve system has fallen into question lately, as maintenance on the pipelines and pumps that would move oil into the market in time of crisis has been delayed. Earlier this year, a water pipe used to move oil around the storage caverns at the Big Hill reserve in East Texas burst, flooding the facility, which was shut down for weeks, as contractors made emergency repairs.
The Department of Energy is asking Congress for money to modernize the reserve, a project that includes replacing aged infrastructure and building a shipping terminal to get oil off the Gulf Coast by tanker in the event of a supply interruption.
“Most of the critical infrastructure for moving crude oil within the SPR has exceeded its serviceable life,” the report said. “The reserve continues to experience increases in the frequency and severity of equipment failures, which will only worsen as physical assets age.” Some critics have questioned whether the reserve needs to be housed at four locations and might be shrunk to reduce spending.
In its report the Energy Departmentsaid all four sites should remain in operation, arguing that eliminating one would reduce the size of the reserve to an unacceptable level.
“Disruptions anywhere in the world result in price spikes.” Report by U.S. Energy Department