White House calls for funds to upgrade SPR

The Energy Department should spend $1.5bn-2bn to upgrade the Strategic Petroleum Reserve (SPR), the Obama administration said today in a key report that weighs US energy infrastructure weaknesses.

The Quadrennial Energy Review, in the works since 2013, is the administration's attempt to size up a domestic energy boom that could shift the United States from a net petroleum importer to a significant potential exporter, especially for natural gas.

"Oil production growth has enabled the United States to act as a stabilizing factor in the world market by offsetting large sustained supply outages in the Middle East and North Africa and, later, contributing to a supply surplus that has reduced oil prices to levels not seen since March 2009," the report said.

The review does not directly take on the thorny question of whether the long-standing ban on most US crude exports should be modified, though it affirms that "increasing domestic oil production has focused attention on US oil export laws established in the aftermath of the 1973–1974 Arab Oil Embargo."

Despite concerns that US refiners may not be able to handle a rising supply of lighter crude, the "recent Department of Commerce determinations that liquid hydrocarbons, after they have been processed through a crude oil distillation tower, are petroleum products, and therefore eligible for export, will help avoid adverse production impacts," the report said.

The review called the SPR "an important insurance policy for the US economy," and said an effective modernization program "should reflect changed global oil markets and US market conditions."

The investments are aimed at shoring up shortfalls that were identified in a test sale the DOE conducted in March 2014.

That test revealed potential problems with pipeline capacity, storage space and availability of US-flagged vessels if an emergency drawdown were required, a prior DOE report found.

"During the test sale, purchasers had problems getting capacity on one major pipeline for preferred deliveries and had to make adjustments by shipping crude oil to a different terminal and placing the oil into temporary storage until pipeline capacity became available," today's report said.

SPR distribution capacity has been affected by recent reversals of the Seaway and Ho-Ho pipelines, as well as new pipelines that carry crude directly to Gulf coast refineries from tight oil plays, bypassing Cushing, Oklahoma.

The SPR upgrade would increase incremental distribution capacity by adding dedicated marine loading dock capacity at the Gulf coast terminus of the distribution system, and pay for engineering studies and life extension maintenance on existing reserve infrastructure.

The review also found that Congress should update the Energy Policy and Conservation Act of 1975 (EPCA) to change the definition of a "severe energy supply interruption" to include global market disruptions rather than just a loss of supply to US refineries.

"In today's fast-moving and globalized energy markets, the President should not have to wait until higher fuel prices have already damaged the US economy before the SPR can be used without restrictions," the report said.

kp/dcb

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