The US Energy Department's (DOE) Inspector General yesterday said budget cuts to the Strategic Petroleum Reserve (SPR) in recent years have reduced the reserve's ability to optimally release crude into the market.
In an audit of the SPR's drawdown readiness issued yesterday, DOE's Inspector General said the reserve was only able to achieve a maximum drawdown rate of 4.25mn b/d, which falls 165,000 b/d short of the agency's 4.415mn b/d maximum rate. SPR officials attributed the shortfall to an unrepaired tank that moves oil into the pipelines that has been out of service since 2010. The $7.4mn repair "had been deferred because of budget cuts," the report says.
The report also found that the agency suspended a program to maintain underground storage capacity because of budget cuts, reducing the SPR's maximum capacity to 691mn bl. SPR crude is stored in 62 underground salt caverns that slowly contract over time.
To counteract the contraction – known as "creep" – SPR injects water into the caverns, a process called "leaching." In 2005 Congress authorized SPR to expand its capacity from 727mn bl to 1bn bl by bringing additional caverns online. However, Congress in 2011 "rescinded all funds previously appropriated for expansion activities," the report says. Some excess capacity was regained following the sale of 30mn bl of crude during the Libyan revolution in 2011, the reports says, but "citing budget cuts, the department suspended the leaching program in FY13." The SPR has not replaced any oil sold since 2011 because of a lack of excess capacity.
The report also found that the SPR has not conducted a long-term review of the system's sustainability, which would help the agency "ensure that it is prioritizing activities and responding to budget constraints in the most efficient manner." The most recent system-wide survey was conducted in 1995, but was limited to above-ground infrastructure.
The SPR was mandated by Congress in 1975 in response to the 1973-74 oil embargo and supply shortages that resulted. The reserve, which is located across four sites in Texas and Louisiana, is meant to hold enough oil to offset imports for 90 days. Crude from the SPR has been released to the market on a handful of occasions to offset supply disruptions, including during the 1991 Mideast Gulf War and more recently during the 2011 Libyan revolution. The SPR also released 5mn bl of oil in March in a test sale to assess the effectiveness of the system after a number of pipeline infrastructure changes.
The report recommends SPR conduct a long-range strategic review, taking into account the likelihood of crude supply disruptions and the system's readiness to respond to those disruptions. The review should also revise its crude fill level to reflect what the SPR "can reliably maintain." The report further recommends that DOE "quantify and communicate … the reserve's funding needs to ensure long-term sustainability."
DOE said in response to the report's recommendations that it would reach a decision within DOE management on how to proceed with a system-wide review by 1 August. DOE also said it will continue to communicate its funding needs to Congress through the appropriations process.
The SPR's funding levels have fluctuated substantially in recent years. In Congress' 2011 continuing resolution, SPR was funded at $209mn, though the budget also rescinded some previously allocated funds. In FY12 that appropriation was cut to $192.7mn, and cut again to $189mn in FY14.
The President requested $205mn for the SPR in his FY15 budget request. The Republican-controlled US House of Representatives — which has funded most federal programs below the president's request in recent years — fully funded that request in its DOE appropriations bill. That bill passed the House on 10 July.
jh/tdf
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