Keep the Strategic Petroleum Reserve Strategic
The API Federal Relations Team
Posted August 15, 2024
Heads Up: You may have been hearing about the Strategic Petroleum Reserve (SPR) in recent days. The following note aims to bring clarity, facts and analysis on the SPR and broader energy debates.
SPR’s Basic Purpose: The SPR was created by Congress in 1975 after the 1973 Oil Crisis. The reserve, comprised of underground salt caverns, is located at four sites in Texas and Louisiana. It was established to protect Americans against severe oil supply disruptions or other emergencies. Combined, the sites have the capacity to hold 714 million barrels of crude.
SPR’s Current Levels are Down From the Historic Average: The SPR’s average monthly stock during the previous administration was 655 million barrels, roughly consistent with averages since the early 2000s. The SPR’s stock in May of this year was 370 million barrels.
Challenges to Refilling: Now at a 40-year low, the SPR will face several challenges concerning the pace of how quickly it could be refilled. According Mason Hamilton, API vice president of Economics and Research, after depletion from congressionally mandated sales and emergency drawdowns, the SPR is currently 53% full, or 338 million barrels below the maximum capacity. If the SPR were to be fully refilled, it would take a minimum of 19 months and cost $25.5 billion (at $75.40 per barrel), according to Hamilton, a figure equal to the SPR’s total investment since the late 1970s. The SPR was built to draw down fast, not refill quickly. At the same time, because the SPR stores heavier grades of oil used in our refineries, America’s success in producing lighter grades of crude will affect the pace of refilling. If the U.S. were to refill the SPR, the majority of the oil would likely need to come from imports to meet the SPR specifications. During its existence, the SPR has been stocked primarily with heavier grades from countries like Mexico and the United Kingdom, both of which now produce less crude.
Strategic Importance of the SPR: During most of the SPR’s existence, America has been a net crude oil importer. This is no longer the case. As oil historian Daniel Yergin explains, the U.S. shale revolution transformed the market: “The U.S., once the world’s largest oil importer, is now its largest producer. On a net basis, the U.S. is ‘energy independent.’” This is the advantage we need to protect with sound energy policies. Bottom line: It’s never been more important to America’s energy security that we have policies in place to support domestic production while we are replenishing our strategic energy backstop.
Policies Should Support Future Production: America is the world’s leading oil and natural gas producer, with U.S., oil production hitting 13.4 million barrels per day. Yet, much of that production – especially offshore – is largely due to investment decisions made under previous government policy as well as industry’s focus on innovation. To ensure domestic production can meet future demand that is projected to increase, policies and regulatory frameworks should support safe and responsible development. Restrictive policies and overly burdensome regulation, combined with low SPR levels, puts America’s energy advantage at risk.
A Strategic Advantage America Should Keep: The production of American natural gas and oil is a tremendous strength during this time of geopolitical chaos. War in Europe and the prospect of an expanding conflict in the Middle East raise concern about supply disruptions. But America’s advantage as a top producer and as an energy-exporting powerhouse can provide protection against volatility. API’s Five Point Policy Roadmap details actions that Washington can take to help reduce inflation, protect consumers and strengthen U.S. energy leadership.