Strategic Petroleum Reserve:

Substantial Progress Made, but Capacity and Oil Quality Concerns Remain

EMD-82-19: Published: Dec 31, 1981. Publicly Released: Dec 31, 1981.

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The Strategic Petroleum Reserve (SPR) is vital to the Nation's efforts to protect itself against oil embargoes or temporary oil shortages. GAO was asked to provide periodic status reports and an overall report on the Administration's efforts through fiscal year 1981 to fill SPR in compliance with the Energy Security Act.

During fiscal year 1981, the Administration far surpassed the required minimum fill rate and almost met the higher fill goal by adding to SPR at an average rate of about 292,000 barrels per day. By the end of fiscal year 1981, SPR contained more than twice the amount of oil that was in SPR at the beginning of the year. The oil was acquired through a competitive exchange of Naval Petroleum Reserve oil and open continuous solicitation of oil available on the spot market. In addition, the Department of Energy (DOE) acquired oil under a multi-year contract with the Mexican State oil company. The storage expansion plans of DOE fell considerably short of the fill rate goal and could be even less if existing construction problems continue. DOE has considered only those options for increasing the SPR fill rate which increase the size of the reserve and assume that the present schedule will be maintained. GAO believes that DOE should have considered additional options and questioned some of the assumptions of its assessment. Depending on decisions on the final size of the reserve, the fill rate, and funding levels, DOE may need to alter its current expansion plans. The quality of SPR oil is an important determinant of the amount of specific petroleum products available to the Nation during an interruption in supply. DOE has been accepting crude oil that is heavier than oil previously purchased without conducting an assessment. The likely impact of the heavier crude oil on the mix of oil products which might be available is not known at this time.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Energy should emphasize crude oil quality in acquiring oil for the Strategic Petroleum Reserve under current specifications, to the extent that availability and prices of such crudes allow.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Energy should require the Deputy Assistant Secretary for the Strategic Petroleum Reserve to document the rationale for any future lowering of SPR oil quality specifications. Such documentation should address key reasons for the change, such as the availability and comparative costs of higher quality crude oils.

    Agency Affected: Department of Energy

  3. Status: Closed - Not Implemented

    Comments: On August 4, 1982, Congress enacted the Energy Emergency Preparedness Act of 1982, which raises the minimum mandatory fill rate for the Strategic Petroleum Reserve and authorizes the use of funds for the interim storage of oil. An accomplishment report is being propared for the congressional action.

    Recommendation: The Secretary of Energy should evaluate the options for achieving an average annual fill rate of 300,000 barrels per day, assuming the planned and other Strategic Petroleum Reserve sizes. The evaluation, which should be available for fiscal year 1983 congressional budget deliberations, should assess costs and benefits of alternatives to constructing new underground storage facilities, including such options as leasing temporary storage capacity.

    Agency Affected: Department of Energy

  4. Status: Closed - Not Implemented

    Comments: DOE currently plans to make decisions on oil specifications on an ad hoc basis. GAO plans to follow up on DOE actions in this area during ongoing work on the quarterly status of the Strategic Petroleum Reserve activities.

    Recommendation: The Secretary of Energy should make a decision no later than September, 30, 1982, on whether the quality specifications and acquisition strategy for Strategic Petroleum Reserve oil should be revised. The results of the ongoing studies of oil quality and the size of the reserve should be useful in making that determination.

    Agency Affected: Department of Energy

 

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