Potential Savings through Purchase of Royalty Oil for Strategic Petroleum Reserve

A 1977 report to Congress stated that oil produced from Outer Continental Shelf and onshore federal leases, on which royalties are paid, could be purchased for the Strategic Petroleum Reserve at substantial savings to the government. Department of Interior officials calculated that, based on May 1978 crude oil prices, royalty oil would be $3.01 a barrel less than the national average composite price. Total savings that could result from buying royalty oil for the reserve could be significant, especially if current price differences and price controls remain. The Strategic Petroleum Reserve cited three potential problems associated with purchasing royalty oil: (1) an additional administrative burden to the federal government; (2) unsuitability for reserve storage; and (3) passing on some of the cost to oil users rather than taxpayers. To minimize the cost to the federal government of the strategic petroleum reserve, the Secretary of Energy should purchase all suitable royalty oil for storage in the Reserve.