Strategic Petroleum Reserve:

DOE Needs to Strengthen Its Approach to Planning the Future of the Emergency Stockpile

GAO-18-477: Published: May 30, 2018. Publicly Released: Jun 28, 2018.

Multimedia:

  • GAO: Pipe Failure at a Strategic Petroleum Reserve SiteVIDEO: Pipe Failure at a Strategic Petroleum Reserve Site
    Strategic Petroleum Reserve sites’ aging infrastructure and equipment failures could affect their readiness for oil release. This video shows a 2016 pipe failure at a Strategic Petroleum Reserve site. Footage provided by the U.S. Department of Energy.

Additional Materials:

Contact:

Frank Rusco
(202) 512-3841
ruscof@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

The Strategic Petroleum Reserve, managed by the Department of Energy, exists to minimize the effects of disruptions in the supply of petroleum products. As of March 2018, it held about 665 million barrels of crude oil.

How big should the reserve be? A review by the Department didn't determine an optimal size and did not fully consider factors including

Changes in current and future market conditions, such as increasing U.S. crude oil production

The role of reserves held by private companies

We recommended that the Department periodically reexamine the size of the reserve, among other things.

U.S. Holdings in the Strategic Petroleum Reserve and Private Reserves, 1977-2017

This graphic shows the proportions of private reserves and the Strategic Petroleum Reserve.

This graphic shows the proportions of private reserves and the Strategic Petroleum Reserve.

Multimedia:

  • GAO: Pipe Failure at a Strategic Petroleum Reserve SiteVIDEO: Pipe Failure at a Strategic Petroleum Reserve Site
    Strategic Petroleum Reserve sites’ aging infrastructure and equipment failures could affect their readiness for oil release. This video shows a 2016 pipe failure at a Strategic Petroleum Reserve site. Footage provided by the U.S. Department of Energy.

Additional Materials:

Contact:

Frank Rusco
(202) 512-3841
ruscof@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

The Department of Energy (DOE) has not identified the optimal size of the Strategic Petroleum Reserve (SPR). In 2016, DOE completed a long-term strategic review of the SPR after its last comprehensive examination conducted in 2005. The 2016 review examined the benefits of several SPR sizes, but it did not identify an optimal size and its review was limited in several ways. In particular, DOE did not fully consider recent and expected future changes in market conditions, such as the implications of falling net imports, or the role that increased levels of private reserves (reserves held by private companies for their own purposes) may play in responding to supply disruptions. These changes have contributed to SPR and private reserves reaching historically high levels on a net imports basis (see figure). These changes are expected to continue to evolve—according to government projections, the United States will become a net exporter in the late 2020s before again becoming a net importer between 2040 and 2050. GAO has found that agencies should reexamine their programs if conditions change. Without addressing the limitations of its 2016 review and periodically performing reexaminations in the future, DOE cannot be assured that the SPR will be sized appropriately into the future.

U.S. Holdings in the Strategic Petroleum Reserve and Private Reserves, 1977-2017

U.S. Holdings in the Strategic Petroleum Reserve and Private Reserves, 1977-2017

DOE has taken steps to take into account congressionally mandated sales of SPR crude oil in its $1.4 billion modernization plans for SPR's infrastructure and facilities. The SPR is projected to hold 405 million barrels of oil by the end of fiscal year 2027. However, DOE's current plans are based on information analyzed prior to recently mandated sales. According to DOE officials, the agency began a study in March 2018 to assess the effects of these sales on the SPR's modernization. However, this study is not examining all options for handling any excess SPR assets that may be created by currently mandated sales or any additional sales that may be mandated in the future, inconsistent with an agency order on real property asset management that calls for identifying excess assets. For example, DOE does not plan to examine the potential to lease unused SPR storage capacity to the private sector because DOE is not currently authorized to enter into such leases, according to agency officials. If authorized, leasing capacity could generate revenues that could help offset the costs of modernization. By not examining a full range of options, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources.

Why GAO Did This Study

More than 4 decades ago, Congress authorized the creation of the SPR to reduce the impact of disruptions in supplies of petroleum products. DOE manages the SPR. As a member of the International Energy Agency, the United States is obligated to maintain reserves equivalent to at least 90 days of the previous year's net imports (imports minus exports). The SPR's storage and related infrastructure is aging, and DOE has plans to modernize these facilities. Since 2015, Congress has mandated crude oil sales. As of March 2018, the SPR held about 665 million barrels of crude oil.

GAO was asked to examine the SPR's ability to meet U.S. energy security needs. This report examines, among other things, the extent to which (1) DOE has identified the optimal size of the SPR, and (2) DOE's plans for modernizing the SPR take into account the effects of congressionally mandated crude oil sales. GAO reviewed DOE's plans and studies, and interviewed agency officials and nine experts selected based on prior work, referrals, and a literature review.

What GAO Recommends

GAO is making four recommendations, including that DOE (1) supplement the 2016 review by conducting an additional analysis, (2) ensure that the agency periodically reexamines the size of the SPR, and (3) consider a full range of options for handling potentially excess assets as it conducts its study, among other things. DOE agreed with two, partially agreed with one, and disagreed with another recommendation on refined product reserve studies. GAO maintains that the recommendations are valid.

For more information, contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov.

Matter for Congressional Consideration

  1. Status: Open

    Comments: When we confirm what actions Congress has taken in response to this matter, we will provide updated information.

    Matter: Congress may wish to consider setting a long-range target for the size and configuration of the SPR that takes into account projections for future oil production, oil consumption, the efficacy of the existing SPR to respond to domestic supply disruptions, and U.S. International Energy Agency obligations. (Matter 1)

Recommendations for Executive Action

  1. Status: Open

    Comments: In May 2018, DOE partially agreed with the recommendation to supplement the 2016 long-term strategic review with an additional analysis that takes into account private-sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes. In September 2018, the agency agreed to conduct two additional studies related to the future size of the SPR. According to DOE, the first study is currently underway and will determine the future configuration of the SPR at the end of all sales currently enacted into law. The SPR post-sale configuration study is expected to be completed by the end of calendar year 2018. DOE is beginning another study designed to assess the purpose, goals, and objectives of the SPR, which would ultimately lead to an optimal size of the SPR. To complete this study, DOE will focus on analyzing future requirements of the SPR rather than analyzing the benefits of various SPR sizes. The study is expected to be completed by spring of 2019.

    Recommendation: The Secretary of Energy should supplement the agency's 2016 long-term strategic review by conducting an additional analysis that takes into account private-sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes. (Recommendation 1)

    Agency Affected: Department of Energy

  2. Status: Open

    Comments: In May 2018, DOE agreed with the recommendation for periodic strategic reviews of the SPR and providing this information to Congress. In September 2018, DOE stated that a 5-year time interval between reviews is an appropriate timeframe. According to DOE, 5 years is sufficient time to allow current strategic plans to be implemented and assessed; the time period would also allow for adjustments as necessary. Given that the agency completed the SPR Long-Term Strategic Review in 2016 as the first of such strategic plans, the next strategic review of the SPR should be completed by the end of fiscal year 2021.

    Recommendation: The Secretary of Energy should take actions to ensure that the agency periodically conducts and provides to Congress a strategic review of the SPR that, among other things, takes into account changes in crude oil and petroleum product market conditions and contains additional analysis, such as the costs and benefits of a wide range of different SPR sizes. (Recommendation 2)

    Agency Affected: Department of Energy

  3. Status: Open

    Comments: In May 2018, DOE disagreed with the recommendation to conduct or complete studies on the costs and benefits of regional petroleum product reserves. DOE stated that it is the agency's position that above-ground government owned and operated regional petroleum product reserves are an inefficient and expensive solution to respond to regional fuel supply disruptions. In September 2018, DOE noted that given the inefficient and expensive nature of storing refined petroleum products in above-ground tanks, it would be an inappropriate use of taxpayer funds to conduct any additional studies on the use of federal government owned storage of refined petroleum products.

    Recommendation: The Secretary of Energy should conduct or complete studies on the costs and benefits of regional petroleum product reserves for all U.S. regions that have been identified as vulnerable to fuel supply disruptions, and the Secretary should report the results to Congress. (Recommendation 3)

    Agency Affected: Department of Energy

  4. Status: Open

    Comments: In May 2018, DOE agreed with the recommendation to consider a full range of options for handling potentially excess assets in its ongoing study, and if needed, request congressional authority. In September 2018, DOE stated that once the agency completes its study to determine the future configuration of the SPR by the end of calendar year 2018, then it can begin an analysis of the full range of options for handling potential excess assets for any storage sites that will no longer be needed. The analysis can begin in 2019 and could be completed by the end of fiscal year 2019. According to DOE, in the meantime, the agency could work with congressional committees interested in drafting legislation regarding the use of underutilized SPR facilities.

    Recommendation: The Secretary of Energy, in completing DOE's ongoing study on the effects of congressionally mandated sales, should consider a full range of options for handling potentially excess assets and, if needed, request congressional authority for the disposition of these assets. (Recommendation 4)

    Agency Affected: Department of Energy

 

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