Evaluation of the Department of Energy's Plan To Sell Oil From the Strategic Petroleum Reserve

RCED-85-80: Published: Jun 5, 1985. Publicly Released: Jun 12, 1985.

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Pursuant to a congressional request, GAO reviewed the Department of Energy's (DOE) plan for selling oil from the Strategic Petroleum Reserve (SPR) to analyze: (1) the plan's potential effects on world oil prices; (2) the issues affecting who would get SPR oil under this plan; and (3) how the plan compares with alternative sales mechanisms.

GAO found that the plan's market approach would probably limit oil price increases in a severe supply disruption and allow broad participation in the sale. However, there were potential problems identified with oil distribution under the plan. DOE, in taking a market approach to the distribution, plans to award SPR sales contracts to the highest bidders who would be considered eligible buyers. This would allow any foreign country to buy the oil and does not limit the amount that a single buyer could purchase at a given sale. GAO also examined alternative sales methods of interest to Congress, including: (1) the continuous sale of options to buy SPR oil in advance of an oil emergency; and (2) allocation of SPR oil at government-set prices. Most industry representatives opposed the sale of SPR options because of their concerns about the length of time during which options could be exercised and who should be eligible to buy the options. GAO found that uncompetitive allocation of SPR oil would entail administrative difficulties that would undermine its intended benefits since it would be difficult to develop criteria for fair distribution.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Hearings were held on SPR matters, but discussions did not specifically address the sale issue identified in the report. GAO has no indication that these issues will be set for a hearing in the near future.

    Matter: Because DOE comments did not respond to a prior recommendation that the Secretary of Energy reexamine his position on several issues and report to Congress, GAO believes that the cognizant committees of Congress should pursue these issues with DOE through hearings or in other ways that they may deem appropriate. Specifically, Congress should consider: (1) restricting certain foreign purchases of SPR oil; (2) restricting the purchase of SPR oil by brokers and traders; (3) placing an upper limit on the amount of oil that a buyer can purchase at a given sale; and (4) authorizing a two-pool method of selling SPR oil to assist independent refiners.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: While DOE indicated an intent to report to Congress on the GAO concerns, it made no firm commitment, nor did it adequately justify its disagreement with the GAO conclusions. The passage of time with no further action by DOE indicates that no further action will be taken.

    Recommendation: The Secretary of Energy should reexamine his position on several issues related to buyer participation in the sale of SPR oil and transmit a report to Congress on them. These issues include: (1) whether any restrictions should be placed on the eligibility of foreign buyers or brokers and traders to buy SPR oil; (2) whether there should be a limit on the amount of oil that a buyer can purchase at a given sale; and (3) whether a two-pool method of selling SPR oil should be used to assist independent refiners. If the results of his reexamination warrant it, the Secretary should also transmit to Congress appropriate amendments to the SPR drawdown plan.

    Agency Affected: Department of Energy


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