The Strategic Petroleum Reserve (SPR) is a stock of crude oil that the government owns and stores at four underground sites along the Gulf of Mexico. The SPR, which can hold about 727 million barrels of oil, was established in 1975 to help insulate the United States against a severe disruption in oil supplies. With a final shipment of about half a million barrels, the SPR was filled to capacity in December 2009. The Department of Energy (DOE) is authorized to expand the SPR's capacity to 1 billion barrels. DOE can draw oil from the reserve at a maximum sustained rate of 4.4 million barrels per day (or about 44 percent of average daily U.S. oil imports and about 22 percent of average daily U.S. petroleum consumption) for about 90 days; after that, the maximum draw rate is less.
This option would reduce the SPR's holdings by about 10 percent during the 2012-2016 period and then maintain a reserve of 650 million barrels. In the Congressional Budget Office's estimation, selling the excess hold- ings--about 75 million barrels of oil--would generate $700 million in 2012 and roughly $6 billion over five years, net of estimated decommissioning costs. That estimate assumes that DOE will receive slightly more than $90 per barrel, consistent with CBO's January 2011 economic projection. The estimate does not include savings from forgoing expansion of the SPR.
Oil has seldom been withdrawn from the SPR. In 1996, DOE sold 28 million barrels at the direction of lawmakers in order to reduce the federal budget deficit. DOE also sold a combined 5 million barrels in test sales in 1985 and 1990. Since 1996, DOE has released--to respond to temporary supply disruptions or to exchange one grade of crude oil for another--a total of about 68 million barrels to private firms through negotiated exchange agreements under which the companies have later replaced the oil, with interest. Only twice has oil been sold from the SPR in response to an emergency, and each of those sales involved only a small fraction of the reserve's holdings. Citing the risk of economically threatening disruptions in supply, DOE sold about 17 million barrels during the 1991 Gulf War and about 11 million barrels after Hurricane Katrina in 2005.
Most arguments in favor of this option concern changes over time in the benefits and costs associated with the reserve. The increasing diversity of world oil supplies and growing integration of the economies of oil-producing and oil-consuming nations have probably lessened the risk of a sustained, widespread disruption. Large structural shifts in energy markets and in the U.S. economy since 1975 have moderated the likely costs of a disruption in oil supplies and, thus, the benefits that might accrue from releasing oil in a crisis. In addition, the government's ability to smooth oil prices by selling oil from the SPR at times of increasing world oil prices, or by purchasing oil for the SPR when world oil prices are declining, may be limited because SPR sales or purchases would represent only a very small fraction of world oil consumption. Moreover, the cost of maintaining SPR facilities has escalated as those facilities have aged. Finally, analysis of past sales and withdrawals from the SPR suggests that a 10 percent reduction in its holdings probably would not compromise its ability to address the types of problems that have triggered past releases.
Several arguments can be made against this option. If the capacity of the SPR is not expanded and U.S. demand for oil continues to grow, the SPR will eventually be unable to hold the equivalent of 90 days' worth of net oil imports in reserves of oil or petroleum products. (The United States and other nations have made a commitment to the International Energy Agency to hold reserves in at least that amount.) In 2010, the SPR held the equivalent of about 79 days' worth of net oil imports. Estimates in the Energy Information Agency's (EIA's) Annual Energy Outlook 2011 suggest that the SPR will hold, at capacity, between 65 and 105 days' worth of net oil imports in 2021, depending on future crude oil prices and associated demand. The EIA's central projection of future oil demand implies an 82-day supply in the SPR