America’s Strategic Petroleum Reserve: Five Fast Facts
The Strategic Petroleum Reserve was created to provide the nation with a viable emergency stock of petroleum during supply, geopolitical and price shocks.
First, what is the Strategic Petroleum Reserve (SPR)? A U.S. government complex of “four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts.” It was established in 1975. The four sites are: Bryan Mound and Big Hill in Texas; Bayou Choctaw and West Hackberry in Louisiana. All four underground salt dome storage sites are along the Gulf Coast, close to refining infrastructure.
How much oil can be stored in the four sites?
Current authorized storage capacity: 714 million barrels. For comparison, the U.S. currently produces about 11.8 million barrels per day domestically. Beginning in April, the U.S. government has been releasing about 1 million barrels of oil from the reserve each day for a planned six month duration. The mid-June reserve level — about 510 million barrels — represents the SPR’s lowest point since about 1987. The maximum total withdrawal capability from the SPR is about 4.4 million barrels per day.
Where does the oil in the reserve supply come from? Overwhelmingly, U.S. petroleum stock. The SPR generally contains two kinds of crude oil: medium-sour and light-sweet. Medium-sour, with a sulphur content of 1.44 percent, is preferred by U.S. refiners for the production of gasoline. It’s the type of crude the refineries are currently calibrated for. The concern is that as fall (October) arrives the amount of medium-sour that will be available from the SPR will likely be significantly lower.
What is the process to release oil from the strategic reserve? Under direction from the presidential administration as the price of oil rose significantly in early 2022, the U.S. Department of Energy began releasing and selling up to 45 million barrels of oil from the SPR in March, now ongoing. Oil from the SPR can be sold on the open market in online auctions or physically exchanged with a different grade of oil (say, light sweet crude exchanged for medium-sour). The 31-member International Energy Agency (IEA), the global energy watchdog agency, may also release oil reserves from overseas in conjunction with the United States SPR. The SPR has been used during the 1991 Gulf War and in September 2005 after Hurricane Katrina devastated Gulf of Mexico oil production.
Will the SPR be significantly diminished by the fall? Yes and no. More than 80% of the oil released from the SPR this year has been medium-sour type. Eventually light sweet crude oil will be released from the SPR. OPEC+ nations are currently increasing daily oil production — OPEC+ produced 37.5 million barrels per day in May. Some members of OPEC have been underproducing vis-a-vis their respective OPEC 2022 production quotas. US oil production (including shale) will increase modestly throughout 2022 to over 12 million barrels per day, too.
The SPR is not designed to serve as a long-term solution to American oil supply and price challenges. A mix of factors — increased global oil production, enhanced domestic refining capabilities, increased non-fossil fuel utilization and geopolitical stability will all contribute to a moderation in oil prices.
