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1 1 (April 5, 2018)

handle is hein.crs/govzff0001 and id is 1 raw text is: Cogesoa Researc Servic 0 April 5, 2018 Reconsidering the Strategic Petroleum Reserve The Strategic Petroleum Reserve (SPR) was authorized by the Energy Policy and Conservation Act (EPCA) of 1975 (P.L. 94-163). EPCA, passed in the wake of the oil embargo of 1973-1974, set out U.S. energy policy in the areas of production, consumption, and reserve stocks. In 2018, the U.S. position in world markets is significantly different from that of the 1970s and a reconsideration of the size and/or need for the SPR might be warranted. hat Is the SPR? EPCA authorized the creation of an up to 1 billion barrel petroleum reserve. While the primary component of the SPR is crude oil, currently about 660 million barrels, stored in Texas and Louisiana, the reserve also includes the Northeast Home Heating Oil Reserve (2 million barrels of ultralow sulfur heating oil) located in Massachusetts, New Jersey, and Connecticut, as well as the Northeast Gasoline Reserve (1 million barrels of gasoline) located in the New York harbor and Boston areas. The first of these product reserves recognized the importance of heating oil in the New England home heating fuel mix, while the second was established in response to the gasoline market disruption in the wake of Hurricane Sandy in 2012. Initial justifications for the SPR In 1973, the Organization of the Arab Petroleum Exporting Countries (OAPEC) initiated an oil supply embargo against the United States and the Netherlands in response to those nations' support of Israel in the October 1973 war. There was concern that a new era had emerged in which oil supplies would be used as a political weapon. For the United States, domestic oil production had peaked in 1970 and was expected to decline in future years, consumption growth seemed set to continue, and the only significant emergency stocks were commercial inventories held by oil companies. U.S. gasoline consumers' first exposure to the perceived effects of the OAPEC embargo included gasoline supply shortages, gasoline stations with restricted operating hours, purchase limits, waiting lines, and higher gasoline prices. The institution of federal non-price gasoline rationing schemes, intended to alleviate problems related to the supply shortages, may have exacerbated the shortages. A publicly held supply reserve of crude oil or petroleum products was viewed as a viable way to shield the domestic markets from the disruptive effects of supply manipulation by countries exporting oil to the United States. The United States historically has possessed a petroleum refining industry of sufficient domestic capacity to meet the needs of domestic demand for petroleum products. In addition, an oil transportation system is available to efficiently move oil and petroleum products around the country. Concern existed in the mid-1970s that if the net import gap between domestic consumption and domestic production continued to widen, disruptions in oil supply from international markets would result in the closure of part of the refining and/or pipeline networks. Concern over consumer gasoline disruptions and refinery utilization are somewhat at odds. Minimizing consumer disruption might indicate the need for a petroleum products reserve, while insuring the continuous operation of the oil refining/transportation industries might suggest the need for a crude oil reserve. Language in EPCA allowed the new reserve to include either crude oil or products, or both. Evolution of the SPR Since the 1970s the SPR's role has evolved to include natural disaster protection and economic stabilization. Hurricanes Katrina, Sandy, and Harvey have resulted in drawdowns from the SPR to supply refineries and aid consumers. However, some argue infrastructure damage, to include waterways and ports, roads, and refineries, might be more of an impediment to an orderly market than actual fuel supply issues. The open bidding policies of SPR drawdowns, which allow foreign-based oil trading firms to win the right to purchase SPR oil, may limit the effectiveness of SPR use in short-term natural emergencies. It may be difficult to target SPR supplies to those domestic firms that need access to SPR oil under current bidding rules. In addition, the Energy Policy and Conservation Act Amendments of 1990 (P.L. 101-383) expanded EPCA authorities to allow the President to authorize SPR drawdowns when market conditions exist such that there is, or is likely to be, economic disruption in the form of higher prices even if no formal emergency is declared. President Obama used this authority to direct the drawdown and sale of 30 million barrels of crude oil from the SPR in 2011 due to the likelihood of higher oil prices resulting from the disruption of Libyan oil supplies. While it is not clear that this type of market intervention is effective, the use of the SPR for price stabilization in place of market forces, although allowed by statute, is a change from the original application of the authority. International Obligations The United States is a member of the International Energy Agency. The 1974 Agreement on an International Energy Program (IEP) specifies member nation emergency response mechanisms. The agreement requires member nations to hold no less than 90 days of the previous year's net imports as emergency stocks. The reserves may be held as crude oil, petroleum products, or as a mixture of the two. The reserves may be owned by the public sector, the private sector, or as a mixture of the two. Oil exporting (net) member countries are exempt from the stock holding https://crsreports.congressg

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