The Energy and Commerce Committee sent a bill that would authorize leasing of unused Strategic Petroleum Reserve capacity to private entities or foreign governments to the full US House of Representatives by voice vote on Sept. 13. The measure, HR 6511, was introduced 7 weeks earlier by Reps. Joe Barton (R-Tex.), the full committee’s vice-chairman, and Bobby Rush (D-Ill.), ranking minority member of the Energy Subcommittee, which marked it up and referred it to the full committee on Sept. 6.
“The Strategic Petroleum Reserve Reform bill is an attempt to modernize and repurpose the SPR. We’re the world’s largest oil producer now, according to [the US Energy Information Administration],” Barton said during the full committee’s markup on Sept. 13. “We don’t need a 1 billion-bbl reserve. We have 200-300 million bbl of excess production capacity. [This] bill would allow the private sector to lease some of that space and allow the generated revenue to modernize and maintain the SPR.”
Barton proposed an amendment to use funds already appropriated to DOE to make necessary improvements, if the bill becomes law, to modernize equipment and ensure the structural integrity of the underground storage caverns is sufficient to store private sector oil if, and when it is allowed to be put into the SPR. It passed the full committee in a voice vote.
Rep. Joe Kennedy III (D-Mass.) offered an amendment to study whether to create regional refined products reserves in the Southeast and on the West Coast, in addition to one that was established in the Northeast following Superstorm Sandy in 2012. “With Hurricane Florence bearing down on the East Coast and Hurricanes Isaac and Helene lurking in the Atlantic, and on the heels of Hurricanes Harvey, Irma, and Maria last year, larger and deadlier storms are becoming all-too regular,” he warned. Kennedy withdrew the amendment after the committee’s top Republicans said they would press US Energy Sec. Rick Perry to determine how far DOE has moved on the idea already.
The bill specifically would require the US Energy secretary to establish a pilot program to make storage capacity available for lease at SPR and related facilities for up to 200 million bbl of petroleum products within 180 days of the bill’s being signed into law. The secretary then would have to report back to Congress on the pilot program within a year.
“Because Congress has mandated DOE to draw down and sell approximately 300 million bbl of crude oil over the next decade, we must confront what to do with the spare capacity that will become available,” Rep. Fred Upton (R-Mich.), the subcommittee’s chairman, said at the markup. The bill would amend Section 168 of the 2005 Energy Policy and Conservation Act to allow the US Energy secretary to lease unused SPR capacity to the private sector as well as foreign governments, he said.
‘More as a piggybank’
Rush noted at the markup that the US has changed from a heavy importer of foreign crude to a global export leader since the SPR was established to counter 1970s import supply interruptions. It now is used “more as a piggybank to fund a vast variety of unrelated congressional initiatives, rather than its initial purpose as an emergency energy backstop,” he said.
“Accordingly, this bill will not only help to repurpose the SPR, but it will also actually bring in extra revenue by leasing storage space to friendly foreign allies and private companies,” Rush said.
Barton and Rush introduced their bill after witnesses told the full committee at a July 24 hearing that new uses for its unused SPR capacity should be considered. “With a total volume of nearly 290 million bbl being sold through the combination of congressionally mandated and appropriated sales, it is expected that the SPR will have unused storage capacity of roughly 45% of current design capacity by the end of fiscal 2027,” Steven E. Winberg, DOE’s assistant secretary for fossil energy, said.
DOE is considering what SPR configuration will be best after the mandated and appropriated sales are complete, Winberg said. Initial questions have included whether the same number of sites would be required, whether storage caverns with substantial enough structure issues to raise questions about their long-term operating viability should be retained, and whether the reserve should retain its current mix of about 40% sweet and 60% sour crude, he said.
Winberg said it also will be important for Congress and DOE to consider the economic impact of using government facilities to compete on the private market with both existing and planned petroleum storage along the Gulf Coast. “For example, as of March, refinery, tank, and underground net available storage capacity within the Petroleum Administration for Defense District 3 (Gulf Coast) stood at 49%, suggesting readily available, privately owned existing storage capacity,” he said.
Further changes ahead
Another witness noted that recent changes have contributed to SPR and private crude oil reserves reaching historically high levels on a net-imports basis. “These changes are expected to continue to evolve: According to government projections, the US will become a net exporter in the late 2020s before again becoming a net importer between 2040 and 2050,” said Frank Rusco, natural resources and environment director at the Government Accountability Office.
Rusco said as an alternative to closing some of the SPR’s storage capacity, DOE could explore leasing it to US producers as well as to foreign governments, which he said is already authorized under EPACT. “US oil production has generally increased over the last decade. As a result, the private sector may want to lease excess SPR capacity, which may be cheaper than above-ground storage, according to a representative of a private company we interviewed,” he said.
A third witness, however, pointed out that certain SPR facility modernization investments will be required before DOE undertakes the proposed pilot storage program. “The extent of the modifications required will vary depending upon the lease terms. Long-term storage (many months to years) is more readily accommodated by the current infrastructure; shorter lease periods (weeks to a few months) will require significant investment to extend the operational lifetime of the assets,” said Daniel M. Evans, project manager for Fluor Federal Petroleum Operations LLC, which manages and operates the SPR for DOE.
Evans said it will be necessary to determine what the SPR’s appropriate target inventory should be based on global market conditions that differ greatly from the 1970s. “Congress should ensure that, once it defines any new mission, it allows for adequate time to develop and physically implement the SPR storage site enhancements necessary to facilitate storage space leasing,” he said.
The fourth witness, Kevin Book, managing director of Clear View Energy Partners LLC, suggested that SPR storage ultimately will be better suited for lessees with long-term storage needs, such as foreign governments that must comply with International Energy Agency obligations to hold 90 days of net crude import requirements. DOE also could explore an option for commercial customers to purchase SPR crude and pay lease fees to store it in place instead of taking delivery. “This sort of virtual transfer could reduce, or at least delay, wear and maintenance requirements associated with drawdowns,” he said.
Contact Nick Snow at [email protected].
