New York Times, December 7, 2004
Topping Off the Biggest Gas Tank
By SIMON ROMERO
FREEPORT, Tex. - A swamp near here is one of the most secretive places in
America. There are no signs, just a 500-acre complex protected at all times
by 30 armed guards in combat fatigues patrolling in sport utility vehicles.
This is part of the world's largest and most expensive filling station, the
United States Strategic Petroleum Reserve, where a large portion of the
government's nearly 700 million barrels of oil are stored in underground
salt shafts that are supposed to be stable into the 2020's.
American taxpayers have invested about $20 billion to build and stock this
reserve and three others in hidden places since it was created in 1975 in
response to the Arab oil embargo that began two years earlier. And now, after
29 years, it is finally about to be filled to the brim for the first time.
Some oil economists say these reserves are having important effects on oil
prices. They assume that the United States will no longer be putting upward
pressure on oil prices by adding to the reserve, while that huge reservoir
will reduce the country's vulnerability to any new shock and soothe the "fear
premium" that elevates gas prices. Others say they will simply sleep better,
knowing that America has a secure energy supply.
But whether America is no longer vulnerable is not entirely clear, any more
than the direction of oil prices themselves. What is clear, from a rare visit
permitted by the Energy Department, which manages the reserve, is that this
little-known operation is a colossus and nerve center in the energy world.
"For a while it seemed like no one had heard of us and then, boom, we're
on the radar screen," Gregory Magallanez, site operations specialist at the
Strategic Petroleum Reserve, said in an interview as contractors drove around
the complex in small electric-powered vehicles.
Usually the only unannounced visitors here are white egrets or the occasional
seagull, Mr. Magallanez said. "The attention is a little worrisome sometimes."
After Sept. 11, President Bush decided to fill the reserve to its maximum
in hopes of creating an insurance policy in the event of another oil shock.
"Say you wake up one day and there's been an Iranian-style revolution in
Riyadh," said David Pursell, an expert on the reserve and a principal with
Pickering Energy Partners, an energy investment company in Houston. "You
simply wish you had more oil."
The question of ensuring a secure energy supply has taken on added significance
in the last year, as terrorist groups have taken aim at petroleum installations
in Iraq and Saudi Arabia and political turmoil has struck two other large
oil exporters, Nigeria and Venezuela. China's growing appetite for oil has
only added to the jitters about the global oil supply.
Even though the reserve will be filled early next year, there is no sense
that it has provided the country with enough of a security cushion. Altogether,
the reserve would cover only about two months of the country's imported oil
needs. In fact, there is growing recognition, and some aggressive exhortation,
that the nation's dependence on imported oil and soaring global oil demand
have made energy markets increasingly vulnerable to disruptions.
"We should consider increasing the reserve even further after it's full,"
said Bill Richardson, a former energy secretary in the Clinton administration
and now governor of New Mexico. Indeed, part of the energy bill Congress
might consider next year would increase the reserve in the United States
by 300 million barrels, bringing the nation's entire reserve system to a
billion barrels.
"I also think we should creatively find ways of releasing oil from the reserve
while working together with OPEC in an effort to bring prices down," Mr.
Richardson added, in a nod to the potential impact that filling the reserves
could have on oil prices. "OPEC's in a box right now and because of our
continuing dependence on imported oil, so are we."
Simply the notion of a full American reserve seems to have encouraged other
countries to fortify their own energy storehouses. Japan, South Korea, Taiwan
and Germany already have theirs. China, which surpassed Japan in the last
year as the second-largest importer of oil, and India, which is competing
with China for oil supplies in some developing countries, are also moving
ahead with plans to build their own strategic oil reserves. Even Russia,
the largest oil producer, is considering building a reserve.
Energy experts expect the new reserves to be modeled largely on the American
system, which includes three other sites in Texas and Louisiana. The site
here, built on a swampy hill called Bryan Mound southeast of Houston, is
the reserve's largest complex, with 232 million barrels of crude oil stored
almost entirely underground in immense salt domes.
Not everyone, of course, is enthusiastic about the reserve's usefulness.
The costly system has been criticized since its creation three decades ago.
Energy industry executives estimate that since then the government has spent
more than $20 billion to build the system and keep it stocked. The reserve
emerged as a thorny political issue this year, with Democrats calling on
the Bush administration to release oil from the system in an attempt to ease
rising fuel prices, much as President Bill Clinton tried to do in 2000.
Free market advocates aligned with President Bush's own party, meanwhile,
have renewed calls to do away with the reserve altogether as a way of removing
government involvement in the pricing of crude oil. Despite concern over
high oil prices, neither proposal has gained ground while worries persist
over threats to petroleum security in the Middle East, the world's main source
of oil exports.
The potential enlargement of the reserve in the United States and the creation
of reserves elsewhere might put additional pressure on oil prices.
But only about 100,000 barrels a day go into the United States reserves out
of worldwide consumption of 82 million barrels. The United States consumes
about 20 million barrels of oil a day, or about a quarter of global consumption,
so at its current level of about 671 million barrels, the reserves would
provide the equivalent of just two months of crude imports.
It is impossible to know exactly how a complete withdrawal of the reserve's
oil would play out since that has never happened before. Altogether, technicians
at the reserve estimate it can release a total of 4.5 million barrels a day,
falling substantially short of current domestic consumption. The two largest
withdrawals were 17 million barrels during the Gulf War in 1991 and 30 million
barrels in 2000, neither of significant size or duration.
Here in Freeport, the reserve functions differently from systems in countries
like Japan, where private companies are required to store oil and refined
gasoline to complement the government's own inventories. In the United States,
the reserve consists almost entirely of unrefined oil acquired directly from
producers instead of purchases of oil on the open market.
The government takes the oil in place of royalty payments that energy companies
normally make to drill on public land, though some imported crude also goes
to the reserve through exchanges to acquire a variety of sweet and sour blends
of crude.
Security measures at the Freeport complex, which was originally created by
the Dow Chemical Company to store magnesium, have been enhanced in the last
three years. Visitors to the reserve are required to be American citizens,
a rule waived recently when technicians from Russia and India toured the
site as part of studies toward creating their own reserves. Thirty armed
guards in gray combat fatigues patrol the 500-acre site around the clock.
"The costs of creating a reserve are high, but minimal in comparison to a
catastrophic oil shock disruption," said Gal Luft, executive director of
the Institute for the Analysis of Global Security, an organization in Washington
that studies energy security issues and that is pushing for three
one-billion-barrel reserves in North America, Europe and Asia to be built
over the next decade.
"The problem is that new reserves aren't being created at a pace that equals
the decline in spare oil production capacity around the world," Mr. Luft
said. "Obviously, 700 million barrels in this country is not enough."
5 August 2002
Source of maps and photos:
TerraServer USGS.
Department of Energy Strategic Petroleum Reserve:
http://www.spr.doe.gov/
Source:
http://www.fe.doe.gov/spr/index.shtml
The Strategic Petroleum Reserve (SPR) is the nation's first line of defense
against an interruption in petroleum supplies. It is an emergency supply
of crude oil stored in huge underground salt caverns along the coastline
of the Gulf of Mexico.
Decisions to withdraw crude oil from the SPR during an energy emergency are
made by the President under the authorities of the Energy Policy and Conservation
Act. In the event of an energy emergency, SPR oil would be distributed by
competitive sale. Although used for emergency purposes only once to date
(during Operation Desert Storm in 1991), the SPR's formidable size (almost
600 million barrels) and the U.S. government's stated policy to withdraw
oil early in a potential supply emergency make the SPR a significant deterrent
to oil import cutoffs and a key tool of foreign policy.
Origins
The need for a national oil storage reserve has been recognized for at least
five decades.
Secretary of the Interior Harold Ickes advocated the stockpiling of emergency
crude oil in 1944. President Truman's Minerals Policy Commission proposed
a strategic oil supply in 1952. President Eisenhower suggested an oil reserve
after the 1956 Suez Crisis. The Cabinet Task Force on Oil Import Control
recommended a similar reserve in 1970.
But few events so dramatically underscored the need for a strategic oil reserve
as the 1973-74 oil embargo. The cutoff of oil flowing into the United States
from many Arab nations sent economic shockwaves throughout the Nation. In
the aftermath of the oil crises, the United States established the SPR.
President Ford set the SPR into motion when he signed the Energy Policy and
Conservation Act (EPCA) on December 22, 1975. The legislation declared it
to be U.S. policy to establish a reserve of up to 1 billion barrels of petroleum.
The Gulf of Mexico was a logical choice for oil storage sites. More than
500 salt domes are concentrated along the coast. It is the location of many
U.S. refineries and distribution points for tankers, barges and pipelines.
In April 1977, the government acquired several existing salt caverns to serve
as the first storage sites. Construction of the first surface facilities
began in June 1977.
On July 21, 1977, the first oil - approximately 412,000 barrels of Saudi
Arabian light crude - was delivered to the SPR. Fill of the Nation's emergency
oil reserve had begun.
Storage locations along the Gulf Coast were selected because they provide
the most flexible means for connecting to the Nation's commercial oil transport
network. Strategic Reserve oil can be distributed through interstate pipelines
to nearly half of the Nation's oil refineries or loaded into ships or barges
for transport to other refineries.
Strategic Petroleum Reserve caverns range in size from 6 to 30 million barrels
in capacity; however, the typical cavern is 10 million barrels and cylindrical
in shape having a diameter of 200 feet and a height of 2,000 feet. A typical
cavern is large enough for Chicago's Sears Tower to fit inside with 170 feet
to spare. The Reserve has created over 50 of these huge underground caverns.
Current
Status
Today, the SPR has the capacity to hold 700 million barrels. It is the largest
emergency oil stockpile in the world. Together, the facilities and crude
oil represent more than a $20 billion national investment.
Fill was suspended in FY 1995 to devote budget resources to refurbishing
the SPR equipment and extending the life of the complex through at least
the first quarter of the next century. In 1999 fill was resumed in a joint
initiative between the Departments of Energy and the Interior to supply royalty
oil from Federal offshore tracts to the Strategic Petroleum Reserve.
The
Desert Storm Drawdown
Stockpiling crude oil in the SPR reduces the nation's vulnerability to economic,
national security, and foreign policy consequences of petroleum supply
interruptions. The SPR proved its value in 1991 when a partial drawdown,
coupled with a coordinated international supply response, dampened oil price
hikes during the Persian Gulf War.
On January 16, 1991, coinciding with the international effort to counter
the Iraqi invasion of Kuwait, President Bush ordered the first-ever emergency
drawdown of the SPR. The Department of Energy immediately implemented a drawdown
plan to sell 33.75 million barrels of crude oil, the United States' portion
agreed to by the International Energy Agency.
The drawdown proceeded on schedule and without major complications. Between
the initial authorization and the final sale, however, world oil supplies
and prices stabilized, and the United States reduced the sales amount to
17.3 million barrels which were sold to 13 companies.
The Desert Storm drawdown and the price stability that resulted in world
markets showed the merits of the U.S. policy of announcing its intent to
draw upon its emergency stockpile early and in large quantities should the
U.S. oil supply be threatened.
Program
Priorities
In managing the Strategic Petroleum Reserve Program, the Office of Fossil
Energy's overriding objective is to maintain the readiness of the oil stockpile
for emergency use at the President's direction.
From 1993-2000, the Department of Energy's top priority was to ensure the
continued readiness of the Reserve through at least the year 2025 by conducting
a major life-extension program. This included replacing or refurbishing pumps,
piping and other key components at the SPR's Gulf Coast sites. The program
was completed in March 2000 on schedule and below original cost estimates.
