New York Times, December 7, 2004
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/
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.
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.
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.
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.
|Bryan Mound, TX
28N 54' 50"
Maps 2005 (larger version available at link)
|Big Hill, TX
29N 44' 41"
|Big Hill 2004
|West Hackberry, LA
29N 59' 45"
|Source: NOAA aerial photos of Hurrican Rita damage, October 7, 2005
|Choctaw Bayou, LA
30N 19' 05"