Biden Is Destroying Our Strategic Petroleum Reserve

    The Strategic Petroleum Reserve (SPR) is a national treasure. Frighteningly, Biden is rapidly despoiling this treasure.
    The Reserve consists of four sites (Bryan Mound, Big Hill, Bayou Choctaw, and West Hackberry) with a combined storage capacity of 714 million barrels of crude oil. It is the largest strategic oil reserve in the world.
    The OPEC oil embargo of 1973 and the resultant oil crisis contributed to western governments’ recognition of how vulnerable their countries were to disruptions in Middle East oil. As a result, SPR was authorized by the Energy Policy and Conservation Act of 1975 (P.L. 94-163), signed into law by President Gerald Ford on December 22, 1975. Construction on the Reserve began in 1977 and was completed in the early 1990s.
    The SPR anchors the world’s collective energy security system. By ensuring that the SPR remains a reliable asset within the IEA collective action framework, the United States leads by example, encouraging other countries to maintain their own reserves of crude oil and petroleum products, and to deploy those reserves in a collective manner. This leverages the effectiveness of the United States strategic reserves and benefits the United States to a greater degree than would be possible with only the SPR.1
    SPR crude oil is stored in underground caverns leached in salt domes at the four sites. There are approximately 60 caverns ranging in size from 6 to 37 million barrels in capacity. A typical cavern holds 10 million barrels and is cylindrical in shape with a diameter of 200 feet and a height of 2,500 feet.2
    Each SPR cavern contains either sweet or sour crude; there is no comingling of the two streams within individual storage caverns.3 Sweet crude has a maximum of 0.5% sulfur content. Sour crude has a sulfur content in excess of 0.5%. On July 21, 1977, the first shipment of approximately 412,000 bbl of Saudi Arabian light crude was delivered to the SPR.4 The Reserve completed filling 32 years later on December 27, 2009.5
    The SPR was designed for five complete drawdown/refill cycles whereby the caverns are drained and then refilled. Each drawdown/refill cycle expands the storage cavern size because the oil is forced out by injecting fresh water into the cavern causing the oil to flow upwards. The surrounding salt dissolves in the fresh water, expanding the cavern's size. Without getting too technical, the SPR isn’t draining individual caverns as it sells oil, but instead is only reducing the inventory across many caverns.
    Much has been written about the Biden administration’s recent drawdown (180 million barrels) from the SPR, which has reduced the SPR inventory (405 million BBL as of 10/14/22)6 to its lowest point since 1984. The Biden Administration announced the final 15 million BBL of the 180 million BBL release on October 18.7 When this final 15 million BBL is sold, the SPR inventory will be below 400 million BBL or just over one-half of its storage capacity of 714 million barrels. Based on 2021 imports of 6.1 million barrels per day (BPD), this total represents approximately two months’ imports.8
    The Reserve’s depletion is a major concern because there is no assurance that it will be refilled despite the Biden administration’s pledge to refill it when crude prices drop to or below the $67-72 per barrel price range.9 Biden is prepared to authorize significant additional sales in the coming months if conditions require.10 With the projections for a bad winter in the northeast, can the Biden administration resist the urge to sell even more SPR oil?
    Even if the Administration does commence refill, the process will take years. The highest fill rate the SPR has achieved is 292,000 barrels per day (BPD) in 1981.11 At that rate (assuming it can be achieved) it will take over three years to refill the Reserve to capacity—and that assumes perfect execution and no supply or logistical glitches. Moreover, it is questionable if that rate can be achieved because, in the early years, the SPR was filling empty storage caverns. Now, they’ll be topping off caverns, a process that is logistically more difficult.
    Refilling the Reserve will be a political decision. The cost of refilling the Reserve, assuming oil purchases in the $67-$72 per barrel price range will be between $26.1 billion and $27.3 billion. According to the Wall Street Journal, the price of crude could go as high as $120 per BBL.12 At that price, refilling the Reserve would cost a whopping $47 billion.
    In March of 2020, former President Donald Trump wanted to fill up the SPR, and wanted to include in a stimulus package before Congress $3 billion to take advantage of lower oil prices that had fallen earlier that month. Democrats, in their infinite wisdom, removed the $3 billion out of the stimulus package.13
    If Congress was reluctant to spend $3 billion two years ago, how willing will Congress be to spend eight times that much in 2023? Even if Republicans take control of Congress, will they have enough votes to override a possible presidential veto?
    A full SPR acts as a deterrent to oil embargoes since it delays the impact of an embargo by four months. Already, that deterrent has been reduced by half. It could go even lower this winter.
    Biden has spoken disparagingly of both the Saudis and the Russians since he was inaugurated. Both recently showed their contempt by reducing OPEC’s output by 200,000 BBL per day despite the Biden administration’s pleas. Will they decide to test him further with an embargo? With the SPR inventory at such a low point, I would bet that the thought has at least crossed their minds.
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