Energy Book Emergency

Sitting in a series of caverns in Texas and Louisiana are more than 700 million barrels of crude oil, arguably representing the only consistent energy policy the United States has had over the last three decades: the Strategic Petroleum Reserve.

The reserve was established after the Arab oil embargo in the early 1970s to insulate the United States against future oil shocks. In theory, it’s supposed to provide at least ninety days’ worth of net imports. In fact, Congress has authorized the reserve to expand to 1 billion barrels.¹

There’s also a smaller reserve specifically to provide about ten days’ worth of home heating oil to the Northeast in a winter emergency. The government buys oil for the reserve, but until 2008 it was more usual for oil companies to give crude to the reserve in lieu of paying cash royalties for drilling on government land or offshore.²

A technician checks a valve on a wellhead assembly at the Strategic Petroleum Reserve's Big Hill site near Beaumont, Texas.

We’re not alone in having a backup stock of oil; twenty-eight nations around the world also have strategic petroleum stocks for the same reason, all part of an international agreement to ensure stable oil supplies. The goal isn’t to be energy independent but to buy time in case of an embargo or natural disaster. The most recent time the reserve was tapped was in fact part of an international effort to deal with the problems caused by Hurricanes Katrina, Ivan, and Rita in 2005, which knocked out oil refineries and sent prices rising worldwide.

There have been two big debates over the Strategic Petroleum Reserve over the years. One debate is when it should be tapped. Some people argue that the reserve is only there for emergencies, moments when the actual physical supply of oil is threatened, as with Hurricane Katrina or the first Gulf War.

Others argue that the reserve is more like an oil bank account that you can tap into whenever oil prices are unusually high, or even for other policy reasons. For example, in the 1990s, when Congress didn’t project that the reserve would be needed anytime soon, it sold some of the oil to reduce the federal budget deficit.³

The other debate is whether we should have the reserve at all. Some conservative critics say the strategic reserve just discourages private industry from keeping enough oil on hand. In addition, experts at the Cato Institute have argued that by the time the government actually gets reserve petroleum to the market, it’ll be too late to head off any damage from price increases.

We should keep in mind, though, that oil companies keep smaller inventories than they used to (twenty-two “days forward” for crude oil and twelve days for gasoline in 2007, compared to twenty-nine and thirty days, respectively, in 1980). Partly, that’s for economic reasons (because it costs oil companies money to have inventory sitting there unused). At least some of those private inventories would be needed to keep oil transportation itself running—remember, we’re so dependent on oil for transportation that we need it to move the rest of the oil around.

When we talk about oil stockpiles, however, it’s worth remembering that in reality the reserve would last more than ninety days. The ninety-day guideline indicates how long the reserve would last if the United States were completely cut off from all oil imports, and short of putting a giant dome over the country, as the government did to Springfield in The Simpsons Movie, that’s not going to happen. It’s hard to imagine anything that could cut off oil imports from everywhere, including Canada and Mexico (which, as we’ve seen, actually supply more oil to the United States than countries in the Middle East).

The worst that’s likely to happen would be a major oil-supplying country turning off the tap for one reason or another, such as Saudi Arabia (11 percent of U.S. imports) or Venezuela (10 percent). Worldwide, the International Energy Agency reports that government reserves and private industry stocks could cover 150 days of oil imports for the member countries: five months of supply.

1. U.S. Department of Energy, “Expanding the Nation’s Strategic Petroleum Reserve,” accessed March 29, 2009, http://www.fossil.energy.gov/programs/reserves/spr/expansion-eis.html.

2. Congress ended this practice in 2008. Congressional Research Service, “The Strategic Petroleum Reserve: History, Perspectives and Issues,” September 19, 2008, http://assets.opencrs.com/rpts/RL33341_20080919.pdf.

3. U.S. Department of Energy, “Releasing Crude Oil From the Strategic Petroleum Reserve,” accessed March 29, 2009, http://www.fe.doe.gov/programs/reserves/spr/spr-drawdown.html.