DOE wants authority to use SPR sooner in an emergency, Smith says

The US Department of Energy will seek authority to act earlier in an emergency release of crude oil from the Strategic Petroleum Reserve as part of a comprehensive review of the 40-year-old system, said Christopher A. Smith, assistant US Energy secretary for fossil energy.

“We need authority to act preemptively so we move at the head of an event, not at the end,” he said in a keynote address to a May 6 discussion of the SPR’s future at the Center for Strategic & International Studies. “This is an important US insurance policy. We need a clearer view of how and when we would use this tool.”

Smith said the review is necessary for reasons beyond the US oil and gas supply outlook’s dramatic change to abundance from scarcity with hydraulic fracturing and horizontal drilling’s growing use in the last 10 years to reach previously inaccessible tight shale supplies.

“The world looks different now,” Smith said. “There’s a patchwork of commitments and fixes which have been added since [the Energy Policy and Conservation Act] established the reserve in 1975. We’re still focused on disruptions, but it’s a complicated issue.”

The review primarily will examine equipment, some of which hasn’t been updated since the 1990s; the storage caverns themselves, which naturally lose capacity over time and with operation; and pluses and minuses of stockpiling products over crude, Smith said.

It also will consider recommendations from DOE’s initial Quadrennial Energy Review, including investments to optimize the SPR’s emergency response capability, clarification of whether EPCA’s “severe energy supply disruption” should include global market disruptions, even when they do not restrict US imports; and continued consultation with allies and key energy trading partners on security issues, he said.

The discussion’s core

“We need a clearer view of how and when we would use this tool,” Smith said. “Just having these barrels in place enables us to send signals to protect our economy. How we would use it is the core of the discussion we’re having.”

The review also will try to position the SPR to address market vulnerabilities over the next 25 years, added Bob Corbin, a DOE deputy assistant secretary in its petroleum reserves office. This could include adding product reserves in Petroleum Administration for Defense District 5 (California, Oregon, Washington, Nevada, Alaska, and Hawaii), and reexamining a 2012 study of stockpiling products in southeastern states, he said during a panel discussion following Smith’s remarks.

“Something severe has to have happened for emergency authority to be exercised,” Corbin said. Options include crude and product exchanges following Gulf of Mexico hurricanes and other emergencies, he said.

A second panelist, Martin Young, who heads emergency policy at the International Energy Agency in Paris, said clear links to physical disruptions over long periods are the standard approach for IEA members with strategic reserves. “Clearly, the stocks are there to discourage the use of oil supplies as a weapon not just for the US, but for all our member countries,” he said.

A mismatch of the SPR’s light crudes with the country’s Gulf and West Coast refineries, which are configured to process heavier grades, needs to be addressed, suggested EnSys Energy Founder and Pres. Martin Tallett. “If a big disruption starts on the West Coast, it could take 6 weeks to get crude oil there, reinforcing the argument for product reserves there,” he said.

But ClearView Energy Partners Managing Director Kevin Book said that a provision in the 2014 appropriations continuing resolution stated that no new product reserves would be created without congressional authorization. “They’re more regional in nature, and look more vulnerable to local political pressures,” he said. “We have yet to have a robust product reserves debate, but it’s coming.”

Contact Nick Snow at nicks@pennwell.com.

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