• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 2 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 7 hours Could Someone Give Me Insights on the Future of Renewable Energy?
  • 6 hours How Far Have We Really Gotten With Alternative Energy
  • 1 day "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
  • 1 day Bankruptcy in the Industry
  • 2 days The United States produced more crude oil than any nation, at any time.
Nigeria To Launch Crude Trading at its Commodity Exchange

Nigeria To Launch Crude Trading at its Commodity Exchange

Africa’s biggest oil producer, Nigeria,…

IEA Cuts 2024 Oil Demand Growth Forecast

IEA Cuts 2024 Oil Demand Growth Forecast

Global oil demand growth is…

Will Namibia Become OPEC’s Newest Member?

Will Namibia Become OPEC’s Newest Member?

Namibia wants to join OPEC…

Julianne Geiger

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

More Info

Premium Content

The SPR Could Stay Half Empty Forever

  • The U.S. SPR is currently at a multi-decade low.
  • Replenishing 300 million barrels at a cost of even $70 per barrel would cost $21 billion for the oil alone.
  • The United States needs the SPR as a safety net less than it did in the ‘70s. 
Pipeline

With the amount of crude oil in the U.S. Strategic Petroleum Reserve now at multi-decade lows, the prospect of replenishing the reserves could be an arduous task according to some, and a cinch to others.

The SPR isn’t empty, contrary to the hyperbolic headlines that have casually misrepresented the current state of the nation’s emergency oil stockpiles. But it is fair to say that the amount of crude oil in the emergency stockpiles is the lowest it’s been in decades and decades—since 1983 to be precise—and it could take decades to put it all back. 

Taken by itself without further context, the current inventory levels and the possibility that it might not be a simple task to purchase hundreds of millions of barrels of oil to replenish it has caused some consternation among those within the oil industry—and without. In fact, it has been especially irksome to many outside the oil industry, who are concerned that without a fully stocked SPR, America will soon be at the hands of some merciless Middle East oil-rich nation or global supply outage.

There are two pieces to this SPR puzzle. One, is it possible to refill the SPR in short order, and two, does the United States need such a fat SPR anyway. 

SPR Has a Refill Problem

Behind some of the SPR angst are difficulties that come with refilling the SPR with such a large amount of crude oil. Last year, the Biden Administration began the process of selling off 180 million barrels of crude oil that was housed in the salt caverns known as the SPR. Additional sales that were already mandated by Congress followed shortly thereafter, bringing the total number of barrels sold from the SPR since President Biden took office to 291 million barrels.  Related: Oil Steady As API Reports Small Draw In Crude Inventories

The problem with refilling the SPR to the tune of nearly 300 million barrels is multifaceted. 

First, oil prices are still a bit above the level that the Biden Administration said would trigger purchasing action. Most short term forecasts are calling for price hikes instead, so the likelihood of prices falling to those levels soon is not estimated to be a sure thing. 

Second, 300 million barrels at a cost of even $70 per barrel would cost $21 billion for the oil alone. Now, the Administration would argue that since it canceled congressionally mandated sales that had called for another 147 million barrels of crude oil to be sold from the SPR, it should be counted that it has already replaced 147 million barrels, leaving only 144 million left to purchase at a minimum cost of $10.8B with $70 oil.

What’s more, that cancellation resulted in Congress taking $12.5 billion away from the DoE that was to be used to repurchase crude oil, leaving it with just $4.3 billion of available cash to buy.

Nevertheless, the Administration is confident that it will refill the SPR, although the anticipated timing of the repurchases depend entirely on who in the Administration is doing the talking. 

Next up is the issue of infrastructure and feasibility of filling, withdrawing, refilling, etc. of the SPR. Those salt caverns are made of… well, salt, and according to SPR former project manager William Gibson, who spoke to Bloomberg, they were built—in the ‘70s—with the idea that they would last 25 years. They were also designed to be withdrawn and refilled just five times, lest the salt caverns simply dissolve. 

As one former official put it, the caverns were “not really intended for daily ATM-type operations.”

Any buyback program would have to be slow-rolled in order to prevent price spikes—the very thing that triggered SPR sales in the first place. In March, even Energy Secretary Jennifer Granholm said that any repurchase scheme would take years.

Does the U.S. Need it Anyway?

In the other camp are those who argue that the United States might not need this oil anyway. When the SPR was first conceived, the United States had just found itself in an energy crisis, with Middle Eastern oil producers withholding crude oil from the United States, which was itself producing 8.4 million barrels of oil per day, while importing 4.1 million bpd, according to EIA data. Total average U.S. net imports of crude oil and petroleum products was 6.2 million bpd. Having an SPR with a capacity to hold 714 million barrels seemed like a necessary piggy bank should supply shocks reemerge.

Fast forward to today, and the United States’ net imports are -1.3 million bpd, while producing over 12 million bpd. Some would argue that the SPR, while certainly still a handy safety feature for weathering supply shocks like natural disasters, has lost at least some of its climacteric properties.

Still, not all crude oil grades are equal. And while the United States is a net importer of petroleum products, the United States still imports 6.3 million barrels of crude oil every day, and global supply shocks still have the power to put the United States in a tough position, much like the squeeze consumers—and the Biden Administration—felt when demand rushed back quicker than supply post-Covid pandemic. 

Does this Administration Really Want It?

ADVERTISEMENT

Of course, it’s entirely possible that the Biden Administration is less eager to refill the stockpiles than its words would suggest. Last December, the Biden Administration announced plans to make its first repurchase, issuing a solicitation for 3 million barrels of sour crude. Contracts were due to be awarded in January 2023. WTI was trading at $74 at the time. The purchase was ultimately canceled, with the Administration saying that it did not get offers that met its terms for price or quality. The move triggered critics who claimed the Administration was not earnestly looking to replenish what it had sold off.

But in June of this year, the DoE announced that contracts were awarded for the acquisition of 3 million barrels of U.S.-produced crude for the SPR, while announced a solicitation to purchase another 3.1 million barrels in September. 

At the rate of 6-9 million barrels per year, however, it would take between 33 and 50 years to replenish the 300 million barrels sold. 

The United States needs the SPR as a safety net less than it did in the ‘70s. Crude oil prices might not be low enough ever again to entice the government to purchase. The salt caverns have a limited capacity to accommodate repeated inflows and outflows. Even if the government wishes to replenish in earnest, it will likely take decades to refill. All these factors point to the likelihood that the SPR will stay empty for decades to come, if not forever.

By Julianne Geiger for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on July 19 2023 said:
    The SPR will never ever be fully refilled for two major reasons.

    1- US shale oil is a spent force incapable of lifting production meaningfully to contribute to the refilling process.

    2- The global oil market is getting tighter with hardly any spare oil for sale let alone returning 300 million barrels to the SPR.

    Yet, keeping the SPR half empty is a big geopolitical risk for the United States at a time of rising tensions with Both China and Russia.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • Scott Wiggins on July 19 2023 said:
    What irks me the most about the SPR level is that when Trump was wanting to buy barrels of oil to add to the SPR when it could have been purchased at $24 per barrel. Schumer and his cohorts reason being Trump only wanted to do it "to benefit oil companies and make himself look good". I expect nothing less than such ignorance from Schumer considering his complete lack of common sense. Oil companies lost billions in 2020 yet $24 a barrel oil was going to bail them out? Not hardly.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News