How the U.S. Strategic Petroleum Reserve Works: QuickTake

(Bloomberg) -- As U.S. president, Joe Biden has a rarely used but potentially powerful tool to make up for energy supply shortages or economically damaging price spikes: the Strategic Petroleum Reserve, or SPR. Set up in the aftermath of the Arab oil embargo in the 1970s as a national energy safety net, it's the world's largest supply of emergency crude, stored in deep and heavily guarded underground salt caverns along the U.S. Gulf Coast. The Biden administration is weighing a plan to release a million barrels a day for several months -- as much as 180 million barrels total, which would be by far the largest SPR release ever -- to combat high gasoline prices following Russia's invasion of Ukraine, according to people familiar with the matter.

1. How much oil is in reserve?

The reserve stood at 568 million barrels as of March 25. That's about 80% of its maximum authorized storage capacity of 714 million barrels and enough to replace almost half a year's worth of U.S. crude net imports. 

2. In what circumstances can presidents release stockpiled oil?

It's pretty much the president's prerogative. But the 1975 law that established the reserve says a president can order a full drawdown in the event of a “severe energy supply interruption” that threatens national security or the economy. A limited drawdown (up to 30 million barrels) can be ordered in the event of “a domestic or international energy supply shortage of significant scope or duration.”

3. How have presidents tapped the reserve?

Beyond ad hoc responses to localized oil disruptions, the U.S. has tapped its oil reserve only a handful of times. Biden did so late in 2021, authorizing the release of 50 million barrels as part of a coordinated multi-nation bid to lower surging fuel costs. In 2011, President Barack Obama released 30 million barrels as part of a joint effort with other nations to counter supply disruptions from Libya. In 2005, President George W. Bush released 11 million barrels in the wake of Hurricane Katrina. And in 1991, under President George H.W. Bush, 17 million barrels were released during the first Gulf War. In 2017, the Energy Department authorized the release of 5 million barrels to Gulf Coast refineries when Hurricane Harvey wreaked havoc on the region. Such arrangements are designed to address short-term emergency needs, and the crude is repaid, in kind, at a future date. Test releases take place from time to time, as well as limited releases in the form of swaps.

4. What does a release entail?

The maximum drawdown capability is 4.4 million barrels a day, according to the Energy Department's website, and it takes 13 days for SPR oil to reach the open market after a presidential decision. But the mere announcement that the SPR is being deployed could have an immediate, if short-lived, effect on oil prices.

5. Which other countries have reserves?

China, India, Japan and South Korea are among Asia's major stockpilers of oil. Member states of the European Union held a combined 112.5 million tonnes (825 million barrels) of emergency oil stocks as of June 2021, according to Eurostat, the EU's statistical office. 

6. What's the outlook for the U.S. stockpile?

The domestic shale boom has allowed the U.S. to join the ranks of the world's biggest oil producers, lending weight to arguments that the emergency reserve is past its sell-by date. But U.S. crude production has only grown modestly in recent months, despite a big rally in prices, while demand has increased and imports have been trending upward. In the past the reserve has been used to pay government bills ranging from roads to deficit reduction and drugs, and current plans are for the stockpile to be cut almost in half over several years. But periodic use of the reserve after natural disasters may be the most effective rebuttal to the case for doing away with it.

The Reference Shelf

• The Department of Energy's SPR website.
• More on the possibility of tapping the SPR in response to Russia's invasion of Ukraine.
• A look back at the release of oil from the SPR in 1991 at the start of Operation Desert Storm.

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