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US Advances Oil Reserve Revamp Plan, Potential Crude Sale

  • Reuters

An oil storage tank and crude oil pipeline equipment is seen during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S., June 9, 2016.

An oil storage tank and crude oil pipeline equipment is seen during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S., June 9, 2016.

The Obama administration has sent Congress a plan to modernize the country's emergency oil reserve, a step that could set in motion a sale of about 8 million barrels from the stash later this year to help pay for the revamp, the Energy Department said on Wednesday.

Under the $1.5-$2 billion revamp plan, three dedicated marine terminals would be added to the Strategic Petroleum (SPR), a string of 60 heavily-guarded underground caverns on the Texas and Louisiana coasts.

Also, aging equipment for oil processing, firefighting and security would be fixed or replaced at the SPR, which was last updated in the late 1990s.

"This equipment today is near, at, or beyond the end of its design life," the plan said.

Congress created the SPR in 1975, after the Arab oil embargo spiked oil prices and spurred shortage panics. It now holds 695 million barrels of crude, the amount the country burns in about five weeks. It is the world's largest government-owned emergency oil reserve.

Besides equipment corrosion from salt air breezes and heavy downpours, this decade's U.S. oil boom has also been hard on the ability of the reserve to speed oil to markets in the event of a disruption. Production hikes in Texas and the central United States have congested pipeline systems, making it difficult for the SPR to release crude without shutting in domestic output.

If left unaddressed, the problems could hurt the country's ability to quickly meet international obligations to ship oil in the event of a major global supply crisis, according to the Energy Department review.

Congress would need to approve a series of oil sales worth $2 billion from fiscal 2017 to 2020 to pay for the modernization. Those would be in addition to the 124 million barrels in SPR sales from 2018 to 2025 Congress recently
authorized to pay for highway projects and balance the budget.

The Obama administration is eager to start fixing the reserve after a roof collapsed at a tank in 2015 and a water pipe burst this year. In April, President Barack Obama requested from Congress $375 million in sales, more than 8 million barrels at current prices, in fiscal 2017 to pay for the modernization.

Congress could approve that initial sale in a spending or energy bill later this year. Senator Lisa Murkowski, a Republican and the head of the energy committee, has said she wants to see the plan before supporting any sales.

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