Thursday, January 8, 2015

Energy Secretary: Strategic Petroleum Reserve needs ‘modernization’

WASHINGTON — Rapid changes in the location and type of oil production inside the United States require a “modernization” in the way the country stockpiles crude for emergencies, Energy Secretary Ernest Moniz said Wednesday.

More specific recommendations about the Strategic Petroleum Reserve — 691 million barrels of oil stashed in underground salt caverns in Louisiana and Texas — will come when the Obama administration releases the first phase of its quadrennial energy review later this month, Moniz said during a presentation at The Woodrow Wilson International Center for Scholars. That broad multi-year analysis will focus first on energy infrastructure and is meant to provide a road map for federal energy policy, executive actions and government-sponsored research programs.

Moniz suggested that the current approach to the strategic petroleum reserve — established in 1975 in the wake of the OPEC oil embargo — doesn’t mesh with today’s booming domestic production, and the surge in light, sweet crude being pulled out of wells in North Dakota, West Texas and other parts of the country.

“Our petroleum reserve really needs modernization, certainly in a variety of physical elements and partly because of the changed production profile in the United States,” Moniz said. “The different geography of producing oil and gas has led to a number of distribution issues that we partially uncovered by doing a test sale from the petroleum reserve (last) year.”

As part of the quadrennial energy review, Moniz said the administration will be laying out plans for addressing the reserve and its “distributional capabilities.”

Some policymakers have already suggested that it’s time to shrink the size of the Strategic Petroleum Reserve to better match United States’ lower demand for imported oil. Net oil imports — imports minus exports — have declined from a peak of 60 percent of consumption in 2005 to about 30 percent in the first half of 2014, according to a report from the Government Accountability Office.
The United States is obligated to maintain a reserve of crude oil or production products equivalent to at least 90 days worth of net imports, as part of the country’s membership in the International Energy Agency. The United States is well above that threshold now.

One benefit of the current location is its proximity to the heart of the nation’s refining capacity, with facilities all along the Gulf Coast.

But the makeup of the emergency crude stockpile may not be a perfect match with the U.S. refinery system, since some domestic refineries process heavier crudes than those stored in the reserve.

The Government Accountability Office warned in 2006 that in an emergency, refineries configured to use heavy crude would not be able to efficiently the oil stashed away in the Strategic Petroleum Reserve and would likely pare production of some petroleum products. That could spur increases in prices for heavy crude products, blunting the ability of the U.S. to use the reserve as a weapon against economic damage amid disrupted oil supplies.

But the Energy Department previously has said storing heavy crude in the reserve would curb the ability of the reserve to be used in response to a disruption in lighter oils.

Storing more heavy crude also would require infrastructure improvements, including upgrades to a tanker delivery location known as the Sun Terminal and an additional pipeline from one of the four reserve storage sites.

In response to a Government Accountability Office probe last year, the Energy Department said it was reviewing the optimal configuration and capabilities of the petroleum reserve, as well as what is required to maintain its long-term sustainability.

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