This summer, U.S. gas prices have settled into the $3.50 to $4.00 range and we are feeling the pinch. The average American now spends 9% of their income on gas – with Mississippians topping the scale at over 14%. But, despite these high gas prices, there is significant opposition to releasing oil from the nation’s Strategic Petroleum Reserve (SPR), with arguments that there is already enough oil in the market and the tradeoffs are just too high. Apparently, the Obama Administration does not agree.

Next month, 30 million barrels of oil will be delivered from the nation’s Strategic Petroleum Reserve (SPR) to the highest bidders from last month’s online sale. According to President Obama, these barrels will be matched by other industrialized nations in an international effort to drop high crude oil prices and offset production losses stemming from unrest in Libya, which will – hopefully – help revive stagnant economies around the globe and drop prices at the pump.

In a scathing article written by Republican Senator John Barrasso (published by Fox News), the Senator declared that releasing oil from the nation’s SPR demonstrated a lack of understanding on the Administration’s side regarding both the role of the SPR and the impact of this release on the nation’s “energy woes.”

Looking at the numbers, and the technical constraints of the U.S. Strategic Petroleum Reserve, Senator Barrasso might have a point.

The U.S. Strategic Petroleum Reserve (SPR) is a supply of crude oil maintained by the Department of Energy in order to avert economic shutdown in emergency situations that threaten the nation’s access to oil. Consisting of a series of 62 underground caverns (within salt deposits) along the Gulf Coast, the U.S. SPR currently holds more than 700 million barrels of oil.

Each individual cavern holds between 6 and 35 million barrels of oil – with an average cavern holding about 10 million barrels, or the equivalent of 5 average oil tankers1. Because of the temperature difference between the top and bottom portions of these caverns, the oil stored in them is constantly circulated (thanks to thermal convection), helping to maintain the quality of the oil and increasing the amount of time that it can be stored.

In order to extract oil from these storage sites, large amounts of fresh water are pumped into the caverns. The oil floats to the top of the water, where it is then pumped out and transported (by either pipeline, ships or barges) to nearby refineries.

The composition of these caverns (salt) combined with the extraction method (water) mean that each cavern can only withstand 4-6 oil releases (“drawdowns”) before the structural integrity of the cavern is compromised. At this point, new caverns must be constructed to maintain storage capacity at a cost of approximately $3.35 for every barrel of oil storage capacity.

If these caverns are not replaced, losses (in storage capacity and oil) and related negative environmental consequences could occur. Earlier this year, these potential problems were seen at the Strategic Petroleum Reserve’s Bayou Choctaw Cavern 20 near Baton Rouge, Louisiana. Here, a cavern filled with oil had only a 60-foot salt barrier between this crude and the edge of the cavern (federal requirements specify a minimum 300-foot barrier). According to government geologists and Energy Secretary Steven Chu, these thin walls have reduced the storage capacity of this cavern by 50% and increased the risk of losing oil due to leaks through the caverns walls.

At the current consumption rate of about 20 million barrels per day, the U.S. SPR and its 700+ million barrels of oil could supply the country’s fuel needs for just over a month without conservation efforts or restrictions.

Put another way, the President’s authorization to release 30 million barrels represents a 4% decrease in our nation’s emergency oil supply, or the equivalent of 36 hours of the country’s oil demand at a cost of $16.9 million2.

But, at a sales price of more than $100 per barrel, the oil sold by the Department of Energy will bring in over $3 billion, paid for by the highest bidders from last month’s auction, including ExxonMobil, ConocoPhillips and J.P. Morgan. In the midst of U.S. budget woes, this is certainly appealing. But – it is a poor argument for using supplies that are meant to protect the nation in emergency situations.

Given the limitations on the number of times that oil can be safely released and stored in each of the caverns in the U.S. Strategic Petroleum Reserve, it appears unwise to withdraw oil from these reserves without cause. In the case of next month’s release, we could benefit from the words of Fleetwood Mac by making sure that we “don’t stop, thinking about tomorrow” and instead keep our reserves on hand for a real emergency [1].

[1] “Don’t Stop” - written by Christine McVie and released by Fleetwood Mac in their album “Rumours” in 1977.

Explanation of Calculations Used:

  1. Given that an average tanker holds ~2 million barrels of oil, the 10 million barrels held by the average cavern is the equivalent of 5 tankers.
  2. Cost of 30 million barrel drawdown = [cost per barrel stored]x(1/(number of drawdowns per cavern]x[total barrels released] = [$3.37/barrel]x[1/6]x[30 million barrels] = $16.9 million

Picture Credit:

  1. Photo of Chevron gas station sign in Mississippi © Copyright shockingbird and licensed for reuse under this Creative Commons Licence
  2. Technician inspecting SPR crude oil transfer pipeline. Photo provided by the U.S. Department of Energy
  3. U.S. SPR Sites. Photo provided by the U.S. Department of Energy.
  4. Graphic of oil tanker versus Strategic Petroleum Reserve salt cavern capacity created by the author (Melissa C. Lott)