In the months preceding Operation Desert Storm in 1991 and less than a year after Saddam Hussein ordered the invasion of Kuwait, the world oil market was in jeopardy. With the Middle East responsible for nearly half the United States' imported crude oil at the time, a disruption in supplies was imminent. The country found itself in a similar situation in 2005 after Hurricane Katrina swept through the Gulf of Mexico and temporarily wiped out 25 percent of the nation's domestic production [source: DOE].
In both instances, though, the United States averted disaster by calling on its 727 million barrel secret weapon -- the Strategic Petroleum Reserve. Officially created in 1975 in response to the 1973-74 oil embargoes, the Strategic Petroleum Reserve is a federally controlled oil stockpile designed to reduce the country's vulnerability to interruptions in its oil supply.
The reserve works by maintaining a relatively stable level of crude oil, usually around 700 million barrels, and releasing that oil when conditions call for it. While Desert Storm and Hurricane Katrina are the only two events that have led to emergency drawdowns, the Energy Policy and Conservation Act (EPCA) outlines several instances when oil can be released:
- Full drawdown: like the emergency drawdowns, these types of drawdowns are ordered if the president determines there's a possibility of a shortage to the nation's energy supply that could cause negative impacts to the country's safety or economy.
- Limited drawdown: a step down from a full drawdown, these releases are done to prevent a situation from escalating into an emergency
- Non-emergency sales/test sales: these small releases are done to raise revenues or to practice the procedure of emptying and filling the reserve
- Exchanges: these oil trades are carried out to replace the reserve's oil with higher-quality oil or to assist petroleum companies that are experiencing delivery problems
To avoid overpaying for oil and adversely affecting the oil market, the reserve adopted official guidelines for acquisition procedures in 2006. These procedures direct the U.S. Department of Energy (DOE) to comprehensively survey the current oil environment to ensure it buys and sells oil at fair prices. Sometimes oil is bought outright from other countries. At other times the reserve acquires oil through royalty-in-kind transfers, which are transactions between the federal government and oil companies that lease land on the U.S. outer continental shelf. You may also hear people talk about oil deferrals, which are simply agreements by the DOE to delay scheduled shipments of oil due to tight markets or disruptions in the marketplace. Many times, deferrals enable the reserve to acquire oil at a cheaper price later on.
While the reserve can currently hold 727 million barrels of crude oil, in 2005, President George W. Bush directed that amount to be increased to 1 billion barrels; in early 2007 he decided to increase that even further to 1.5 billion barrels. So where does someone squirrel away that kind of crude? Keep reading to find out.
The Oil Reserve: A Salty Strategy
When you think about the Gulf of Mexico, you may or may not think of its beautiful sandy beaches and crystal clear waters. It's pretty much a given, though, that you don't associate it as the storage point for millions of barrels of crude oil. But since 1977, the U.S. Department of Energy (DOE) has acquired 62 massive salt caverns along the coasts of Louisiana and Texas for storing crude oil. Because of the 2005 expansion directive, the DOE is in the process of creating a reserve in Mississippi as well.
The salt caverns are created by drilling wells into massive salt domes and injecting them with freshwater to dissolve the salts. The dissolved salt is then pumped back out and either piped several miles offshore or reinjected into disposal wells. This process, called solution mining, creates caverns of very precise dimensions that can hold anywhere from 6 to 35 million barrels of oil. The average cavern can hold 10 million barrels of oil, and at 200 feet (61 meters) wide by 2,000 feet (610 meters) high, it's big enough to comfortably fit Chicago's Sears Tower inside [source: DOE].
While underground caverns may not seem like the best place to store an emergency oil supply, they're actually very secure. For one thing, since they're 2,000 to 4,000 feet (610 to 1,219 meters) underground, the extreme pressure prevents cracks from forming and leading to leaks [source: DOE]. Also, the natural temperature difference between the top and bottom of each cavern encourages the oil to circulate, which maintains its quality.
To retrieve oil from a cavern, all you have to do is pump water into its bottom. Since oil floats on water, the oil will simply rise to the surface. And because the Gulf of Mexico is close to much of the nation's oil transport network, the oil can be transferred quickly to interstate pipelines or loaded into ships or barges. At its present 727 million barrel capacity, a full reserve could fuel the United State's energy needs of 20.7 million barrels a day for about 35 days. Once the resource reaches the 1 billion barrel mark, that will extend to 48 days [source: EIA].
Although the United States' emergency supply of oil crude is the largest in the world, several other countries have their own version. The International Energy Agency is a coalition of 27 member countries formed to alleviate oil supply emergencies. Each member country agrees to maintain oil stocks equal to at least 90 days of its net oil imports to be released when necessary. To learn more about strategic petroleum reserves -- both in the U.S. and elsewhere -- visit the links on the next page.
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More Great Links
- International Energy Agency. "About the IEA." 2008. (July 30, 2008)http://www.iea.org/about/index.asp
- U.S. Department of Energy. "Petroleum Reserves." June 30, 2008. (July 30, 2008)http://www.fossil.energy.gov/programs/reserves/index.html#Strategic%20Petrole um%20Reserve