I thank the gentleman from Georgia. I will just make a couple of points in response to my colleague from Texas (Mr. Barton). One, I look forward to working with the gentleman in modernizing and working to overhaul the SPR. It is certainly…
I thank the gentleman from Georgia.
I will just make a couple of points in response to my colleague from Texas (Mr. Barton). One, I look forward to working with the gentleman in modernizing and working to overhaul the SPR. It is certainly in need of improved management. And I might also mention that a version of this bill was introduced back in May. And we also have been working on it to make it as bipartisan a bill as we could possibly make it since November. So there has been a great deal of effort to try to make sure that we've heard everyone's concerns and to try to address them.
And one of the points that the gentleman made about imports and where our heavy oil would come from to replace this, we purchase 14 percent, or 70,000 barrels, from Canada per month. Also the Gulf of Mexico has a significant amount of heavy crude that we also would be purchasing to put into the Strategic Petroleum Reserve.
And I might make the point that the refineries have made significant and actually great advances in technology. And they refine heavy crude just as easily as they refine light crude today.
So, Mr. Speaker, today we consider this legislation that I believe is an important step for our Nation's future energy security. It will make the Strategic Petroleum Reserve more compatible with modern U.S. refineries and thus more effective. Improving the SPR's flexibility will maximize its utility. Shoring up our Nation's energy reserves is just one piece of this energy supply puzzle which also includes increased domestic drilling in the Outer Continental Shelf as well as research and development for alternatives.
I would like to address national security concerns that have been mentioned. The day that we went to war with Iraq, the SPR contained only 624 million barrels of oil. Today we have more oil in the SPR than we have ever had. And this bill ensures levels will not fall below 90 percent of the current level. In 2006, President Bush declared the SPR is sufficiently large to guard against any major supply disruption with only 688 million barrels. Today it's more than 700 million barrels. Most
importantly, this change will strengthen the SPR and enable refiners to operate at full capacity during any potential supply disruption.
When Congress created the Strategic Petroleum Reserve in 1975 following the Arab oil embargo to protect the Nation from any future oil supply disruptions, refiners largely processed only light and medium crude. Advances in technology over the years have led to the ability to efficiently process heavy oil as it has become a larger part of the market. In fact, 40 percent of the oil accepted last year by refiners was heavier than the oil contained in the Strategic Petroleum Reserve. With refiners planning to expand by 800,000 barrels worth of mostly heavy oil capacity in just the next few years, I believe it is incumbent upon us to ensure that the Nation's oil reserves match refining capacity.
The GAO stated if forced to rely on SPR oil, about half of the refiners subject to potential supply disruptions would experience an additional 5 percent or 735,000 barrels a day reduction in production, further exacerbating any supply issues. This exchange will ensure that the SPR will provide maximum protection for the Nation's energy supplies.
This will further strengthen our energy supply against potential disruptions because the exchange will raise funds that will be deposited in the SPR account that will allow the SPR to increase the total inventory level without the need for additional appropriations, further strengthening our energy supply against potential disruptions.
Thank you, Mr. Barrow, for yielding me the time.
You know, advances in technology over the years have led to the ability to efficiently process heavy oil as it has become a larger part of the market. In fact, 40 percent of oil accepted last year by refineries was heavier than the oil contained in the Strategic Petroleum Reserve. That's a critical point in my opinion.
Earlier we put into the Record the GAO report, and I would like to submit for the Record the report that was mentioned within the GAO report that came from the Department of Energy and read just one paragraph from it:
``To address the compatibility issues of the 11 heavy crude refiners and provide full protection for the Nation for all disruption scenarios, the SPR would need for approximately 10 percent of its inventory to be heavy oil. With consideration being given to a larger Reserve and additional storage sites, it may be desirable, and physically viable to store lower gravity crude than what is currently stored in the 700 million barrel Reserve.''
The GAO stated that the Department of Energy may have underestimated this amount in recent testimony. All the more reason why we should be looking at how we can find a solution to this problem, use an opportunity that is available to us.
That's exactly what I started out to do in November. When I approached many of my colleagues at this House, this is something that we should not be down here using partisan rhetoric over, pointing the finger at one side not doing something the other side should be doing. We understand this is a small part of the problem that we're going to be facing. It is only one thing that needs to be addressed. But it is one part, and it can make a difference.
And who cares if it's 1 percent or 3 percent or 5 percent or 10 percent? If the American people see the people from this House trying to do something that will make a difference in their lives, help with the pain at the pump, isn't it worth the effort? That's what we set out to do. That's all we set out to do. And there is no reason in the world why this legislation should not be made law of the land.
Executive Summary
Over the past two decades, many refiners in the United
States (U.S.) have expanded and ramped their refineries to
process higher sulfur, lower gravity crudes to increase their
refining economics and profitability. As a result, overall
U.S. crude oil imports have been consistently moving from the
higher quality crudes toward the lower quality crudes.
The Strategic Petroleum Reserve (SPR) inventory consists of
high quality oils that have been previously determined to be
the best crudes to address oil supply disruptions. However,
the industry's trend toward the use of lower quality crudes
has raised the question about how well the current SPR crude
inventory can meet refiner needs.
This study provides a comprehensive assessment of the
compatibility of the crudes stored in the SPR with respect to
U.S. refining capabilities and likely disruption demands.
Specifically, the study addresses SPR crude compatibility
from two aspects (1) the compatibility and physical
limitations of U.S. refiners to substitute and refine SPR
crude in place of their usual foreign crude supplies, and (2)
the capability of the SPR to meet the Nation's refinery needs
in the event of potential supply disruptions.
a. spr inventory
As of December 31, 2004, the SPR had a total inventory of
681 million barrels (MMBbls) in storage at its four
underground storage sites along the Texas and Louisiana Gulf
Coast.
The SPR storage sites maintain only two crude type
segregations. One is a sweet crude having a sulfur content of
less than 0.5 percent and an API gravity ranging between
35 deg. and 37 deg., and the other is a sour crude having a
sulfur content of approximately 1.4 percent and an API
gravity ranging between 30 deg. and 34 deg.. The SPR's mix of
sweet and sour crudes is roughly 45 percent sweet and 55
percent sour.
compatibility with u.s. refiner processing capabilities
In 2004, the U.S. had 149 operating refineries which
processed an average of 15.3 million barrels of crude oil per
day (MMBbl/D). Of this total, 7.0 MMBbl/D came from U.S.
domestic oilfields or Canada, and are considered secure crude
supplies. The remainder, 8.3 MMBbl/D, was foreign imports
(exclusive of Canadian), for which SPR crude would be
considered a replacement in the event of an import
disruption.
A two step approach was used to evaluate the compatibility
of each of the 149 refineries with respect to SPR crudes. A
screening analysis was then used to classify refiners as (a)
not SPR connected, (b) domestic/Canadian only, (c) fully SPR
compatible, (d) high SPR compatibility, or (e) low SPR
compatibility. An engineering analysis was then used to
determine the maximum volume of SPR crude the refinery can
process and the extent the refinery will be forced to reduce
refinery runs.
In 2005, of the Nation's 149 refineries, 44 refineries were
identified as having compatibility issues with using SPR
crudes. Thirty three of these refineries were classed as
``high compatibility'', where the use of SPR crude would not
substantially impact their refining operations. Eleven of
the refineries were classed as ``low compatibility,''
where the capability to substitute SPR crude for heavy oil
imports was limited. These 11 refineries are all located
in PADD III on the Gulf Coast and predominantly import
crude from Mexico and Venezuela. If all of this oil were
disrupted, these 11 refineries would need to reduce U.S.
refining runs by approxImately 508 MBbl/D (3.3 percent of
U.S. refining). Gasoline production would not be affected,
but the production of distillate fuels (jet and diesel)
would be reduced.
c. compatibility with u.s. needs in a disruption
From a world oil market perspective, the study evaluates
the compatibility of SPR crudes with respect to U.S. crude
shortages resulting from five major supply disruptions which
have the potential of occurring within the next 10 years. The
disruption scenarios were: a Persian Gulf oil disruption, a
Saudi Arabia oil disruption, a Nigerian oil disruption, a
Venezuela oil disruption, and a hurricane disruption of the
domestic Gulf of Mexico oil production.
The results show that the SPR crudes are fully capable of
satisfying U.S. refiner demands under four of the five
disruption scenarios. The only disruption case where the SPR
was not fully capable of mitigating the crude loss due to
incompatibility issues was the Venezuela oil disruption. Even
in this case, the SPR sour crude is effective as a blending
stock and will reduce the potential shortfall of U.S. heavy
oil runs from 2,200 MBbl/D to 450 MBbl/D.
The reduced refiner run of 450 MBbl/D will not impact the
production of motor gasoline in the United States, but it
will reduce the production of jet fuel, diesel fuel,
kerosene, residual fuels, and other heavier refined products.
d. conclusions
In general, the crudes currently stored in the SPR are
compatible and desirable for the majority of the U.S.
refineries and are well suited to mitigate most supply
disruptions. There are, however, eleven PADD III refineries
which have been specifically configured for processing heavy
crude largely from Latin America that would be impacted in
the event of a disruption of foreign crude supplies. However,
they would still be able to process a limited quantity of SPR
crude and maintain their full production of gasoline.
To address the compatibility issues of the eleven heavy
crude refiners and provide full protection for the Nation for
all disruption scenarios, the SPR would need for
approximately 10 percent of its inventory to be heavy oil.
With consideration being given to a larger Reserve and
additional storage sites, it may be desirable, and physically
viable to store lower gravity crude than what is currently
stored in the 700 million barrel Reserve.
GAO stated DOE may have underestimated this amount in
recent testimony.
I. Introduction
The Strategic Petroleum Reserve (SPR) is the largest
government owned stockpile of crude oil in the world. Since
the SPR was authorized in 1975, the reserve has grown to 681
million barrels (MMBbls) by the end of 2004.
The crude is stored in salt caverns at four storage sites
along the Louisiana and Texas Gulf Coast. The sites are known
as West Hackberry, Bryan Mound, Big Hill, and Bayou Choctaw.
The SPR is connected to U.S. refineries by pipeline and by
waterway. Refineries along the Gulf of Mexico are connected
to the SPR by local pipelines. Refineries in Chicago and
other mid-continent areas are connected to the SPR by
interstate pipelines. Refineries along the Atlantic Coast and
West Coast can be supplied with SPR oil using tankers that
load oil through Gulf of Mexico marine terminals. The SPR
distribution system has been carefully developed to serve the
needs of the Nation in the event of a foreign crude oil
supply disruption.
Crude has been acquired from 25 countries over the past 30
years. The quality of the stored oil is classified as light.
This crude quality has been and it remains adequate to
support most foreseeable supply disruptions. In recent years,
however, refineries in the
U.S. have imported increasing quantities of heavy crude
largely from Venezuela and Mexico. The trend toward heavier
oil imports raises a question about how well the current
light oil in storage will mitigate future heavy oil supply
disruptions.
This study was undertaken to assess the compatibility of
SPR crude with respect to the current and future crude
requirements of U.S. refineries. The objective of the study
is two-fold:
Assess the capabilities and physical limitations of U.S.
refineries to substitute and refine SPR crude in place of
foreign crude supplies, and
Assess the capability of the SPR to meet U.S. refinery
needs in the event of a supply disruption.
To accomplish these objectives, a methodology was developed
to identify U.S. refineries with crude compatibility issues.
Refinery data were systematically evaluated to determine the
refineries that could not fully use SPR crude because of
crude quality differences. These refineries would need to
reduce crude input into the refinery and this would reduce
the amount of jet fuel and diesel fuel that would be
available during the disruption.
The compatibility assessment results were incorporated
mathematically into models that simulate the world petroleum
market. Five disruption scenarios were identified as having a
high probability of occurring at least once over the next
decade. The scenarios were selected to evaluate the
SPR response capabilities in both volume and in the
capability to provide compatible crude.
Chapter II summarizes key information about the volume and
quality of oil currently stored by the SPR and how that oil
compares with the oil currently imported by U.S. refiners.
Limits on the capability to substitute SPR crude in an
emergency are addressed.
Chapter III is a comprehensive assessment of the
compatibility of SPR crude with U.S. refineries. The
assessment addresses the physical limitations of the
refineries, the maximum volume of SPR crude that could be
utilized, and the extent the refineries would need to reduce
runs due to compatibility issues.
Chapter IV summarizes the results of five disruption
scenarios. The capability of the SPR to meet refinery demands
under emergency conditions is presented and discussed.
Chapter V addresses the issue of future storage of heavy
oil and the need and rationale to provide a heavy oil
component to meet a future heavy oil disruption.
Chapter VI presents the overall conclusions and
recommendations from the study.
Appendix A contains the analysis results for each of the
149 refineries in the U.S. that processed oil in 2004. The
compatibility of each refinery is presented and the
individual results summarized by region.
Appendix B discusses the two models used in the disruption
analysis. One model establishes the optimal drawdown from the
SPR in response to a supply disruption. The second simulates
the world petroleum market and estimates the impact of the
disruption on the flow of petroleum around the world.
Appendix C is a world map that displays the impact of each
supply disruption on the worldwide flow of petroleum. Data
that support the analysis are also presented.