Congress Mulls Opening Salt Caverns Where Strategic Oil Reserves Are Stored To Private Companies, Foreign Governments

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Michael Bastasch Contributor
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Congress is debating a major question in the era of booming U.S. oil production: what will we do with the Strategic Petroleum Reserve (SPR) as hundreds of millions of barrels are sold off?

A House Committee on Energy and Commerce held a hearing on draft legislation to lease empty portions of the SPR to private oil companies as more space opens up. GOP Rep. Joe Barton of Texas and Democratic Rep. Bobby Rush of Illinois cosponsored the bill.

During Tuesday’s hearing, lawmakers asked energy experts the merits of opening up the SPR to private companies and foreign governments who want to store oil in the salt caverns along the Gulf Coast.

“If we’re a net exporter does that even lend to the question of if we need a SPR?” Illinois Republican Rep. John Shimkus asked a top Department of Energy official during Tuesday’s hearing.

Assistant Secretary Steven Winberg did not weigh in on the bipartisan legislation, but he did say the Energy Department was studying the matter.

“Further, it is important for both Congress and the Department to consider the economic impact of using government facilities to compete on the private market with both existing and planned petroleum storage along the Gulf Coast,” Winberg said in prepared testimony.

The SPR was created in the wake of the Arab oil embargo in the 1970s with the goal of being able to supply the U.S. in emergency situations, like another embargo or natural disasters. The SPR has also been used in conjunction with other International Energy Agency (IEA) members to alleviate global supply concerns.

But now the political landscape has changed. The U.S. produced a record 11 million barrels per day in mid-July, and American crude is increasingly being shipped overseas. (RELATED: Dems Threaten Trump In All-Caps Over National Monuments)

U.S. oil abundance from hydraulic fracturing has encouraged Congress to tap the SPR to fund government spending. Six laws passed since 2015 call for the sale of about 290 million barrels of oil through 2027.

The SPR will go from holding 695 million barrels of oil today to 410 million barrels in 2027. At full capacity, the SPR can hold 727 million barrels of oil.

Lawmakers want to see what other ways the SPR could generate revenues as its stock of oil is drawn down.

Witnesses at the hearing noted major changes would be needed to make the SPR ready for commercial operations.

A major problem to opening the SPR up to commercial interests would be maintaining the integrity of the salt caverns where the oil sits. The caverns were designed for long-term storage and would require saturated brine water for short-term storage.

“SPR storage caverns were designed for infrequent use — five complete drawdowns of stored crude oil, or five cycles of water injection,” Daniel Evans, a project manager at Fluor Federal Petroleum Operations, told Congress on Wednesday, according to his prepared testimony.

“Absent significant infrastructure improvements, the caverns’ operable lifetime can be quickly depleted through more frequent use,” Evans said.

Fluor Federal Petroleum Operations was specifically set up to manage the SPR. Evans said “these volumes of brine cannot be sourced without significant investment.”

Winberg also said getting enough brine water could be expensive, but the Energy Department had not put together figures on that as of yet. Winberg said the department is “supportive of maximizing the value of this taxpayer-funded asset.”

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