CERAWeek: The Strategic Petroleum Reserve needs a makeover

 

 

 

 
 

 

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Asad Zaidi / Bloomberg
 
PAKISTAN OGDC
The top 10 countries have 345 billion barrels of technically recoverable shale oil resources combined.

 

HOUSTON — The strategic petroleum reserve may be due for an update, a panel of midstream experts told IHS Energy CERAWeek attendees Tuesday afternoon.

The massive stockpile of crude oil — now holding just under 700 million barrels — was created in the 1970s to help buffer the U.S. from the effects of a sudden supply shortage.

But since the 1970s, the biggest risks to the oil markets have begun to shift away from the types of supply disruptions the SPR was intended to combat, said Sarah Ladislaw, an energy director at the the Center for Strategic and International Studies, a Washington, D.C. think tank.

Currently, cheap crude has driven U.S. commercial stockpiles of oil to a modern-era high of more than 483 million barrels of oil. Global inventories have surged as well.

Instead, Ladislaw said, the biggest vulnerabilities may be infrastructure related. Ladislaw pointed to the Northern U.S. energy shortages that arose during the winter of 2013-4, where infrastructure constraints drove up prices despite a nationwide glut of natural gas.

“Everyone was talking about the abundance of gas that we had,” she said. “What they figured out what was that the delivery system was the problem.”

The SPR itself may face some of the same infrastructure challenges, she said. The recent boom in shale has led many pipeline companies to undertake a 180 degree shift in how oil moves around the United States. The changes could make it much harder to supply the U.S. with the reserve, Ladislaw said.

“The SPR does not work the way it was intended to if the pipelines surrounding it are already full of [petroleum] products and running in the other direction,” she said.

Fellow panelist James May, the Chief Financial Officer of crude and oil products storage company International-Matex Tank Terminals, described a situation he faced after Hurricane Sandy struck the East Coast in 2012.

Shipping routes were closed and the electric pumps serving his company’s tanks were out, May said. “It wasn’t an issue of having product at the terminal, it was an issue of how do you get it out of the terminal.”

While any changes to the SPR wouldn’t be made in the near future, Ladislaw said, lawmakers may want to eventually broaden how they think about energy security.

Potential objectives could include building stores of refined products or investing in a way to ensure oil from the reserve can reach tanker ships, she said.