Department of Energy suspends SPR contributions

| 5/19/2008

Even though President Bush once vowed to veto any legislation that would stop additions to the Strategic Petroleum Reserve, Department of Energy officials announced Friday, May 16, a six-month suspension in contributions.

The announcement came only three days after both chambers of Congress overwhelmingly approved legislation calling for a ban on stockpiling more oil through the end of the year.

Those overwhelming votes reportedly played a big part in changing the president’s mind on a veto. Numerous media outlets reported that President Bush said he does not think freezing contributions to the SPR will impact fuel prices, but that he will not stand in the way of legislation passed by Congress.

Talk of suspending the sending of high-priced oil to the reserve heated up in late March and early April – months after President and CEO of the Owner-Operator Independent Drivers Association Jim Johnston sent a letter to President Bush calling for that very thing.

Johnston sent the letter to the president in late January. When Johnston sent the letter, oil was on an upward march to top $100 per barrel and diesel was averaging $3.25 per gallon – far less than the record high national average of $4.41 reported the day after Congress voted to cut off oil to the reserve.

Most of the oil that fills the SPR is not purchased outright. The U.S. government currently earns royalties from existing oil leases in the Gulf of Mexico and on other U.S. land. The royalties are taken by the federal government in oil for the SPR, instead of having the oil companies pay cash to the U.S. Treasury.

According to one report to Congress by energy specialist Robert Bamberger, acquiring oil for the reserve by RIK – or royalties in kind – “avoids the necessity for Congress to make outlays to finance direct purchase of oil; however, it also means a loss of revenues in so far as the royalties are paid in ‘wet barrels’ rather than in cash.”

The U.S. Department of Energy will not sign contracts this year for the receipt and transportation of up to 13 million barrels of crude oil to the strategic petroleum reserve sites, agency officials announced in a press release. The fill rate of approximately 76,000 barrels per day through the royalty-in-kind contract would have begun on July 1, with deliveries of crude oil beginning in August and continuing through December.

According to The Associated Press, the DOE also plans to defer deliveries under existing contracts once the legislation passed by Congress becomes law. The RIK program is managed by the Department of the Interior’s Minerals Management Services.

The SPR has a capacity of 727 million barrels and since the start of the Bush administration, the SPR’s inventory has increased in size from approximately 540 million barrels to its current inventory of 702.7 million barrels of oil stored in the underground salt caverns located along the Gulf Coast of Louisiana and Texas.