What Are the Global Strategic Petroleum Reserves (GSPRs)?
The global strategic petroleum reserves (GSPR) are stockpiles of crude oil maintained by nations and by private industries as a hedge against potential future energy crises. The U.S. government has tapped its own Strategic petroleum reserve after a number of disasters that threatened to disrupt the flow of oil to industry and consumers.
Understanding the Global Strategic Petroleum Reserves
Global strategic petroleum reserves are maintained as a defense against any event that severely decreases or disrupts future oil production. These can include any physical or economic actions that disrupt any part of the production process, from exploration and development through refining.
Strategic reserves do not get counted among a nation's or company's proven oil reserves. In the oil business, proven oil reserves are an estimate of the amount of crude oil that is available for extraction. By definition, this oil is available for production, unlike proven oil reserves.
The interconnected nature of the global oil markets makes a disruption in any given area likely to affect prices across boundaries. In the event of a major disruption due to political upheaval or natural disaster, countries holding reserves could increase the available supply of oil by releasing some portion of their reserves. That replaces the lost supply and moderates any sudden price surge.
An agreement among members of the International Energy Agency (IEA) requires that any country which does not export more reserves than it imports must maintain reserves equivalent to its average 90-day crude oil imports for the previous year.
Example of Global Strategic Petroleum Reserves
The United States maintains a strategic petroleum reserve in a complex of caves located along the Gulf Coast. At its maximum level, the U.S. reserve held 726.6 million barrels of oil.
Created in response to the oil crisis caused by the Arab Oil Embargo of 1973, the site received its first shipment of oil in 1977.
The U.S. reserve has been tapped after a couple of natural disasters. Two hurricanes in the Gulf of Mexico, Hurricane Katrina in 2005 and Hurricane Gustav in 2008, disrupted production in the region. Both times, releases from the reserves were ordered to avert the prospect of shortages and price swings.
The U.S. Department of Energy (DOE), which oversees the reserve, replenishes the supplies over time following a release. It took three years, from the fall of 2005 through April 2008, to replace the 20.8 million barrels released in response to Hurricane Katrina.
Releasing Reserves From the Global Strategic Petroleum Reserves
Releases from the strategic petroleum reserves generally take the form of either loans or outright sales of oil.
In a loan or exchange, the reserve hands over an amount of oil to a commercial supplier. The supplier must repay the oil they receive and add additional premium barrels as a form of interest on the loan. In order to qualify for an exchange, the disruption must be outside a supplier's control and the release of oil must serve the public interest.
The DOE also may release crude oil by selling it directly to commercial suppliers via an online competitive bidding process.
The oil reserve may be topped off with new purchases during times when prices are unusually low. In March 2020, then-President Donald Trump ordered government energy officials to purchase "large amounts" of oil after its market price crashed.