Strategic Petroleum Reserves

What Are Strategic Petroleum Reserves?

Strategic petroleum reserves are stockpiles of crude oil maintained by countries for release in the event of a supply disruption. The U.S. Strategic Petroleum Reserve (SPR) is the world's largest with a capacity of 727 million barrels.

The U.S. government has historically tapped the SPR following accidents and disasters, though it has also sold and lent crude oil from the SPR at other times.

Understanding Strategic Petroleum Reserves

Strategic petroleum reserves can help a country weather a sudden and temporary disruption in supply after a natural disaster, accident, or the imposition of economic sanctions.

Strategic reserves are stockpiles of crude oil that has already been extracted and can be promptly refined into fuels. They are not to be confused with proven oil reserves, an estimate of crude still in the ground that could be extracted in the long term.

Because storage facilities are limited relative to petroleum consumption, strategic reserves typically cannot fully offset disruptions lasting more than a few months. Releases from reserves represent a one-time addition to supply rather than a permanent increase in its availability.

Examples of Strategic Petroleum Reserves

The U.S. SPR is located in four vast salt dome caverns along the Gulf Coast. Created in response to the oil crisis caused by the Arab Oil Embargo of 1973, the SPR received its first shipment of crude in 1977.

The U.S. government ordered releases from the SPR after Hurricane Katrina in 2005 and Hurricane Gustav in 2008 disrupted energy production in the Gulf Coast region.

China is widely believed to hold the world's second largest strategic reserve, though it does not regularly publish data on its capacity or holdings. In late 2021, China's strategic reserves reportedly held crude equivalent to 40 or 50 days of imports, roughly 490 million barrels at the midpoint.

Japan held public strategic reserves equivalent to 133 days of crude oil imports at the end of 2021, according to the International Energy Agency (IEA). That would amount to 332 million barrels based on the country's average monthly imports in 2021. Commercial stocks amounted to 86 days of imports.

The IEA, a group of 31 countries, requires members to hold strategic reserves equal to 90 days of the previous year's net imports, though commercial stockpiles can be included in that total. Net importers in the organization held strategic reserves equal to 156 days of imports, including 82 days in commercial inventories, as of year-end 2021.

Releasing Reserves From the SPR

Under the Energy Policy and Conservation Act, a U.S. president can order a full drawdown of the reserve to counter "a severe energy supply disruption" and a limited one of up to 30 million barrels to avert such disruptions. The same law permits the Department of Energy to conduct test drawdowns of up to 5 million barrels.

Releases from the SPR can take the form of loans or outright sales of oil. In a loan or exchange, the reserve provides crude to a company, typically a refiner, which must eventually return the same volume of crude along with additional barrels as interest. Exchanges typically take place in cases of localized disruption such as a shipping channel blockage, and must be deemed to be in the public interest.

The DOE also may release crude oil by selling it directly to commercial suppliers via an online competitive bidding process. After a presidential order of an emergency sale, the Department of Energy needs 13 days to conduct a sale, select offers, award contracts and prepare deliveries. Oil can be pumped from a reserve at a maximum rate of 4.4 million barrels per day for up to 90 days before the extraction rate slows as a result of diminished pressure. Withdrawals of 1 million barrels per day could be sustained for a year-and-a-half.

Replenishing Strategic Petroleum Reserves

In purchasing crude for the SPR, the Department of Energy is required to consider the needs to support domestic supply, protect national security, minimize costs and avoid disrupting markets or market prices.

In March 2020, then-President Donald Trump ordered the Department of Energy to fill the SPR to capacity by purchasing 77 million barrels of crude oil as demand and oil prices slumped amid the COVID-19 pandemic. But Congress never provided the needed funding, and the purchase plans were canceled.