Improving the Cost-Effectiveness of Filling the Strategic Petroleum Reserve

The Department of Energy (DOE) is responsible for filling the Strategic Petroleum Reserve (SPR), which currently contains about 700 million barrels of oil (worth about $49 billion, assuming $70 per barrel of oil). Given the current capacity of the SPR, an additional 27 million barrels of oil could be stored at existing sites. In addition, DOE has been directed under the Energy Policy Act of 2005 to create an additional 300 million barrels of capacity (potentially another $21 billion in value, assuming $70 per barrel of oil). Filling the SPR, as well as adding and filling to the new capacity, could easily cost taxpayers tens of billions of dollars. GAO has raised concerns about the way DOE has filled the SPR in the past and the type of oil that has been stored. In response to concern raised by GAO and others about filling the SPR with royalty oil during spiking oil prices, Congress approved legislation in May 2008 halting the filling of the SPR with royalty oil until oil fell to at least $75 a barrel for a 90-day period. The President signed the legislation into law (P.L. 110-232) on May 19, 2008. On May 16, DOE announced it was suspending the filling of the SPR with royalty oil through the remainder of 2008. This royalty oil, valued at $1.89 billion, would instead be sold and the proceeds deposited at the U.S. Treasury.

As the federal government resumes efforts in 2009 to fill the SPR to its 1 billion barrel authorized level, GAO has identified several specific actions that could substantially lower fill costs. For example, if DOE included 10 percent heavy oil in the SPR as it expands to 1 billion barrels, this would require DOE to add 100 million barrels of heavy oil, or about one-third of the total new fill. From 2003 through 2007, Maya—a common heavy crude oil—has traded for about $12 less per barrel on average than West Texas Intermediate—a common light crude oil. If this price difference were to persist over the duration of the new fill period, DOE would save about $1.2 billion in nominal terms by filling the SPR with 100 million barrels of heavy oil.

Specific actions that could lower costs:

On the basis of our past work, GAO has outlined a number of ways that DOE could more cost-effectively fill the SPR, including

• purchasing oil from the market instead of using the existing “royalty-in-kind” program—a program that allows oil companies to give the government oil instead of cash payments for royalties owed.


• purchasing and storing more, less expensive, heavy oil.


• adopting a dollar-cost-averaging strategy when purchasing fill oil.


• allowing oil companies more flexibility to defer delivery of oil into the SPR in return for additional deliveries in the future.

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Strategic Petroleum Reserve: Improving the Cost-Effectiveness of Filling the Reserve

GAO-08-726T, April 24, 2008

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Strategic Petroleum Reserve: Options to Improve the Cost-Effectiveness of Filling the Reserve

GAO-08-521T, February 26, 2008

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Strategic Petroleum Reserve: Available Oil Can Provide Significant Benefits, but Many Factors Should Influence Future Decisions about Fill, Use, and Expansion

GAO-06-872, August 24, 2006

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