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INTRODUCTION

The Congress is considering legislation to accelerate the acquisition of oil for the U.S. Strategic Petroleum Reserve (SPR). The SPR, created by the Energy Policy and Conservation Act of 1975. is designed to provide a standby source of oil in the event of an oil supply disruption. Since its inception, however, the reserve's development has been slowed by technical, political, and economic factors. The reserve now contains about 250 million barrels of oil, about one-third of the currently planned 750 million barrel capacity and one-quarter of the 1 billion barrel reserve authorized by the Congress.

In the Omnibus Budget Reconciliation Act of 1981, the Congress reinforced its support for the SPR by establishing a target fill rate of 300,000 barrels per day (B/D). Although during fiscal year 1981 the fill rate averaged approximately 292,000 B/D, the rate set forth in the President's 1983 budget proposal varies annually from 150,000 B/D to 225,000 B/D during the 1980s. These plans, which call for continued expansion and development of underground storage facilities, would result in 500 million barrels of capacity in 1986 and 750 million barrels in 1990. By contrast, purchasing oil at the target rate of 300,000 B/D would accumulate oil much faster--the 500 million barrel mark would be met in early 1985 and the 750 million barrel target in 1987.

But the target rate cannot be achieved under the current program of mining and leaching underground caverns. A fill rate of 300,000 B/D would require additional storage facilities. Since this is a period of excess world oil production and stable real world prices, more rapid SPR oil purchases might achieve oil cost savings and provide earlier protection against oil supply disruptions. But to do so would require temporary storage facilities.

This paper discusses the use of such temporary facilities to expand capacity. In general, it concludes that oil could be acquired more rapidly than the current SPR schedule suggests, but probably at additional cost. If real oil prices should begin to rise again, the savings realized by early oil acquisition would offset some of the additional costs of leasing temporary storage capacity. Cost projections are made uncertain, however by the range of possible future prices. This uncertainty generally exceeds the additional costs of utilizing temporary storage capacity. Nevertheless, purchasing oil at a higher rate than planned, and utilizing temporary storage, would provide additional protection against oil supply disruptions and provide it sooner.
 

CURRENT PLANS

SPR construction is proceeding in three phases. Phase I of the SPR plan has provided the first 250 million barrels of storage capacity. It includes surface facilities for handling the oil and underground solution-mined salt caverns or mines for storing the oil. The construction of these facilities is completed and the capacity full.

Phase II consists of an additional 290 million barrels of capacity--approximately 205 million barrels of capacity by the end of fiscal year 1985, with the remaining 85 million barrels becoming available in 1986 and 1987. For the most part, construction of surface facilities is complete, with underground solution mining progressing.

Phase III, as detailed in the President's 1983 budget request, would add an additional 210 million barrels of capacity by 1990. Table 1 shows the cumulative capacity available, according to the 1983 budget plan, up to a total of 750 million barrels of capacity.¹

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1. Although the Congress authorized a 1 billion barrel reserve, plans for the last 250 million barrels are not complete.