Naval Petroleum Reserve-1

Government and Industry Comments on Selling the Reserve Gao ID: RCED-88-43FS November 23, 1987

Pursuant to a congressional request, GAO examined the: (1) need for the Elk Hills Naval Petroleum Reserve (NPR-1) as an oil reserve for the Department of Defense (DOD); and (2) potential impact of the proposed sale of the government's ownership interests on industry groups that purchase or use NPR-1 light crude oil.

GAO found that DOD believes that: (1) quick access to a source of oil is important to maintain military readiness; (2) crude oil shortfalls are still a possibility; (3) NPR-1 is a preferred supply source, since other emergency provisions require approvals that are external to its control; and (4) the Strategic Petroleum Reserve (SPR), proposed as an alternative source of crude oil, may not be available within the same time frame as NPR-1. GAO also found that measures available to DOD to access petroleum products include: (1) waiver of petroleum procurement restrictions; (2) NPR-1 drawdown; (3) SPR drawdown and use; and (4) invocation of the Defense Production Act of 1950. In addition, GAO found that the Department of Energy: (1) believes that DOD has sufficient options to meet fuel supply needs; (2) acknowledges concerns of pipeline companies, independent producers, and small and independent refiners that sale of the reserve may force them to reduce or cease production; and (3) plans to solicit offers from foreign and domestic buyers. GAO also found that California state energy officials were not concerned about the proposed sale's impact on the state's energy security.

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