Naval Petroleum Reserve No. 1--An Assessment of Production Alternatives

Pursuant to a congressional request, GAO addressed geologic, national security, budgetary, and local economic factors that may influence three alternatives to the current oil production approach used for Naval Petroleum Reserve No. 1 (NPR-1) beyond 1985. The options include: continued production, shut-in, and partial shut-in. GAO also discussed the advantages and disadvantages of establishing a Defense Petroleum Reserve (DPR) to serve as a crude oil reserve for the military.

GAO found that there are advantages and disadvantages associated with each of the NPR-1 options. Under continued production, NPR-1 could provide more net revenues than under any other option, while avoiding any local economic disruptions. It also could provide a significant source of oil to the Department of Defense (DOD) in a peacetime shortage. With respect to shut-in, NPR-1 would provide substantially less revenues, while adversely affecting the local economy. Further, a shut-in NPR-1 could provide little immediate assistance to DOD in a peacetime shortage. Under a partial shut-in, NPR-1 revenues would be more than a total shut-in, but less than continued production. A partial shut-in would be more advantageous regarding national security than the other options, although it would have some adverse effects on the local economy. GAO did not identify any geological factors that would make one option more attractive than another. GAO believes that a DPR would be a more effective means of ensuring adequate amounts of petroleum products for DOD during peacetime shortages than under any of the NPR-1 options. However, although the DPR plan calls for it to be funded by some of the NPR-1 revenues, it does not specify how this would be done.