Issues Needing Attention in Developing the Strategic Petroleum Reserve

Gao ID: EMD-77-20 February 16, 1977

The concept of the Strategic Petroleum Reserve is to provide protection against future oil embargoes by creation of a reserve equal to approximately 500 barrels of crude oil. As part of the reserve, an Early Storage Reserve is to be established to contain at least 150 million barrels by December 1978. The proposed reserve will contain only crude oil which will be stored underground in salt dome caverns or in mines, primarily along the Gulf Coast. Issues which require further analysis by Congress relate to three questions: (1) Is there a need for the type of Strategic Petroleum Reserve? (2) How should the strategic Petroleum Reserve be filled? and (3) How should the Strategic Petroleum Reserve be financed?

GAO continues to support the concept of a system of national emergency energy reserves. It believes, however, that the use of industry crude oil and product stocks may be an alternative to the creation of a Strategic Petroleum Reserve. The Federal Energy Administration plans to purchase oil for the reserve at near the national average composite price. As long as price controls remain on domestic oil, royalty oil could be acquired to fill the reserve, resulting in significant dollar savings with little or no adverse financial impact on small refiners.



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