Factors Influencing the Size of the U.S. Strategic Petroleum Reserve

The potential value of the strategic petroleum reserve as a national security measure in diminishing U.S. vulnerability to the effects of interruptions in imported petroleum supplies, and in carrying out U.S. international energy commitments, is unquestionable. The law creating the reserve, however, allows considerable discretion in deciding how the reserve can most effectively be established. Determining the optimal size of the reserve is extremely difficult given the many unknowns, assumptions, variables and political factors. No study has shown what the optimal size should be. However, a Department of Energy analysis, athough not designed to determine an optimally sized reserve, has projected a range of supply interruptions that would require a billion-barrel reserve. The functioning of an international program is doubtful during a severe supply interruption because of the following: (1) an inadequate definition of emergency reserve stocks, which results in overstated available reserves; (2) the lack of a binding mechanism to settle price disputes; and (3) insufficient mandatory reallocation procedures. A large portion of projected shortfalls under the most severe interruptions could result from U.S. supply obligations to other nations. An analysis of the reserve programs of the International Energy Agency revealed that the 1 billion barrel U.S. reserve is disproportionately larger than that of any other nation. The absence of mandatory industry involvement in the U.S. program distinguishes it from other emergency reserve programs. Programs which require industry and consumers to share reserve costs warrant consideration by the United States.