A Free-Market Energy Blog

Strategic Petroleum Reserve: Early Fill Controversies (Part IV)

By Robert Bradley Jr. -- July 30, 2015

“Compared to Ford and Carter, the SPR experienced a ‘Reagan Revo­lution’ – although hardly of the free-market variety. Two reasons explained Reagan’s bullish SPR [buy and fill] policy. First, the reserve was the centerpiece of Reagan’s ‘free market’ energy policy, which precluded the need for stand­by price and allocation controls to deal with future emergencies. Second, the reserve was an instrument of foreign policy should U.S. intervention and confrontation lead to re­prisals by oil-exporting countries as it had in 1973 and 1979.”

“With the Reagan acceleration at a time of record crude prices, the reserve program became a major cost item, and with budget deficit problems, a group of pro­posals came forth to reduce cost while maintaining fill rates. Global settlements with refiners accused of product price overcharges was one tapped source.”

The fill rate of the reserve has never been far from controversy.

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Strategic Petroleum Reserve: Early Problems (Part III)

By Robert Bradley Jr. -- July 29, 2015

Government does not only buy high and sell low (be sure and compare the purchase prices and the selling prices, adjusted for inflation to see the taxpayer loss, not to mention the high-cost of the whole storage operation). Government projects, particularly rushed, politicized ones, are extremely inefficient.

Consider this litany of problems plaguing the federal crude-oil storage program.

  1. The rush to fill leached salt domes led to design problems, cost overruns, and poor planning “worthy of a defense contractor.” [1]
  2. Expensive “ad hoc” barge transportation was chosen over cheaper term pipeline transport. [2]
  3. Fixed-price oil contracts in a declining market left middlemen with handsome arbitrage pro­fits at taxpayer expense. [3]
  4. Misestimated sched­ules overcommitted oil to storage sites; by the end of 1978, demurrage costs had reached $7 mil­lion. [4]
  5. Quality control problems allowed as much as 9 million barrels of lower grade crude to be substituted for higher grade contracted crude.
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Strategic Petroleum Reserve: Early History (Part II)

By Robert Bradley Jr. -- July 28, 2015

“In the first week of the program, three sites in Louisiana were acquired by the Corps of Engineers by emi­nent domain. Pipeline right-of-way was similarly acquired; appraisals below industry standards made condemnation necessary. This, however, did not reduce costs or trim start­-up time as intended. The associated legal proceedings increased costs and created delay, and condemnation set the stage for polit­ical trading between Louisi­ana and federal officials in Washington, D.C.”

In the first decades of the twentieth century, fears of an imminent exhaus­tion of oil led to petroleum land withdrawals and the reserva­tion of oil-rich acreage for future military use. Four Naval Petroleum Reserves were set aside between 1912 and 1923. [1] With the discovery of major new oil fields in Oklahoma, Texas, and California in the late 1920s, the new fear – at least for the vested parts of the oil industry – became oversupply.

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Early Oil & Gas Storage Regulation: A Historical Review (Part I)

By Robert Bradley Jr. -- July 27, 2015
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100% Renewables? (examining a potential methodological flaw)

By Thomas Stacy II -- July 24, 2015
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Georgia Power: Need That PTC for Nuclear (Hayet testimony on Vogtle)

By Robert Bradley Jr. -- July 23, 2015
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Settling an Old Score with AWEA

By Robert Bradley Jr. -- July 22, 2015
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Green Energy Plunders the Biosphere

By Viv Forbes -- July 20, 2015
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Educating Public Utility Regulators: Is It Fruitful?

By -- July 16, 2015
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Gas Furnace Rule Part II: Return of the “Scorched Gas” Policy

By Mark Krebs -- July 15, 2015
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