US warns over strategic petroleum reserve capability

Ageing US infrastructure and changing pipeline flows are affecting the country’s ability to draw on its Strategic Petroleum Reserve (SPR), reports Argus Global Markets.

The US Energy Department, which published a review of its emergency stocks management on 7 September 2016, said the SPR could fail to meet its International Energy Agency (IEA) collective response obligation in the event of a global supply shock.

Crude released from SPR sites is traditionally moved by pipeline to midcontinent refineries. But the midcontinent now relies on US shale oil supply and Canadian imports, and would not need SPR crude to continue operating. Pipeline capacity remains sufficient to meet the 4.42mn b/d drawdown target from four underground storage sites in Texas and Louisiana. But any shipments from the five marine terminals near the SPR sites would have to compete for dock space with domestic crudes or imports.

The US could provide 44% of the global SPR release in response to a global market disruption, the US Energy Department said. The US could draw down reserves to respond to hypothetical disruptions in Mexico and Venezuela, because import losses from those countries to US Gulf coast refiners would free up marine terminal space for the SPR releases. But crude releases from the SPR would fall up to 1.7mn b/d short of IEA expectations in the event of supply disruptions in the Mideast Gulf because of terminal capacity restrictions.

US SPR stocks are expected to fall in the next decade from 695mn barrels at present as the government sells crude from the reserve to pay for its modernisation. The US Energy Department has reported that it would not need any more than 600mn barrels, given the projected trends in US oil demand and production. That level will still exceed the IEA’s requirement to meet 90 days of net daily imports.

Source: Argus Global Markets