For member countries to meet net  petroleum import obligations, the IEA counts both public and private oil  reserves, although the United States meets its IEA obligation solely  through the SPR. In the event of an oil supply  disruption, the SPR can supply the market by selling stored oil. According to DOE officials, this authority is sometimes utilized in  oil supply disruptions when a specific volume of SPR oil is provided to a  private sector company in an emergency exchange for an equal quantity  of oil plus an additional amount as a premium to be returned to the SPR  in the future. DOE Has Primarily Used Exchanges from the SPR to Private Companies to Address Domestic Petroleum Disruptions

To quantify how DOE has used the SPR to address domestic petroleum  supply disruptions, we reviewed DOE and EIA documents. We also  reviewed our past work from August 2006 to January 2014. Our preliminary analysis indicates that DOE has primarily used  exchanges to private companies in response to domestic supply  disruptions such as hurricanes and other events. DOE has released oil 24  times from 1985 through September 2017, including 11 releases in  response to domestic supply disruptions. Of these 11 releases, 10 were  exchanges, including 6 exchanges in response to hurricanes. Based on our preliminary analysis of DOE documents, most recently,  in response to Hurricane Harvey in 2017, DOE exchanged 5 million  barrels of oil to Gulf Coast refineries that requested supplies. Hurricane Harvey closed or restricted ports through which 2 million  barrels of oil per day were imported, and several refineries had no  supply options except for SPR oil. According to DOE officials,  exchanges from the SPR have allowed refineries to continue to  operate until alternative supply sources became available, ensuring  continued production of refined petroleum products for use by  consumers. The SPR Is Limited in Its Ability to Respond to Domestic Disruptions

Based on our past work and preliminary observations, the SPR is limited  in its ability to respond to domestic petroleum supply disruptions for three  main reasons. First, as we reported in September 2014, reserves are  almost entirely composed of oil and not refined products, which may not  be effective in responding to all disruptions that affect the refining  sector. We reported in May 2009 that following Hurricanes Katrina and Rita,  nearly 30 percent of U.S. refining capacity was shut down for weeks,  disrupting supplies of gasoline and other products. The SPR could  not mitigate the effects of disrupted supplies because it holds oil. Location: As we reported in September 2014, the SPR is nearly  entirely located in one region, the Gulf Coast, which may limit its  ability to respond to disruptions in other regions. Based on our ongoing work, according  to DOE’s 2016 long-term strategic review of the SPR, the agency  reported that the expanding North American oil production and the  resulting shifts in how oil is transported around the country have  reduced the SPR’s ability to add incremental barrels of oil to the  market under certain scenarios in the event of an oil supply crisis. Statutory release authorities: In the course of our ongoing work, we  reviewed DOE and energy task force reports that found that the  statutory authorities governing SPR releases may inhibit their use for  regional disruptions. Other IEA Members Structure Their Reserves Differently, with Some Holding Industry Reserves and Refined Products, and DOE Has Taken Steps to Explore These Structures

Based on information reviewed during the course of our ongoing work, to  respond to disruptions, 27 of the 29 IEA member countries use one of five  reserve structures, also known as stockholding structures, in which these  countries hold public reserves, industry reserves, or a combination of  these. Also, most members  hold refined petroleum products, with many members holding at least a  third of their reserves in refined petroleum products. For example, according to the IEA’s website, Germany’s stockholding  agency, Erdolbevorratungsverband (EBV), holds 55 percent of its reserve  in refined petroleum products such as gasoline, diesel fuel, and light  heating oil. Some IEA member countries geographically disperse their reserves of  refined petroleum products to be able to respond to domestic disruptions. However, the agency  has not formally evaluated other countries’ structures in over 35 years  and has not finalized its 2015 studies on regional petroleum product  reserves. As mentioned above, in 2016 DOE reassessed the SPR in light of  the changing global oil market, but this assessment did not include a  review of other IEA countries’ structures. In response to the 2015 recommendation, DOE contractors studied the  feasibility of additional regional petroleum product reserves, as part of the  SPR, in the U.S. Southeast and West Coast regions to address supply  vulnerabilities from hurricanes and earthquakes, respectively. Our ongoing work indicates  that DOE’s 2016 long-term strategic review of the SPR did not account for  the risks of domestic supply disruptions as a factor in determining the  appropriate size, location, and composition of the SPR.
Why GAO Did This Study

Over 4 decades ago, Congress authorized the SPR—the world's largest government-owned stockpile of emergency oil—to release oil to the market during supply disruptions and protect the U.S. economy from damage. The SPR is managed by DOE. According to DOE's strategic plan, the SPR benefits the nation by providing an insurance policy against actual and potential interruptions in U.S. petroleum supplies caused by international turmoil and hurricanes, among other things. The SPR also helps the United States meet its obligations, including to holding reserves of oil or refined petroleum products equaling 90 days of net petroleum imports, as one of 29 members of the IEA—an international energy forum established to help members respond to major oil supply disruptions. The SPR held almost 674 million barrels of oil at the end of September 2017.
This testimony primarily focuses on preliminary observations from ongoing work on (1) DOE's use of the SPR in response to domestic petroleum supply disruptions, (2) the extent to which the SPR is able to respond to domestic petroleum supply disruptions, and (3) how other IEA members structure their strategic reserves and extent to which DOE has examined these structures. GAO reviewed past work from August 2006 through September 2014 and DOE and IEA documentation. GAO also interviewed DOE and IEA officials, as part of GAO's ongoing work.

What GAO Found

GAO's preliminary analysis of Department of Energy (DOE) documents indicates that DOE has primarily used the Strategic Petroleum Reserve (SPR) to an exchange of oil to companies in response to domestic supply disruptions, such as hurricanes. In the event of a supply disruption, the SPR can supply the market by either exchanging oil for an equal quantity of oil plus an additional amount as a premium to be returned to the SPR in the future or selling stored oil. Since the SPR was authorized in 1975, DOE has released oil 11 times in response to domestic supply disruptions. All but one were in the form of an exchange, including six exchanges in response to hurricanes. For example, Hurricane Harvey in 2017 closed or restricted ports through which 2 million barrels of oil per day were imported. In response, DOE exchanged 5 million barrels of oil to Gulf Coast refineries. According to DOE officials, exchanges from the SPR allowed refineries to operate, ensuring continued production of refined petroleum products for use by consumers.
Based on past GAO work and preliminary observations, the SPR is limited in its ability to respond to domestic supply disruptions, including severe weather events, for three main reasons. First, as GAO reported in September 2014 (GAO-14-807), the SPR is almost entirely composed of oil and not refined products like gasoline, which may not be effective in responding to all disruptions. For example, following Hurricanes Katrina and Rita, nearly 30 percent of U.S. refining capacity was shut down for weeks, disrupting supplies of gasoline and other petroleum products. The SPR could not mitigate the effects of disrupted supplies. Second, as GAO also reported in September 2014, the SPR is nearly entirely located in the Gulf Coast, so it may not be responsive to disruptions in other regions, such as the West Coast. Third, GAO's ongoing work reviewed DOE and energy task force reports that found that statutory authorities governing SPR releases may inhibit their use for regional disruptions.
GAO's preliminary observations show that other International Energy Agency (IEA) member countries generally have used one of five reserve structures configured in various ways. The structures are defined by whether countries hold either public reserves (e.g., the SPR), industry reserves (e.g., placing reserve holding requirements on industry), or a combination. Most IEA members hold refined petroleum products in reserve, with many members holding at least a third of their reserves in these products. For example, in Germany, 55 percent of reserves are in petroleum products. In addition, some IEA members' reserves are geographically dispersed in their countries to respond to disruptions. For example, France has reserves in each of its seven regions and has used these to address fuel supply disruptions as a result of recent domestic strikes. DOE has taken some steps to evaluate other structures but has not formally evaluated the structures of other countries in over 35 years. In addition, DOE contractors studied the feasibility of regional product reserves in the Southeast and West Coast regions to address supply vulnerabilities from hurricanes and earthquakes, respectively but DOE did not finalize the two 2015 studies. In 2016, DOE released a long- term strategic review of the SPR that Congress had required and GAO recommended. However, DOE did not include the results of the two studies in its 2016 review.

What GAO Recommends

GAO is not making recommendations but will consider making them, as appropriate, as it finalizes its work.