The purposes of the  SPR are, among other things, to reduce the impact of disruptions in  supplies of petroleum products and to carry out obligations of the United  States under the international energy program. DOE Examined a Range of Sizes for the SPR but Has Not Identified the Optimal Size for SPR and the Agency’s Analysis Was Limited in Three Ways

DOE has not identified the optimal size for the SPR and though the  agency examined a range of SPR sizes, its analysis was limited in at  least three ways. As mentioned previously,  the United States is expected to become a net exporter of crude oil  and petroleum products by the late 2020s. Given changing market conditions and  future projections, without conducting additional analysis to supplement  its 2016 review and thereafter periodically reexamining the SPR to take  into account changes in market conditions and include a thorough  consideration of the costs and benefits of a wide range of SPR sizes,  DOE cannot provide information to Congress to inform decisions about  the appropriate size of the SPR and risks holding too much or too little in  the SPR to meet the United States’ evolving energy security needs and  IEA obligations. DOE Has Taken Steps to Update Its Modernization Plans, But Is Hindered by Uncertainty Regarding the SPR’s Long-term Size DOE Has Taken Steps to Update Its Modernization Plans for Currently Mandated Sales

DOE has taken steps to take into account the effects of congressionally  mandated oil sales in its plans for modernizing the SPR, though DOE’s  current plans are based on information largely developed prior to the  most recent congressionally mandated oil sales. For example, DOE now assumes that the reserve will hold  about 405 million barrels of oil and that one of the four SPR sites may  close after congressionally mandated sales are completed at the end of  fiscal year 2027, according to agency officials. However, DOE has not  fully updated the SPR’s modernization plans based on these  assumptions. According to DOE officials, in March 2018, DOE  commenced a study—the SPR post-sale configuration study—to examine  potential future reserve configurations. Specifically, the United States is  projected to become a net exporter by the late 2020s and would then no  longer have a 90-day reserve obligation, but it is projected to return to  being a net importer between 2040 and 2050. In response to congressional direction and recommendations from GAO  and DOE Inspector General, DOE conducted a long-term strategic review  of the SPR in 2016 after its last comprehensive examination in 2005. In particular, DOE did not fully  consider recent and expected future changes in crude oil and petroleum  market conditions such as the implications of projected fluctuations in  U.S. net imports or the role that increased levels of private reserves could  play in responding to supply disruptions. However, we identified other options for  handling potentially excess SPR assets that DOE is not planning to  examine in its study, inconsistent with the agency’s order on real property  asset management. Without  examining a full range of options in the post-sale configuration study for  handling potentially excess SPR assets, DOE risks missing beneficial  ways to modernize the SPR while saving taxpayer resources. (Recommendation 3)
The Secretary of Energy, in completing DOE’s ongoing study on the  effects of congressionally mandated sales, should consider a full range of  options for handling potentially excess assets and, if needed, request  congressional authority for the disposition of these assets. Of the  four recommendations, DOE agreed with two, partially agreed with one,  and disagreed with one. DOE agreed to conduct an  additional analysis to assess the purpose, goals, and objectives of the  SPR, taking into account private sector response, oil market  projections, and any other relevant factors, that will lead to an  evaluation of possible optimal sizes of the SPR in the future.
Why GAO Did This Study

More than 4 decades ago, Congress authorized the creation of the SPR to reduce the impact of disruptions in supplies of petroleum products. DOE manages the SPR. As a member of the International Energy Agency, the United States is obligated to maintain reserves equivalent to at least 90 days of the previous year's net imports (imports minus exports). The SPR's storage and related infrastructure is aging, and DOE has plans to modernize these facilities. Since 2015, Congress has mandated crude oil sales. As of March 2018, the SPR held about 665 million barrels of crude oil.
GAO was asked to examine the SPR's ability to meet U.S. energy security needs. This report examines, among other things, the extent to which (1) DOE has identified the optimal size of the SPR, and (2) DOE's plans for modernizing the SPR take into account the effects of congressionally mandated crude oil sales. GAO reviewed DOE's plans and studies, and interviewed agency officials and nine experts selected based on prior work, referrals, and a literature review.

What GAO Found

The Department of Energy (DOE) has not identified the optimal size of the Strategic Petroleum Reserve (SPR). In 2016, DOE completed a long-term strategic review of the SPR after its last comprehensive examination conducted in 2005. The 2016 review examined the benefits of several SPR sizes, but it did not identify an optimal size and its review was limited in several ways. In particular, DOE did not fully consider recent and expected future changes in market conditions, such as the implications of falling net imports, or the role that increased levels of private reserves (reserves held by private companies for their own purposes) may play in responding to supply disruptions. These changes have contributed to SPR and private reserves reaching historically high levels on a net imports basis (see figure). These changes are expected to continue to evolve—according to government projections, the United States will become a net exporter in the late 2020s before again becoming a net importer between 2040 and 2050. GAO has found that agencies should reexamine their programs if conditions change. Without addressing the limitations of its 2016 review and periodically performing reexaminations in the future, DOE cannot be assured that the SPR will be sized appropriately into the future.
DOE has taken steps to take into account congressionally mandated sales of SPR crude oil in its $1.4 billion modernization plans for SPR's infrastructure and facilities. The SPR is projected to hold 405 million barrels of oil by the end of fiscal year 2027. However, DOE's current plans are based on information analyzed prior to recently mandated sales. According to DOE officials, the agency began a study in March 2018 to assess the effects of these sales on the SPR's modernization. However, this study is not examining all options for handling any excess SPR assets that may be created by currently mandated sales or any additional sales that may be mandated in the future, inconsistent with an agency order on real property asset management that calls for identifying excess assets. For example, DOE does not plan to examine the potential to lease unused SPR storage capacity to the private sector because DOE is not currently authorized to enter into such leases, according to agency officials. If authorized, leasing capacity could generate revenues that could help offset the costs of modernization. By not examining a full range of options, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources.

What GAO Recommends

GAO is making four recommendations, including that DOE (1) supplement the 2016 review by conducting an additional analysis, (2) ensure that the agency periodically reexamines the size of the SPR, and (3) consider a full range of options for handling potentially excess assets as it conducts its study, among other things. DOE agreed with two, partially agreed with one, and disagreed with another recommendation on refined product reserve studies. GAO maintains that the recommendations are valid.