In  contrast, more than 99 percent of the SPR (665.5 million barrels as of  March 2018) is held as crude oil. In 2016, DOE completed a long-term strategic review of the  SPR after its last comprehensive examination had been conducted in  2005. The 2016 review examined the expected benefits of several SPR  sizes, but it did not identify an optimal size and was limited in several  ways. In particular, in the review, DOE did not fully consider recent and  expected future changes in market conditions, such as the implications of  projected fluctuations in net imports or the role of the private sector in  responding to supply disruptions. Recent changes have contributed to  SPR and private reserves reaching historically high levels on a net  imports basis. 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. In February 2005, we found that agencies should  reexamine their programs if conditions change. In May 2018, we recommended that DOE (1)  supplement its 2016 review by conducting an additional analysis that  takes into account, among other things, the costs and benefits of a wide  range of different SPR sizes and (2) take actions to ensure that it  periodically conducts and provides to Congress a strategic review of the  SPR. DOE partially agreed with the first recommendation and stated that  it will 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. DOE agreed  with the second recommendation. DOE has also not fully identified whether additional regional petroleum  product reserves should be part of the SPR. DOE Has Taken Steps to Update Its Modernization Plans but Is Hindered by Uncertainty Regarding the SPR’s Long-term Size

As we found in our May 2018 report, DOE has taken steps to account  for the effects of congressionally mandated oil sales in its plans for  modernizing the SPR, though DOE’s current plans, developed in 2016,  are based on information largely developed prior to recent  congressionally mandated sales of an additional 117 million barrels of oil. DOE has estimated that the  SPR’s modernization will cost up to $1.4 billion, and according to officials,  the agency had spent $22 million as of the end of February 2018. According to DOE officials, in March 2018, DOE commenced a study— the SPR post-sale configuration study targeted for completion in October  2018—to examine potential future reserve configurations and to account  for the effects of congressionally mandated sales on the reserve and its  modernization. DOE had not proposed any of these options or explored the  revenue the agency could generate by selling or leasing these assets. In the course of our work, we also identified other options for handling  potentially excess SPR assets that DOE was not planning on examining  as of May 2018, largely because DOE did not have the authority to  pursue them, according to agency officials. First, DOE could explore  leasing storage capacity to private industry. However, as mentioned previously, we identified other options for  handling potentially excess SPR assets that DOE was not planning to  examine in its study. In May 2018, we recommended that in  completing its ongoing SPR post-sale configuration study, DOE should  consider a full range of options for handling potentially excess assets and,  if needed, request congressional authority for the disposition of these  assets. DOE agreed with this recommendation. Congress has generally set the SPR’s size by  mandating purchases or sales of oil.
Why GAO Did This Study

Over 4 decades ago, Congress authorized the SPR—the world's largest government-owned stockpile of emergency crude oil—to reduce the impact of disruptions in supplies of petroleum products. Since 2015, Congress has also mandated sales of SPR oil to fund the modernization of SPR facilities and other national priorities. DOE manages the SPR, whose storage and related infrastructure is aging, and has plans to modernize its facilities. 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). As of March 2018, the SPR held about 665 million barrels of crude oil, about 138 days of net imports.
This testimony highlights GAO's May 2018 report on the SPR, including 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 documents and studies and interviewed agency officials.

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 was conducted in 2005. The 2016 review examined the benefits of several SPR sizes, but it did not identify an optimal size and was limited in several ways. In particular, in the review, DOE did not fully consider recent and expected future changes in market conditions, such as the implications of projected fluctuations in net imports or the role of the private sector in responding to supply disruptions. These changes have contributed to SPR and private reserves reaching historically high levels on a net imports basis. These changes are expected to continue to evolve, and 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. GAO recommended that DOE supplement its 2016 review by conducting an additional analysis, and take actions to ensure the agency periodically conducts a strategic review of the SPR. DOE generally agreed with these recommendations.
DOE has taken steps to account for congressionally mandated sales of SPR crude oil in its $1.4 billion modernization plans for SPR's infrastructure and facilities. However, DOE's current plans, developed in 2016, are based on information largely developed prior to recent congressionally mandated sales of an additional 117 million barrels of oil. 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, GAO reported that this study was not examining a full range of 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, according to officials, DOE does not currently have the authority to lease unused storage capacity to the private sector, and DOE was not planning to examine this option. If authorized, leasing unused SPR storage capacity could generate revenues that could help offset the costs of modernization. GAO recommended that DOE should consider a full range of options for handling potentially excess assets and, if needed, request congressional authority for the disposition of these assets. DOE agreed with this recommendation.

What GAO Recommends

GAO made four recommendations, including that DOE (1) supplement the 2016 review by conducting an additional analysis, (2) ensure it periodically reexamines the SPR, and (3) consider a full range of options for handling potentially excess assets. DOE partially agreed with the first recommendation and agreed with the other two recommendations.