DOE - Fossil Energy Techline - Issued on:  January 11, 1999

Richardson Announces Plan to Re-Fill the Strategic Petroleum Reserve

Initiative Would Use Royalty Oil from Central Gulf

Energy Secretary Richardson announces plans for DOE to acquire 28 million barrels of royalty oil from offshore leases. Text of Secretary's Opening Remarks

Energy Secretary Bill Richardson announced today plans to partially re-fill the Strategic Petroleum Reserve (SPR) with federal royalty oil from production in the Central Gulf of Mexico.

The initiative is specifically designed to replace approximately 28 million barrels of oil which were sold from the Reserve in Fiscal Years 1996 and 1997 largely for deficit reduction purposes. The initiative is neither intended nor expected to raise the price of oil.

"We are taking advantage of today's low oil prices to re-build our strategic oil reserves," Secretary Richardson said. "By putting royalty oil in the Strategic Petroleum Reserve today we will get a high rate of return tomorrow -enhanced national energy security, increased strategic assets -- and a very good deal for the American taxpayer."

The initiative would call for the transfer of approximately 28 million barrels of royalty oil from federal offshore tracts into the Strategic Petroleum Reserve. While the details of the transfer must be worked out, it is estimated that the Departments of Energy (DOE) and the Department of Interior or (DOI) would move up to 100,000 barrels per day from points in the Gulf into the Reserve. This is likely to begin in April. The oil would either be piped directly from offshore operations in the Gulf of Mexico or transferred to the Reserve through exchange arrangements.

Royalty oil is owed to the U.S. government by operators who acquire leases on the federally-owned Outer Continental Shelf. Under current law, federal ownership ranges from 12.5 percent to 16.7 percent of the oil produced from federal leases. The government can either acquire the oil itself or receive the equivalent dollar value.

"This is a very important energy initiative that will benefit the American people and our national security," said Interior Secretary Bruce Babbitt. "We look forward to working with the Department of Energy and our lessees to rebuild America's Strategic Petroleum Reserves."

Matching DOE's and DOI's authorities to both take and exchange royalty oil would enable the federal government to add oil to the SPR without a specific appropriation, and would require no budget offsets. This one time acceptance of royalty-in kind oil is a short-term measure that will not affect the Land and Water Conservation Fund. Under the plan, DOE would cover the approximate $1-per-barrel costs of transporting the oil to the Reserve, if it is not exchanged.

At today's announcement, Secretary Richardson applauded the efforts of Senators Bingaman and Murkowski and Secretary Babbitt.

"I would like to commend Secretary Richardson for his plans to re-fill part of the Strategic Petroleum Reserve," said Senator Frank H. Murkowski (R-Alaska). "It is nice to see officials in the Administration concerned about our national energy security. Buying oil back into the SPR is a win-win-win. It would bolster America's energy security, it would draw down oil from a glutted world market and it would benefit the country's small domestic producers."

Senator Jeff Bingaman (D-NM) said, "I'm very pleased the Administration has taken this critical step. With oil prices at an all-time low, now is the time to strengthen our national energy security by replacing the oil we've drained from the Strategic Petroleum Reserve. Failure to do so would have been a grave mistake."

Money has not been appropriated to purchase oil for the SPR since 1990. Originally authorized by the Energy Policy and Conservation Act (EPCA) in 1975 as the nation's insurance policy, SPR facilities are located in Louisiana and Texas. Currently holding 561 million barrels in reserve for the U.S., its capacity is approximately 680 million barrels.

To put the plan into effect, Richardson has transmitted letters to Congress notifying oversight committees of necessary changes in the Administration's Strategic Petroleum Reserve Plan. Storage of royalty oil is authorized under EPCA and can be implemented administratively, but DOE must formally notify Congress at least 60 days in advance of implementing the royalty oil transfer plan.

-DOE-

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