Presentation Topics:Presentation Topics:• Mission and need for ReservesMission and need for Reserves• Energy Outlook: Supply and Energy Outlook: Supply and

ConsumptionConsumption• Storage Method and Storage Method and

DevelopmentDevelopment• How the Reserve is usedHow the Reserve is used• Core Activities - Special Core Activities - Special

InitiativesInitiatives

An Overview of the Strategic Petroleum Reserve - An Overview of the Strategic Petroleum Reserve - Energy Security for American during Changing TimesEnergy Security for American during Changing Times

• To Diminish the Vulnerability of the United To Diminish the Vulnerability of the United States to the Harmful Effects of Petroleum States to the Harmful Effects of Petroleum Supply DisruptionsSupply Disruptions

• To Meet U.S. Obligations under the International To Meet U.S. Obligations under the International Energy ProgramEnergy Program

SPR2603.ppt

SPRSPR MISSIONMISSION

One Team- Relevant, Ready, Responsive, and Reliable

U.S. Energy Policy & Conservation Act (EPCA 1975)U.S. Energy Policy & Conservation Act (EPCA 1975)U.S. Energy Policy Act of 2005U.S. Energy Policy Act of 2005U.S. Energy Independence and Security Act (EISA 2007)U.S. Energy Independence and Security Act (EISA 2007)

• Short-term relief to American Families– More transparent energy trading regulations

• Reduce Imports over the Next Decade– Deploy electric and advanced vehicles (tax credits)– Promote domestic gas and oil production

• Economic Recovery and Job Creation– Renewable “green” energy development– Infrastructure design, development and investment

• Reduce Greenhouse Gas Emissions– U.S. to become a leader in Climate Change

Current Administration’s Energy and Environmental Agenda Items

0

5

10

15

20

25

88 90 92 94 96 98 OO O2 O4 O6 O8

Total Domestic Production

Total Petroleum Consumption

MIL

LIO

NS

OF

BA

RR

EL

S P

ER

DA

YM

ILL

ION

S O

F B

AR

RE

LS

PE

R D

AY

1973

Production as a Share of Consumption

63%

2007

33%

Domestic Production and ConsumptionDomestic Production and ConsumptionDomestic Production and ConsumptionDomestic Production and Consumption

0

1

2

3

4

5

6

7

8

9

10

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Mill

ion

Bar

rels

Per

Day

Domestic Onshore

Alaskan

Lower 48 Offshore

Projected Historical

Liquids from Biomass (Green)Liquids from Coal (Black)

Annual Energy Outlook (AEO) 2009 Projections for U.S. Domestic Production

0

2

4

6

8

10

12

14

16

18

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Mill

ion

Bar

rels

Per

Day

Net Crude Imports

Net Product Imports

Historical Projected

Ethanol Imports

AEO 2009 Projections forU.S. Crude and Product Imports

0

5

10

15

20

25

Mill

ion

Barre

ls P

er D

ay

US Consumption

Domestic Supply

Petroleum Imports

AEO 2009Projections for U.S. Demand, Supply & Imports

Last Year

EIA AEO 2009

66.1

60.8

52.1

43.9

24.3

36.532.9

48.648.3

53.9

59.159.9

0

10

20

30

40

50

60

70

80

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Imp

ort

De

pe

nd

en

ce

(%

) Projected

Historical

EIA Annual Energy Outlook 2009

AEO 2009 Projections for U.S. Crude Import Dependence

Components of Import Dependence Costs

Key Economic Factors in the Energy Outlook

• From 1970 to 1980 oil prices increased by a factor of ten from $3.50 per barrel to $35 per barrel.– 1st Qtr 2015 oil prices between $90 to $100 are consistent with this data

• Lack of Spare Production Capacity played a major role in run up of oil prices just prior to the upside shock at near $150/bbl.– One affect of upside economic shock is demand destruction

• Downside price shocks are likely to occur below $42/bbl. – One affect of downside shock is supply destruction and the curtailment of

the development of alternative fuels

• There is a close (3 to 4x) correlation between oil price and the Finding and Development (F&D) costs.– On a cost basis it is nearly impossible to reach either $200/bbl or $20/bbl

in the current market (Mar 2009).

• Historically, world oil demand grows at 2% less then Gross Domestic Product (GDP).– If GDP is stagnant oil demand could fall by 1MMB/day during this bear

market cycle.

Regional Sources -U.S. Oil Imports Regional Sources -U.S. Oil Imports 20072007Regional Sources -U.S. Oil Imports Regional Sources -U.S. Oil Imports 20072007

*Libya, Iran and Qatar provided none

53%

47%

NON-OPEC OPEC

OPEC / Non-OPEC Imports

32%

19%4%2%

18% 1%

24%

N America

Central & S America

W Europe

E Europe & Former USSR

Middle East

Africa

Asia & Oceania

Proven Oil ReservesProven Oil ReservesProven Oil ReservesProven Oil Reserves

OPEC Reserves* (in billions of

barrels)

World Reserves (in billions of barrels)

*Iran and Libya not shown

261.9

77.235.3115

101.5

11.8

4.7 97.8 15.2

Saudi Arabia Venezuela Nigeria IraqKuwait AlgeriaIndonesia UAEQatar261.9

215.3100.6

16.3

79.2

100.8 36.3

Saudi ArabiaNorth AmericaCentral & South AmericaWestern EuropeE Europe & Former USSRAfricaAsia & Oceania

Top 10 Suppliers – U.S. Oil ImportsTop 10 Suppliers – U.S. Oil ImportsJanuary-December 2008January-December 2008Top 10 Suppliers – U.S. Oil ImportsTop 10 Suppliers – U.S. Oil ImportsJanuary-December 2008January-December 2008

470

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2M

illi

on

s o

f B

arre

ls P

er D

ayM

illi

on

s o

f B

arre

ls P

er D

ay

0

150

300

450

600

750

900

1050

1200

1350

1500

Inve

nto

ry (M

illio

ns)

0

30

60

90

120

Net

Imp

ort

Pro

tect

ion

Day

s

SPR Inventory Days of Import Protection

EPCA and IEA IMPORTATION PROTECTION

GOAL (90 DAYS)

SPR Inventory & Import Protection1977 - 2007

(Public Stocks)

• Concentration Of Salt Domes– Secure– Economical– Low Environmental Risk

• Major U.S. Refinery Area

• Major Crude Oil Distribution Center– Tanker Terminals– Pipelines

• Provides Maximum Flexibility To Respond To A Wide Range Of Interruptions

• Concentration Of Salt Domes– Secure– Economical– Low Environmental Risk

• Major U.S. Refinery Area

• Major Crude Oil Distribution Center– Tanker Terminals– Pipelines

• Provides Maximum Flexibility To Respond To A Wide Range Of Interruptions

Where Public Reserves are Located-Where Public Reserves are Located-Gulf Coast StorageGulf Coast Storage

Where Public Reserves are Located-Where Public Reserves are Located-Gulf Coast StorageGulf Coast Storage

LOUISIANALOUISIANALOUISIANALOUISIANATEXASTEXASTEXASTEXAS

MISSISSIPPIMISSISSIPPIMISSISSIPPIMISSISSIPPI

SPRNEW ORLEANSSPRNEW ORLEANS

Gulf of MexicoGulf of MexicoGulf of Mexico

WESTHACKBERRY

WESTHACKBERRY

LAKECHARLESLAKECHARLES

BIG HILLBIG HILLTEXAS CITYTEXAS CITY

HOUSTONHOUSTON

BATONROUGEBATONROUGEBEAUMONT

PORT ARTHURBEAUMONTPORT ARTHUR BAYOU

CHOCTAWBAYOUCHOCTAW

BRYANMOUNDBRYANMOUND

SPR WAREHOUSE(Stennis)SPR WAREHOUSE(Stennis)

RICHTON(Proposed New Site)RICHTON(Proposed New Site)

SPR STORAGE FACILITY

SPR WAREHOUSE (Stennis)

CITIES

RICHTON (Proposed New Site)

SPR STORAGE FACILITY

SPR WAREHOUSE (Stennis)

CITIES

RICHTON (Proposed New Site)

Designed Storage CapacityDesigned Storage Capacityand Future Developmentand Future DevelopmentDesigned Storage CapacityDesigned Storage Capacityand Future Developmentand Future Development

BayouBayouChoctawChoctaw

WestWestHackberryHackberry

BigBigHillHill

BryanBryanMoundMound

254 MMB254 MMB

RichtonRichton

+160 MMB+160 MMB170 MMB

+80

170 MMB

+80227 MB227 MB 76 MMB

+33

76 MMB

+33

Authorized- 1,000 MMBCapacity- 727 MMBCurrent Inventory 706 MMB

April 4, 2009

Reserve Distribution Capability

PAD V

16-18 DAYS

Puerto Rico/Virgin Islands

20-24 DAYS 5-6 DAYS

6-8 DAYS

PAD I

Hawaii

SPR

PAD III

PAD IV PAD II

Industrial Energy Supply ChainIndustrial Energy Supply Chain

Production -> Refining -> Distribution

Convention Gasoline SupplyConvention Gasoline Supply

Components ofLight Vehicle “Upstream”

Energy Supply

A Model Gasoline and Ethanol Supply SystemA Model Gasoline and Ethanol Supply System

Development of Crude Oil Storage-Development of Crude Oil Storage-Size ComparisonSize ComparisonDevelopment of Crude Oil Storage-Development of Crude Oil Storage-Size ComparisonSize Comparison

Empire StateEmpire StateBuildingBuilding

1,454 Feet1,454 Feet(443 Meters)(443 Meters)

New OrleansNew OrleansSuperdomeSuperdome

273 Feet273 Feet(83 Meters)(83 Meters)

Salt Dome Salt Dome Cavity Cavity

2,000 Feet2,000 Feet(610 Meters)(610 Meters)

Very large diameter

Cap Rock Forms on top of a Rising Salt Column

Evolution of Gulf Coast Evolution of Gulf Coast Salt DepositsSalt Deposits

Geology of Salt DomesGeology of Salt Domes

Evolution of Gulf Coast Evolution of Gulf Coast Salt DepositsSalt Deposits

Geology of Salt DomesGeology of Salt Domes

Storage Cavern DevelopmentStorage Cavern Development

Brine OutBrine Out

OilOilOilOil

Water InWater In

LeachingStage II

LeachingStage II

BrineBrine

OilOil

OilOil

BrineBrine

OilOil OilOilBrine OutBrine Out

Water InWater In

LeachingStage I

LeachingStage I

OilOil

BrineBrine

OilOil

Storage Cavern Storage Cavern CompleteCompleteStorage Cavern Storage Cavern CompleteComplete

OilOil

BrineBrine

Oil Storage ConfigurationStandby mode

Storage Cavern Storage Cavern DrawdownDrawdownStorage Cavern Storage Cavern DrawdownDrawdown

Water InWater In

Oil OutOil Out Oil OutOil Out

OilOil

BrineBrine

Salt DomeSalt Dome

Salt Cavern Storage Technology

• Salt Dome Storage for Hydrocarbon Storage Patented in 1919

• Used Commercially for – Crude– Refined Products– Natural Gas– LPG

• Used for Oil Reserves by– U.S.A. – Germany– France– Netherlands

Brine Disposal MethodsBrine Disposal MethodsBrine Disposal MethodsBrine Disposal Methods

80

00

Fe

et

80

00

Fe

et

80

00

Fe

et

80

00

Fe

et

BrineBrine

Brine PondBrine Pond

Brine Brine Disposal Disposal PumpsPumps

BrineBrineInjection Injection PumpsPumps

OxygenOxygenScavengerScavengerInjectionInjection

BasketBasketStrainerStrainer

Polish FiltersPolish Filters

BrineBrineDisposalDisposal

WellWell

CavernCavern

Brine Disposal in WellsBrine Disposal in Wells Brine Disposal Pipeline to GulfBrine Disposal Pipeline to Gulf

Raw Water IntakeRaw Water Intake

PumpsPumpsWater to CavernsWater to Caverns

Water SourceWater Source

CavernCavern

Oxygen ScavengerOxygen ScavengerInjectionInjection

Brine Line Brine Line To Gulf Of MexicoTo Gulf Of Mexico

Brine PondBrine Pond

BrineBrineDisposalDisposalPumpsPumps

BrineBrine

0

100

200

300

400

500

600

700

800

77 79 81 83 85 87 89 91 93 95 97 99 O1 O3 O5 O7

Calendar YearCalendar Year

Mil

lio

ns

of

Ba

rre

lsM

illi

on

s o

f B

arr

els

Cumulative Strategic Petroleum Reserve Oil FillCumulative Strategic Petroleum Reserve Oil Fill

High Sulfur

Low Sulfur

U.S. Presidential Authority

• Presidential Finding:– A “Severe Energy

Supply Disruption”– IEP Obligations

• Two Levels Defined:– Full Drawdown– Limited Drawdown - 30 MMB

U.S. Presidential Authority

• Presidential Finding:– A “Severe Energy

Supply Disruption”– IEP Obligations

• Two Levels Defined:– Full Drawdown– Limited Drawdown - 30 MMB

Authority & Conditions for UseAuthority & Conditions for Use

Authority & Conditions for UseAuthority & Conditions for Use

Secretary of Energy Authority

• Oil Exchange Authority:– To Acquire Oil for the Reserve

– To Alter Crude Mix

• Test Sale Authority:– To Test Reserve Capabilities

– Limited to 5 MMB

Secretary of Energy Authority

• Oil Exchange Authority:– To Acquire Oil for the Reserve

– To Alter Crude Mix

• Test Sale Authority:– To Test Reserve Capabilities

– Limited to 5 MMB Dr Steven Chu

How the Reserve Has Been UsedHow the Reserve Has Been Used

Ivan Exchange 5.4 MMB

CongressionalSales

28 MMB

Test Sale ’903.9 MMB

Test Sale ’851 MMB

Desert StormDrawdown17.3 MMB

Time Exchanges 2000

30 MMB

3030

2020

1010

00

55

1010

1515

Mill

ion

s O

f B

arre

lsM

illio

ns

Of

Bar

rels

1985 1990 1995 20062000 2005 2007

Maya Exchange

Incoming ‘99

Maya Exchange

Outgoing ‘98

2005 Hurricane Exchange and

Drawdown20.8MMB

Calcasieu Exchange

750K

Receipt of Katrina

Exchange Oil

• $4.50-$5.00 Per Barrel Storage Development (Historical)

• Operating Cost Per Barrel Per Year 17 Cents

• Cost Per Barrel Drawdown Reserve 10.29 Cents(One Barrel = 42 gallons with 90 Day Drawdown Of 396 mmb)

• $4.50-$5.00 Per Barrel Storage Development (Historical)

• Operating Cost Per Barrel Per Year 17 Cents

• Cost Per Barrel Drawdown Reserve 10.29 Cents(One Barrel = 42 gallons with 90 Day Drawdown Of 396 mmb)

Cost Per BarrelCost Per Barrel

FY 2009 AUTHORIZED STAFFINGFY 2009 AUTHORIZED STAFFINGFY 2009 AUTHORIZED STAFFINGFY 2009 AUTHORIZED STAFFING

DOE- 95 authorized full time equivalents (FTE)

Contractors and Subs* – 820 authorized FTEs

*Supporting organizations- M&O, Security, Support Services, A-E, Geotechnical, and Construction Management

0

200

400

600

800

1000

DOE

ContractorsandSubcontractors

Core Business Operations Areas

Coordinates with Federal, State and LocalResponse Agencies And Private Response Entitles

Emergency Response Teams at Each Site AttendAnnual Firefighting Training and ReceiveHazardous Materials Clean-Up Training

Coordinates with Federal, State and LocalResponse Agencies And Private Response Entitles

Emergency Response Teams at Each Site AttendAnnual Firefighting Training and ReceiveHazardous Materials Clean-Up Training

Emergency Management Emergency Management and Fire Protectionand Fire ProtectionEmergency Management Emergency Management and Fire Protectionand Fire Protection

Charter Member National Environmental Performance TrackOpen Only To Organizations WithStrong Compliance Record

ISO 14001 Environmental Management System 1st US Bulk Petroleum Storage Entity Certified

Voluntary Protection Programs (VPP) Achieved STAR Status Rating From Occupational Safety And Health Administration (OSHA)

Charter Member National Environmental Performance TrackOpen Only To Organizations WithStrong Compliance Record

ISO 14001 Environmental Management System 1st US Bulk Petroleum Storage Entity Certified

Voluntary Protection Programs (VPP) Achieved STAR Status Rating From Occupational Safety And Health Administration (OSHA)

Environmental, Safety & HealthEnvironmental, Safety & HealthEnvironmental, Safety & HealthEnvironmental, Safety & Health

Primary Customer Team

Establish Dialogue With Petroleum IndustryPrimary Customers – Refiners and Traders

Open Communications with SPR Stakeholders,the Public, International visitors and Industry

Primary Customer Team

Establish Dialogue With Petroleum IndustryPrimary Customers – Refiners and Traders

Open Communications with SPR Stakeholders,the Public, International visitors and Industry

Customer Customer ServiceServiceCustomer Customer ServiceService

In 1999 Interagency Agreement W/ Dept of Interior to divert Federal Royalty Oil Payments From Leases in the Gulf Of Mexico to the SPR

In Nov 2001 The President directed the SPR be Filled To 700 mmb Through RIK Program

As Of Dec 06 SPR has received 138.8 mmb Under RIK Program

During 2006, the SPR received 158,746 barrels of RIK oil

In 1999 Interagency Agreement W/ Dept of Interior to divert Federal Royalty Oil Payments From Leases in the Gulf Of Mexico to the SPR

In Nov 2001 The President directed the SPR be Filled To 700 mmb Through RIK Program

As Of Dec 06 SPR has received 138.8 mmb Under RIK Program

During 2006, the SPR received 158,746 barrels of RIK oil

Royalty-In-KindRoyalty-In-KindRoyalty-In-KindRoyalty-In-Kind

Energy Policy Act of 2005 authorized Secretary of Energy to fill the SPR to 1 billion barrelsEnergy Policy Act of 2005 authorized Secretary of Energy to fill the SPR to 1 billion barrels

On December 8, 2006, Department of Energy selected salt dome at Richton, MS as an expansion siteOn December 8, 2006, Department of Energy selected salt dome at Richton, MS as an expansion site

On February 14, 2007 The Secretary of Energy signed the Record of Decision selecting the following sites for the expansion of the SPR:

Richton (New site)Big Hill (Existing site)Bayou Choctaw (Existing site)

On February 14, 2007 The Secretary of Energy signed the Record of Decision selecting the following sites for the expansion of the SPR:

Richton (New site)Big Hill (Existing site)Bayou Choctaw (Existing site)

Acquisition of AdditionalAcquisition of Additional Storage CapacityStorage Capacity

Acquisition of AdditionalAcquisition of Additional Storage CapacityStorage Capacity

Currently Planning and Development work is underway.Currently Planning and Development work is underway.

Public Scoping meetings/Town Hall Meeting conducted April 7-10, 2008Public Scoping meetings/Town Hall Meeting conducted April 7-10, 2008

Reference and Helpful LinksReference and Helpful Links

• U.S. Department of Energy Website: www.energy.gov• Energy Information Administration: http://www.eia.doe.gov• U.S. Department of Energy, Fossil Energy Website:

http://www.fe.doe.gov/programs/reserves/• International Oil Stockpiling Symposium Presentations:

http://www.petrostock.org/• Whitehouse Energy and Environment Agenda

www.whitehouse.gov/agenda/energy_and_environment/• Book: “The Strategic Petroleum Reserve- US Energy

Security and Oil Policy, 1975-2005” by Bruce A. Beaubouef, Texas A&M University Press, College Station, 2007.

Conclusion, Summary and Questions