In another presidential foray into territory once reserved for Congress, President Obama’s Department of Energy is exploring setting up sites to store reserves of gasoline in various places around the country to provide backup when major storms and other emergencies cut off access to local fuel supplies.
Citing long lines at gasoline stations in New York and New Jersey in 2012 after Superstorm Sandy flooded local refineries on the coast, the department this month established the first such reserves, containing 1 million barrels of gasoline to serve the Northeast region. To pay for it, the administration used about half of the nearly $500 million it raised through an unusual test sale of crude oil from the Strategic Petroleum Reserve this spring.
While the Northeast gasoline venture raised some questions and eyebrows on Capitol Hill, congressional Republicans did not try to block it and have expressed little opposition to the administration’s broader plans. The apparent acquiescence led a former George W. Bush administration official who was in charge of the Strategic Petroleum Reserve to lament that major changes are occurring with “little public discussion or policy debate” in a key national security program.
“Changes to the configuration or size of the SPR have always been guided either by legislation or conformance to a plan,” said John Shages, a former deputy assistant energy secretary for petroleum reserves who recently wrote an analysis questioning the administration’s “ad hoc” changes for the Energy Policy Research Foundation.
Mr. Shages blamed gridlock and “severe budget constraints,” as well as the problems posed by a natural shrinkage of the salt caverns holding the petroleum reserves that has occurred in recent years as a result of inadequate maintenance by the Energy Department. That shrinkage — barring a major, costly effort to prevent it — gives the Obama administration an incentive to siphon down the 686-million barrel reserves and replace some of the oil with gasoline, he said.
When the administration announced its plan for gasoline reserves stored in the Northeast this spring with little fanfare, Energy Secretary Ernest Moniz hinted that it may be only the beginning. He has set up an internal review process to determine whether other such regional reserves are needed in times of emergency. The department also still has about $300 million from the test sale of petroleum reserves this spring that analysts say could be used to fund additional gasoline reserves in other regions.
Stuck in the 1970s
The gasoline reserve program appears patterned after a 2 million-barrel heating oil reserve program that President Clinton established for the Northeast during his last year in office. The 2000 Clinton program also was initially funded with exchanges of crude oil from the petroleum reserve, with little involvement from Congress. Eventually, Congress accepted the program, however, and has continued to fund the reserve through regular appropriations bills.
Mr. Moniz, the White House and some members of Congress view the gasoline reserve program as a much-needed updating of the 1970s-era law that established the 700 million-barrel strategic oil reserve. That program envisioned releasing oil primarily in times of national emergency when a disruption in critical oil supplies in the Middle East or elsewhere threatened the U.S. economy.
While Mr. Obama has tapped the reserve for traditional reasons — in 2011, he authorized the sale of 30 million gallons of crude after a civil war temporarily cut off Libya’s oil exports — he is now taking the program in a new direction with the gasoline reserves, which would fill shortfalls mostly stemming from local disruptions in fuel supplies.
Mr. Moniz contends that an update of 1970s-era laws is needed to address the growing risks to energy security that are posed not only by new geopolitical threats, such as cyberattacks or radical Islamic terrorism, but by climate change, which was widely blamed in the Northeast for causing Superstorm Sandy.
“Today, it’s a different world,” he said in commissioning a “quadrennial review” by the department’s staff earlier this year. “The energy world looks nothing like [what] almost all analysts expected — certainly a decade ago. It certainly does not look anything like the oil world of the 1970s.”
Mr. Moniz said the country still needs the Strategic Petroleum Reserve in case of global supply disruptions, but he suggested that structural changes were needed to update the program.
“I think a re-evaluation of a lot of things from the 1970s may be merited [for] crude oil exports [and] the petroleum reserve. The DOE was a child of the 1970s.”
“Maybe,” he told Platts Energy TV, “our structures could be re-examined.”
In refocusing the program to address domestic emergencies as well as international ones, the administration is drawing from precedents established by President George W. Bush as well as Mr. Clinton. Mr. Bush was the first president to tap the petroleum reserves to address shortfalls caused by hurricanes.
Mr. Bush authorized releases of crude oil to refineries in the Gulf Coast area after Hurricanes Lili in 2002, Ivan in 2004, Katrina in 2005 and Gustav and Ike in 2008. Mr. Bush and Mr. Clinton also loaned crude oil to Gulf refineries after barge accidents and ship channel closures temporarily blocked the shipment of crude supplies.
Mr. Shages said the previous two administrations established a pattern of deploying the reserves more frequently and for smaller local emergencies than originally envisioned by authors of the law, thereby establishing precedents that Mr. Obama seeks to build on in creating regional gasoline reserves.
Little opposition seen
The Obama administration’s new direction for the petroleum reserve program for the most part is being carried out quietly, without strenuous or vocal opposition from Congress. Democrats have enthusiastically endorsed the idea of setting up regional gasoline reserves to help their constituents in times of dire need.
House Republicans on the Energy & Commerce Committee have raised questions about what legal authority the department is drawing on in setting up the gasoline reserves as well as the use of “test” oil sales from the petroleum reserves to fund the new gasoline storage sites. The last time the department conducted any test sales was in 1990.
A letter from Energy & Commerce Committee Chairman Fred Upton, Michigan Republican, seeking more information from Mr. Moniz this spring noted that the gasoline reserves were not authorized or funded in the department’s appropriations bill this year or last. Private analysts say that the administration apparently used about $200 million from the $500 million test sale to fund the Northeast gasoline reserve. The department announced plans to create the reserve shortly after conducting the sale.
That leaves about $300 million from the oil sale that the administration could possibly use to set up additional regional gasoline reserves, private analysts say.
Still, despite raising some pointed questions about this unorthodox method of funding the new program and other aspects of the administration’s plans, the committee Republicans did not say they opposed the gasoline project or would raise obstacles to completing it.
New York Sen. Charles E. Schumer and other Democrats credit the administration with using “foresight and purpose” to take action to protect the public during fuel emergencies.
“The sudden, massive gas supply shortage after Superstorm Sandy resulted in interminable lines, panic and delivered a gutshot to the region’s economy,” the New York Democrat said. “That’s why we called for regionally placed reserves to ensure an uninterrupted fuel supply in the event of future storms like Sandy.”
Democrats in Congress have long sought more flexible policies that allow use of the petroleum reserves, for example, to quell temporary gas price spikes that often occur in the spring and summertime in the U.S.
While the gasoline reserve project was praised in Democratic quarters, it got a cool reception from some in the gasoline industry, who view it as governmental interference and competition with the private sector.
An analysis by ClearView Energy Partners noted that President Clinton’s heating oil reserve had the effect of discouraging businesses from accumulating private stockpiles, and thus did little to increase energy reserves or security overall. It said the creation of gasoline reserves might have a similar effect, driving down private stockpiles of gasoline.
Refiners in the Northeast region currently hold nearly 54 million barrels in gasoline stocks, a sizable cushion representing 24.4 days of supply that the energy firm said could grow thinner with the availability of the government reserves.
The department insists that it only intends to store enough gasoline to use in unforeseen emergencies and is not designing the gasoline reserve program to replace private stockpiles or deter refineries from keeping ample backup supplies on hand.