Assessing the Use of Strategic Oil Stocks

The U.S. Strategic Petroleum Reserve (SPR) has been a crucial component of the U.S. energy security apparatus since its inception in the 1970s. SPR policy has remained relatively unaltered despite tremendous changes in world oil markets and the global economy in the 40 years since the creation of the SPR. For instance, oil has become a more fungible commodity and is traded in market exchanges rather than in long-term contracts. In addition, market players have dramatically changed with developing countries consuming an increasingly larger share of the world’s oil and OECD countries experiencing decreasing demand. In the U.S., the surge in domestic oil and gas production is changing the face of U.S. energy security policy.

The U.S. Department of Energy (DOE) tasked the Capstone team to reassess the current policies governing the crude oil reserve, specifically, its size, composition, location, and how to coordinate its use with other key energy importing countries. The Capstone team constructed an SPR model to estimate the GDP benefits of maintaining strategic crude oil reserves. Through advanced economic modeling, we created a second model that identifies the costs and benefits of strategic stocks of refined petroleum products—including gasoline and diesel in addition to crude oil—to protect against regional disruption threats, such as hurricanes and storms. The team incorporated their quantitative analytic results into the findings from our literature review and extensive interviews to provide the DOE with a memo outlining policy recommendations for how to govern the SPR in this new energy era.

Press Release:

Greenwire http://www.eenews.net/greenwire/stories/1059975763