Managing the Strategic Petroleum Reserve: Energy Policy in a Market Setting

Abstract

Ten years ago the US Congress authorized the creation of the Strategic Petroleum Reserve (SPR) with the intent of bolstering energy security. Today the Reserve stands at over 450 million barrels of oil-a large and potentially powerful policy instrument. The questions surrounding the Reserve, however, are many, complex, and largely unresolved. This paper examines these questions, in the process reviewing the analytical approaches to resolving them. The Problems of Oil Supply Disruptions Supply shocks are a recurrent feature of the modern, petroleum-fueled economy. Six times since World War II the world has witnessed disruptions in the flow of crude oil from the Middle East. In 1953, 1957, and 1967, taking advantage of excess production capacity, governments and oil companies cooperated to patch the system together (1, 2).

Escaping Oil’s Stranglehold

“…We present evidence that security considerations are a key determinant of public energy research and development (R&D; Nemet and Kammen 2007; Smith and Urpelainen 2013). However, one of our robustness tests also shows that oil stockpiles, which have been debated in past research (Beaubouef 2007; Hubbard and Weiner 1985), are not an important policy response to security considerations.…”

“…Strikingly, then, federal funding for new energy technologies was higher than investment in developing the nuclear bomb during a world war and comparable to the cost of sending man to the moon. In addition to energy R&D, the federal government implemented fuel efficiency standards for passenger vehicles (Geller et al 2006) and created a huge strategic petroleum reserve (Hubbard and Weiner 1985). Both reduced America’s vulnerability to supply disruptions.…”

Managing the Strategic Petroleum Reserve: Energy Policy in a Market Setting

“…Warnings of dire consequences due to increasing "rigidities" since then (49) have a curious Chicken Little aspect to them ; since an analytical framework is lacking, it is unclear even what would constitute supporting evidence. Unfortunately, although the effects of buffer stock policy are sensitive to assumptions about the ease of reshuffting trade patterns, we are just beginning to model the case intermediate between the "no transaction cost" and "infinite transaction cost" poles (50).…”

“…Indeed, even stockpile models with no uncertainty (8, 9, 60) afford considerable insight into the roles played by market power and strategic behavior. One approach is to have the shocks follow a low-order autoregressive process, ther e by capturing much of the complicated transition matrix apparatus in one or two parameters (50).…”

Selecting China’s strategic petroleum reserve sites by multi-objective programming model

“…Accordingly, western countries began to store emergency petroleum reserves (Fan and Zhang 2010). With the expansion in scale, a strategic petroleum reserve is considered as an effective tool to improve energy security and alleviate price fluctuations (Hubbard and Weiner 1985). According to the reserve agreement, 28 countries of the International Energy Agency were required to hold 90 days of net oil imports for their respective countries.…”