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Thread: Why the US hides 700 million barrels of oil underground?

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    Why the US hides 700 million barrels of oil underground?

    The world’s superpowers store an enormous stockpile of oil in secure caverns and tanks around the world. So why can’t we use it?

    Something important, and valuable, has been quietly hidden along America’s Gulf Coast. Across four secure sites in unassuming locations lies nearly 700 million barrels of oil – buried underground. A total of 60 subterranean caverns, carved into rock salt beneath the surface, constitute the United States’ massive “Strategic Petroleum Reserve” (SPR).

    The facility was set up 40 years ago and there are now many other huge oil stockpiles dotted around the world. In fact, a whole host of countries have poured billions of dollars into developing such facilities and more are on the way. But what are these reserves – and why would anyone want to bury oil back into the ground in the first place?

    The answer lies in the energy crisis of 1973. Arab oil exporters had cut off the West from their supplies in response to US support for Israel during the Yom Kippur War. The world was so dependent on oil from the Middle East that prices skyrocketed and petrol was soon being rationed at US filling stations. In some cases, it dried up completely. People feared that any petrol they had might be stolen and a few even took to protecting their cars with firearms (see photographs taken during the crisis, below).

    A couple of years later, the US began building its SPR, filling caverns full of crude oil. Were oil supplies to be severely disrupted in the future, now the US would have its own stores to tide them through a price spike and alleviate pressure on global markets. As a government website boasts, “The SPR's formidable size… makes it a significant deterrent to oil import cutoffs and a key tool of foreign policy.” It’s a neat, but expensive, idea. The current year’s budget for maintaining the SPR is $200m.

    Bob Corbin at the US Department of Energy is the person in charge of making sure that money is spent wisely. “All of our sites are located in what we call salt domes,” he explains. “The salt is impervious to the crude oil, there’s no mixing, no breaking down, so it’s a great storage facility.” Corbin, who served for 22 years with the military in the US Coast Guard, is proud of the four sites, which stretch from Baton Rouge, Louisiana to the largest of the four, near the tiny city of Freeport, Texas. He refers to the vast salt storage chambers as “my caverns”. “The sites themselves,” he says, “are very impressive.”

    But there’s not much to see above ground – merely some wellbore heads and pipelines. The wellbores themselves plunge thousands of feet into the caverns below and can push water in at high pressure in order to retrieve the oil through a process of displacement. Corbin adds that managing such infrastructure comes with unique challenges. The salt caverns are not completely stable, for example. Sometimes bits of the walls or ceilings may crumble away, causing damage to machinery which has to be carefully replaced. It’s not possible for workers to enter the caverns physically so, like drilling oil out of a natural well, it has to be done remotely.

    However, special tools can be used to give a little visibility. “Periodically when caverns are empty you can actually shoot sonar images of the caverns,” says Corbin. “And that gives you a three-dimensional way of looking at them.” Some have interesting shapes, he adds. The outline of one chamber, for example, would resemble a large flying saucer.


    America has, in the past, relied on the SPR to help get it out of sticky situations. Take the first Gulf War for example, in which oil distribution in the Middle East was disrupted. Or Hurricane Katrina in 2005, when requests for emergency oil were approved within 24 hours of the storm's landfall.

    Global stockpiles

    The US is far from the only country which has invested heavily in strategic oil reserves. Japan has a series of sites where well over 500 million barrels of oil are stored in large above-ground tanks. The facility at Shibushi, for example is just off-shore. Following the catastrophic earthquake and tsunami which struck Japan in 2011, calls were made to expand the country’s oil stocks in case of crises in the future which might hamper oil distribution again.

    The International Energy Agency (IEA) oversees the release of oil from a wide range of reserves internationally. Martin Young is head of the body’s Emergency Policy Division: “When a country signs up to the IEA there are various obligations,” he says. “One of the key obligations is to hold oil stocks equivalent to 90 days’ imports.”

    But not all countries have salt domes to store oil underground. Nor do all countries even have large, specialised storage facilities for SPR purposes. The UK, for instance, has neither. “What the UK has is an obligation on industry to hold oil at their existing sites above what they would normally do,” explains Young. That oil is quietly kept aside by firms so that the government can access it immediately, if and when it’s needed.

    Two nations which are not members of the IEA, India and China, have in recent years ploughed funds into their own SPRs. The Chinese in particular have ambitious plans. A diverse array of storage locations, dotted across the land will, it is hoped, eventually store almost as much as the Americans in a combination of state-owned facilities and commercial stockpiles. The Chinese don’t have the luxury of salt caverns and have to opt instead for much more expensive storage above ground in tanks. They’re easy to spot on Google Earth and in satellite photos – just look for the rows of large white dots. The SPR site in Zhenhai is just one of these and it currently holds its full capacity of 33 million barrels. “It was big,” says Young, who visited the location a few years ago. “What you see is a whole load of oil tanks co-located with a couple of oil refineries.”

    Narongpand Lisapahanya, an oil and gas analyst at investment group CLSA, says that spending money on developing an SPR is all part of China’s plan to be treated seriously as a global superpower. “If you’re going to be a superpower, you’re going to have to have the reserve,” he says with a laugh. “It helps you become part of treaties globally. If another superpower, during energy events, asks for a release of reserves then China can now take part.”

    No modern superpower, then, is complete without an SPR to call its own. While the growth of reserves around the world is generally welcomed, there are some who worry that countries outside the IEA could use their reserves to manipulate global oil prices by selling off stocks at opportune moments. Of course, mitigating nasty price spikes is exactly why SPRs were invented in the first place, as Carmine Difiglio at the US Department of Energy explains: “Protecting the US economy from sharp increases in domestic petroleum product prices was the purpose of the SPR in 1975 and it remains the purpose of the SPR today,” he says.

    But there’s an important line to draw between that and using an SPR for ad hoc manipulation of the world’s markets. On this point, Martin Young is emphatic: “The oil stocks are not there for price management as such,” he explains, “they’re there to correct a shortage in the market because of a supply disruption.”

    There’s a continual debate about how SPR stocks should be used, though. Some people think releases could be more aggressive while others question whether the US has always taken full advantage of its SPR oil, which is valued at roughly $43.5bn. “For some folks, 700 million barrels in the ground just looks like a gigantic pot of money,” comments Sarah Ladislaw, at the Center for Strategic and International Studies in Washington DC.

    Few, though, would support initiatives to fundamentally change how SPRs are used – in the US or elsewhere. The emphasis is definitely on planning for emergencies and mitigating supply problems. Governments and the IEA prepare for such situations by working out how they would draw oil from SPRs in the event of a crisis. There are even specialist firms which help with this sort of planning, such as EnSys, which has developed a sophisticated computer model to simulate future pricing fluctuations in the oil industry.

    This expertise helps EnSys to advise groups which control SPRs as to when and why they might consider distributing oil to local refineries. As CEO Martin Tallett explains, it’s a numbers game. By how many barrels will your imports be short during a given crisis? How much would have to be released from an SPR to ease that?

    “What we would do is sit down with somebody and say, OK, there’s disruption in the Middle East, maybe North Africa as well,” he says. “And we really start from the numbers rather than spending a lot of time understanding in-depth the geopolitical machinations that could have caused the disruption.”
    As governments and energy bodies continue planning for the worst, oil stockpiles only look set to get bigger and bigger. It’s obvious that the US and many other countries believe their SPRs are a good investment.

    Despite all the preparations, it’s still possible that, during a future crisis, oil might not be distributed quickly enough from the strategic reserves. Would we get a repeat of 1973? Bob Corbin, for one, won’t say: “I wouldn’t want to speculate on what could or could not occur,” he comments. “We’re prepared to deliver whenever we need to.”
    http://www.bbc.com/future/story/2015...il-underground

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    Senior Contributor SteveDaPirate's Avatar
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    Interestingly, one of the biggest limitations on the US Strategic Petroleum Reserve is the rate at which oil can be withdrawn. A maximum of 4.4 million gallons of oil can be pumped out per day. So while the Reserve has enough capacity to cover US oil imports entirely for about 60 days, it would actually take 160 days to withdraw that much.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Now is the best time to fill those tanks. Prices are low due to US shale oil and concerns about global growth.

    However, I do find the US SPR to be an interesting concept. Someone taps a hole in the ground somewhere in the world and extracts oil. The oil is shipped to the US. The government then puts it back underground again....
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    The tanks in the US are full. It's a reserve that's been kept topped up since the mid-70s, much like in most other countries that have one.

    The UK, interestingly, is about the only EU member keeping its SPR amounts classified. Probably because they're likely not conforming to the amount the EU requires since around 1970, i.e. 90 days supply (Ireland also officially does not conform, having a state SPR of 31 days, but conforms through industry reserves).

    The US SPR is for 30 days btw, not 60. It can stretch to 60 if rationing is enacted.

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    Senior Contributor SteveDaPirate's Avatar
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    Quote Originally Posted by kato View Post
    The US SPR is for 30 days btw, not 60. It can stretch to 60 if rationing is enacted.
    The US SPR is 30 days total consumption, 60 days if used alongside domestic production (pre-fracking), but requires 160 days to pump it all out of the ground.

    Now that the hydraulic fracturing boom has taken off, I imagine the SPR may be good for around 90 days alongside domestic production assuming refineries aren't the bottleneck in such a scenario.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by kato View Post
    The tanks in the US are full. It's a reserve that's been kept topped up since the mid-70s, much like in most other countries that have one.
    I don't mean the US should buy right now. I mean nations with SPR but does not have oil in the ground like China, Japan, and India. Oil is cheap. Top it off now. The window should last 18 months to 2 years.

    Quote Originally Posted by kato View Post
    The UK, interestingly, is about the only EU member keeping its SPR amounts classified. Probably because they're likely not conforming to the amount the EU requires since around 1970, i.e. 90 days supply (Ireland also officially does not conform, having a state SPR of 31 days, but conforms through industry reserves).

    The US SPR is for 30 days btw, not 60. It can stretch to 60 if rationing is enacted.
    The US is the largest fossil energy producer in the entire world. SPR is not as critical to us. It's not like we don't have oil. We're just cheap about paying for it. We saw what happened when the price of oil stayed consistently high. We developed shale oil to the point of being profitable. Our conventional oil reserve is even larger than shale. Only stupid environmental laws are preventing us from extracting it.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by SteveDaPirate View Post
    The US SPR is 30 days total consumption, 60 days if used alongside domestic production (pre-fracking), but requires 160 days to pump it all out of the ground.

    Now that the hydraulic fracturing boom has taken off, I imagine the SPR may be good for around 90 days alongside domestic production assuming refineries aren't the bottleneck in such a scenario.
    Right on. The entire North American continent is sitting on oil. We have plenty. The restriction is not due to technology or monetary, but political and environmental reasons.
    Last edited by gunnut; 23 Sep 15, at 00:22.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    gunnut,

    Right on. The entire North American continent is sitting on oil. We have plenty. The restriction is not due to technology or monetary, but political and environmental reasons.
    actually all of the above.

    it's still cheaper for the Saudis to pump their oil than it is for us to do so-- they're currently trying to hurt US shale oil development through OPEC.

    the Saudis are finding to their discomfiture that while they're hurting the US shale oil producers in the short-term, a lot of the capital development has already been sunk in anyways. the surviving shale oil producers can live at the $30 point, still more at the $60 point.

    meanwhile Saudi budgeting and economy is such that they need approximately $80-100 per barrel to break-even, but they're sitting on huge reserves that are getting burned through right now.

    overall it's a great deal for the US and every other developed economy. trillions routed to better causes than buying another oil sheik mansion.

    and i have absolutely no concern that we're not doing as much pumping as we used to; with reduced consumption by china and less profits overall i'd prefer to let the saudis pollute their part of the world for us.

    However, I do find the US SPR to be an interesting concept. Someone taps a hole in the ground somewhere in the world and extracts oil. The oil is shipped to the US. The government then puts it back underground again....
    yeah, you'll see that with a lot of human endeavor. think of all the gold sitting in Fort Knox. for that matter, think of the 30-40% of food that goes to waste in the US because people can't eat it fast enough.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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    Senior Contributor SteveDaPirate's Avatar
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    Quote Originally Posted by gunnut View Post
    The entire North American continent is sitting on oil. We have plenty. The restriction is not due to technology or monetary, but political and environmental reasons.
    I've always wondered (and hoped) this had more to do with grand strategy than with appeasing political parties. The US is currently a wealthy country, and we can afford to buy Middle Eastern and South American oil for a bit more than it would cost us to produce it ourselves. But when the oil starts running out in those parts of the world, we won't be caught with our pants down the way some other countries will, as we'll still be sitting on our own mostly untouched domestic supply.

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    Steve,

    I've always wondered (and hoped) this had more to do with grand strategy than with appeasing political parties. The US is currently a wealthy country, and we can afford to buy Middle Eastern and South American oil for a bit more than it would cost us to produce it ourselves. But when the oil starts running out in those parts of the world, we won't be caught with our pants down the way some other countries will, as we'll still be sitting on our own mostly untouched domestic supply.
    of course, if we're still reliant on gas as a main fuel 100+ years from now, i'll be quite disappointed with the way technology has worked out...

    might be an issue of grand strategy but if that were the case, we'd have a nationalized oil industry instead.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by astralis View Post
    gunnut,

    actually all of the above.

    it's still cheaper for the Saudis to pump their oil than it is for us to do so-- they're currently trying to hurt US shale oil development through OPEC.

    the Saudis are finding to their discomfiture that while they're hurting the US shale oil producers in the short-term, a lot of the capital development has already been sunk in anyways. the surviving shale oil producers can live at the $30 point, still more at the $60 point.

    meanwhile Saudi budgeting and economy is such that they need approximately $80-100 per barrel to break-even, but they're sitting on huge reserves that are getting burned through right now.

    overall it's a great deal for the US and every other developed economy. trillions routed to better causes than buying another oil sheik mansion.

    and i have absolutely no concern that we're not doing as much pumping as we used to; with reduced consumption by china and less profits overall i'd prefer to let the saudis pollute their part of the world for us.
    And here we have a perfect example of how predatory pricing doesn't work too well in the real world.

    Saudis are hurting themselves by supplying oil at below break even point (budget wise, not cost to extract), all in the hope of trying to drive US shale oil out of business. Oh yes, some producers will be driven out of business and others will be hurt. However, the minute Saudis reduce production to bring oil prices back up to their break even point, US shale oil will be back in again.

    The wrench in the whole thing is Saudi's break even point. Sure, it costs them $20 to bring up a barrel of oil. But due to them buying loyalty with money, their real break even point is $100.

    Quote Originally Posted by astralis View Post
    yeah, you'll see that with a lot of human endeavor. think of all the gold sitting in Fort Knox. for that matter, think of the 30-40% of food that goes to waste in the US because people can't eat it fast enough.
    I learned that lesson. I bought a bunch of food from Costco to get ready for a BBQ. Turns out people can't eat 80 hotdogs in one sitting...
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    gunnut,

    And here we have a perfect example of how predatory pricing doesn't work too well in the real world.

    Saudis are hurting themselves by supplying oil at below break even point (budget wise, not cost to extract), all in the hope of trying to drive US shale oil out of business. Oh yes, some producers will be driven out of business and others will be hurt. However, the minute Saudis reduce production to bring oil prices back up to their break even point, US shale oil will be back in again.
    heh, and to throw another wrench in the works, if Iranian oil does go back into the market from the nuke deal, then there's no way the Saudis are going to be able to reduce production without losing significant market share.

    in short, the oil market is such that the US holds some extremely good cards right now. by the way, i think the reduced benefit of having US bring more oil online at this point is the real reason why Hillary is now against the Keystone XL pipeline, not the environmental groups that are basking in the glow of victory.

    re: the Sauds, they've got such a huge war-chest that they can keep on doing this for a long time. they've blown $60 billion in 10 months to play this game ($15 billion in the last month alone), but OTOH they've got $650 billion left to burn.

    hey, i have no problem with them burning away their currency reserves to keep oil prices nice and cheap..:-)

    Turns out people can't eat 80 hotdogs in one sitting...
    were you expecting Kobayashi to show up?! :-)
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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    Quote Originally Posted by astralis View Post
    in short, the oil market is such that the US holds some extremely good cards right now. by the way, i think the reduced benefit of having US bring more oil online at this point is the real reason why Hillary is now against the Keystone XL pipeline, not the environmental groups that are basking in the glow of victory.
    In what sense benefit (interested in the nuances)? in relation to shale supplies and direct profits? or geopolitical? or through the effects on the economy?

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by astralis View Post
    gunnut,



    heh, and to throw another wrench in the works, if Iranian oil does go back into the market from the nuke deal, then there's no way the Saudis are going to be able to reduce production without losing significant market share.

    in short, the oil market is such that the US holds some extremely good cards right now. by the way, i think the reduced benefit of having US bring more oil online at this point is the real reason why Hillary is now against the Keystone XL pipeline, not the environmental groups that are basking in the glow of victory.

    re: the Sauds, they've got such a huge war-chest that they can keep on doing this for a long time. they've blown $60 billion in 10 months to play this game ($15 billion in the last month alone), but OTOH they've got $650 billion left to burn.

    hey, i have no problem with them burning away their currency reserves to keep oil prices nice and cheap..:-)
    Totally agree. I really don't mind the world burning up the Saudi reserves, both oil and money, for the next decade. OPEC ain't what it used to be, thanks to our shale oil. The members also have an incentive to cheat. Plus most of them have an energy exporter based economy. Use up their oil and they are done. Our economy is so diverse that energy production is a blip on our radar. It's nice to have, but we don't depend on it. Take that, OPEC.


    Quote Originally Posted by astralis View Post
    were you expecting Kobayashi to show up?! :-)
    Two smaller versions of him.
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