Oil Change » Interactive http://oilchangeproject.nationalsecurityzone.org The World's Most Precious Commodity and the Future of U.S. Security Wed, 08 May 2013 18:39:32 +0000 en-US hourly 1 http://wordpress.org/?v=3.5.2 Timeline: America’s quest for a secure supply of energy http://oilchangeproject.nationalsecurityzone.org/energy-security-has-been-a-concern-throughout-history/ http://oilchangeproject.nationalsecurityzone.org/energy-security-has-been-a-concern-throughout-history/#comments Fri, 30 Nov 2012 17:09:59 +0000 Ali Durkin http://oilchangeproject.nationalsecurityzone.org/?p=210 ]]> http://oilchangeproject.nationalsecurityzone.org/energy-security-has-been-a-concern-throughout-history/feed/ 0 The rise and fall of production and consumption http://oilchangeproject.nationalsecurityzone.org/oil-powers-the-world-and-ties-nations-together/ http://oilchangeproject.nationalsecurityzone.org/oil-powers-the-world-and-ties-nations-together/#comments Tue, 27 Nov 2012 15:25:18 +0000 Dana Ballout http://oilchangeproject.nationalsecurityzone.org/?p=55

Global petroleum and other liquid consumption and production

in thousands of barrels per day

Looking at these charts, a few trends emerge.

First, American consumption of oil has decreased. This is partly because of a decline in demand due to high oil prices, but also because the U.S. has become more energy efficient. Newer cars, and new kinds of cars like hybrids, get more miles to the gallon, among other efficiencies. The drop in oil consumption, especially when combined with growing U.S. domestic production, also has raised important foreign policy questions, like whether the U.S. will stop needing oil from OPEC countries.

Second, the spike in oil consumption in Asia is a significant trend caused mostly by the steady increase of populations in places like India, China and Indonesia. Asia’s steady increase in oil production, while far from Middle East levels, has the potential to create new and strong Asian markets.

The same climb in oil demand is true for the Middle East. Oil-rich nations like Saudi Arabia, whose population is also increasing, may need to cut down on exports to serve domestic demand.

Yet Middle East oil continues to dominate the world’s oil production, despite increases in Asian and U.S. production.

]]>
http://oilchangeproject.nationalsecurityzone.org/oil-powers-the-world-and-ties-nations-together/feed/ 0
Domestic sources integral to U.S. energy security, but may be vulnerable http://oilchangeproject.nationalsecurityzone.org/domestic-sources-are-integral-to-our-nations-security-what-are-we-doing-to-protect-them/ http://oilchangeproject.nationalsecurityzone.org/domestic-sources-are-integral-to-our-nations-security-what-are-we-doing-to-protect-them/#comments Thu, 22 Nov 2012 15:30:54 +0000 Elizabeth Bunn http://oilchangeproject.nationalsecurityzone.org/?p=60

U.S. Vulnerabilities

The following facilities represent some the most important oil and petroleum infrastructure in the United States. The vulnerability of these systems depends on several factors, including location, capacity and redundancy.

Port of Houston
Newington, Va., Storage Facility
Louisiana Offshore Oil Port
Cushing, Okla.
Port of Miami
Port Everglades

Colonial Pipeline
Plantation Pipeline
Trans-Alaska Pipeline

Major U.S. Refineries


From Port (to Pipeline) to Pump: How Safe is U.S. Oil?

Nearly eight years ago, the U.S. government identified 15 scenarios in which hypothetical incidents were capable of threatening the nation’s economy and power supply.

One of those scenarios was the possibility of a large hurricane hitting a major metropolitan area such as New York City and causing catastrophic damage including knocking out power to millions, said homeland security expert David McIntyre.

“Although the threat was laid out at the federal level, state and local leaders did nothing to prepare for it,” he said.

U.S. Incident Timeline

2001
A man fired a high-powered rifle at the Trans-Alaska pipeline, causing oil to spill and forcing officials to isolate a section of the pipeline.

2005
Hurricane Katrina wreaked havoc in the Gulf, destroying or damaging platforms, refineries and pipelines. Following Katrina, U.S. oil supply declined as much as 1.4 million barrels per day.

2006
Federal authorities discovered a website post linked to al-Quida. The detailed post called for attacks on American pipelines using weapons or hidden explosives.

2007
The Department of Justice arrested members of a terrorist group attempting to blow up the fuel pipelines and storage tanks at New York’s JFK airport.

2007
A U.S. citizen was convicted of working with al-Quida to try and blow up the Trans-Alaska pipeline.
2012 Hurricane Sandy idled almost 70 percent of the East Coast’s refining capability. The storm closed two-thirds of the East Coast’s refineries, its biggest pipeline and most major ports.

The hypothetical became real on October 29 when Hurricane Sandy slammed into New York and New Jersey, idling nearly 70 percent of the East Coast’s oil refining capability, flooding entire neighborhoods and causing more than 100 deaths.

In a December hearing before the Senate Committee on Commerce, Science and Transportation, Patrick Foye, executive director of The Port Authority of New York and New Jersey, testified that the storm will likely cost the region tens of billions of dollars in damages.

Many experts say they believe future storms could be even more damaging. “That’s my concern for petroleum critical infrastructure,” said McIntyre, a former director of the Integrative Center for Homeland Security at Texas A&M. “What low probability but high consequence events are out there, and have we been properly preparing for them?”

Deciding which events to spend money planning for requires setting priorities, and the U.S. government hasn’t done a great job of that, said Todd Keil, former undersecretary of the Department of Homeland Security’s Office of Infrastructure Protection. “Identifying the risk and where you put your resources is the biggest challenge.”

The Department of Homeland Security has a classified list of facilities it has identified as “national critical infrastructure” based on two criteria – economic impact and potential fatalities, Keil said. The energy sector is among the 18 sectors reviewed.

Although the list is classified, some experts have suggested what types of high-priority infrastructure may be considered for it.

“If I had to pinpoint something I’d look to refineries,” said Adm. James Loy, former deputy secretary of the Department of Homeland Security. Refineries convert crude oil into usable petroleum products such as gasoline and jet fuel.

Pipelines play a critical role as well, and may be harder to secure and protect, said Paul Rosenzweig, former deputy assistant secretary for policy in the Department of Homeland Security. “If you have an oil refinery, you can put up fences, hire guards and do a pretty decent job of getting yourself together on that,” Rosenzweig said. “If you have a 2,000-mile pipeline from Canada to Texas, you simply cannot protect the entire pipeline.”

The Colonial Pipeline, for example, spans more than 5,000 miles from Houston, Texas to Linden, N.J., and delivers more than 2 million barrels per day of gasoline, diesel fuel and home heating oil from the Gulf Coast to the Northeast. The Colonial Pipeline also delivers jet fuel to major airports, including Atlanta International, Dulles International and Reagan National Airport in Washington.

Natural Disasters

Energy experts say natural disasters pose the greatest risk to energy infrastructure, in large part because most of the nation’s critical petroleum infrastructure is concentrated in and around the Gulf of Mexico.

“The real greatest vulnerability is the rather unsexy natural disaster and accident stream,” Rosenzweig said. “That probably outweighs the terrorist threat, either through physical attack or cyber, by a significant degree.”

Houston alone contains many major refineries that together account for approximately 30 percent of the nation’s refining capacity, Rep. Michael McCaul, R-Texas, said in a 2011 House Homeland Security Committee hearing. Houston’s 25-mile ship channel and surrounding area receives almost 25 percent of all U.S. oil imports.

“If catastrophe struck the port, there is little spare capacity to import and refine crude oil anywhere else in the country,” McCaul said in the statement prepared for the hearing.

Elsewhere in the Gulf of Mexico, hurricanes pose a threat to such critical facilities as the Louisiana Offshore Oil Port, a terminal approximately 18 miles south of the Louisiana Coast. The LOOP is the single largest point of entry for oil tankers carrying crude oil to the United States, and it is the only platform in the nation capable of accommodating oil supertankers.

“The Houston Ship Channel is significant. The Colonial Pipeline is significant. The LOOP is significant,” Keil said. “There would be a significant impact should something happen to any of those.” The impact could range from short-term supply disruptions and price spikes to longer term shortages, depending on the severity of the incident.

When Hurricane Katrina hit the Gulf in 2005, it caused a 95 percent reduction in daily Gulf oil production, according to the U.S. Energy Information Administration. The storm closed refineries, disrupted crude oil and petroleum imports and caused oil prices to skyrocket. And experts say it may get worse before it gets better.

“Most if not all of the predictions are for more storms and for more severe storms,” Loy said. “It is a quite serious matter for both the industry and the people who respond to such events.”

Cyber Threats

National security experts cite cyber safety as another significant – and rapidly growing – concern with respect to the energy sector. “Unfortunately, most of our infrastructure today is in one way or another connected to the Internet,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think tank. “Once you have access to the Internet, you basically are open to everything that the Internet brings.”

Thomas Cellucci, a former commercialization officer who managed public-private partnerships at the Department of Homeland Security, also emphasized the growing cyber threat. “That’s the biggie,” Cellucci said. “Cyber attacks are really something that ‘govvies’ worry about, and they should.”

Increasingly, refineries and pipelines run on computer-controlled systems called supervisory control and data acquisition – or SCADA – systems. Designed to increase efficiency, the systems also create vulnerabilities.

“The attacks that are most likely to cause real civilian harm are attacks on the industrial control systems,” said Stewart Baker, former assistant secretary for policy at the Department of Homeland Security. “Not the Windows networks, but the industrial systems that are built on software increasingly and that make pipelines work, refineries work.”

Targeting industrial systems is on the rise. In July 2012, a security company discovered the Stuxnet virus. Many speculate that the sophisticated virus was state-sponsored—either by the United States, Israel or both—and designed to infiltrate and undermine Iran’s uranium enrichment facility.

One month later, state-owned Saudi Arabian Oil Co., better known as Saudi Aramco, reported that a virus called Shamoon infiltrated the company’s computers. “More than 30,000 computers that it infected were rendered useless and had to be replaced,” said Secretary of Defense Leon Panetta in an October 2012 speech. “It virtually destroyed 30,000 computers.”

There is no evidence that the U.S. has encountered such an attack on domestic oil infrastructure, Baker said, but the likelihood increases as the tools required to execute an attack get easier to use. “My biggest worry about this is that every year, the kind of damage that can be done by a handful of people grows.”

Baker said he’s also concerned there isn’t enough preparation for mitigating these threats. A lot of the attention has focused on making systems harder to hack, he said, which is really about putting up defenses, and not about what happens if those defenses fail.

Terrorist Attacks

The energy sector, along with the transportation and banking and finance sectors, is one of the most likely to be targeted by terrorists, Keil said. “These three things together I think are very, very primary targets – from an operational perspective and from an ideological perspective.”

In 2006, a group of al-Qaida terrorists launched a well-planned, but unsuccessful attack against the Abqaiq processing facility, one of Saudi Arabia’s most crucial oil facilities. Two days after the attack, according to a report released by the Jamestown Foundation, al-Qaida affiliated cleric Sheikh Abd-al-Aziz bin Rashid al-Anzi published the terrorist group’s religious justification for attacking oil infrastructure called “The Religious Rule on Targeting Oil Interests.” In it, he wrote: “Targeting oil interests is lawful economic Jihad. Economic Jihad in this era is the best method to hurt the infidels.”

Former al-Qaida leader Osama bin Laden also urged his followers to attack the oil industry as a way of striking at the center of gravity of the U.S. and its allies.

Keil said the terrorist threat to energy infrastructure is particularly worrisome when it comes to cyber. “What we were seeing is that [the terrorists] up to this point were using the cyber arena more as a tool rather than a weapon,” Keil said. “But that’s just around the corner. I think we’re probably on the cliff of the established terrorist groups using cyber as a weapon.”

But identifying and prioritizing cyber threats and other infrastructure risks does not mean the U.S. is prepared to deal with such risks, Keil said.

“There was a lot of assessment and risk identification work being done,” he said, “but there were no metrics to determine if actual steps were being taken … we had no idea if anything was being done or not.”

The Department of Homeland Security started developing a way to assess progress a few years ago, Keil said. Current Department of Homeland Security officials declined to comment.

But homeland security veteran McIntyre said it’s still unclear how the federal government prepares for threats, a reality he said is particularly troubling when considering low-likelihood, high-impact scenarios.

To McIntyre, that means an incident on par with shutting down refineries, simultaneously attacking three different parts of a major pipeline, or preventing heating fuel from reaching parts of the Northeast U.S. for a prolonged period of time.

“But unless somebody has some sort of public oversight, we don’t know if that’s been considered,” McIntyre said. “That’s why I think the legislative branch needs to be sure they’re providing oversight on critical infrastructure issues.”

]]>
http://oilchangeproject.nationalsecurityzone.org/domestic-sources-are-integral-to-our-nations-security-what-are-we-doing-to-protect-them/feed/ 0
Strategic Petroleum Reserve: A hedge against shortages http://oilchangeproject.nationalsecurityzone.org/strategic-petroleum-reserve-is-buffer-against-shortages/ http://oilchangeproject.nationalsecurityzone.org/strategic-petroleum-reserve-is-buffer-against-shortages/#comments Wed, 21 Nov 2012 15:34:53 +0000 Christina Choi http://oilchangeproject.nationalsecurityzone.org/?p=242
Introduction

Created in 1975, two years after the Arab oil embargo, the Strategic Petroleum Reserve is designed to be the U.S. insurance policy in case of an oil shortage that rises to the level of a national security emergency. The SPR consists of four facilities on the Gulf Coast that can hold a combined 727 million barrels of crude oil. The U.S. currently has 694.9 million barrels of crude oil stored in the SPR’s naturally occurring salt domes in Texas and Louisiana, enough to replace current net oil imports for about 82 days.

Since its inception, one of the original tenets of having a strategic stockpile was that its existence would discourage the use of oil as a political weapon. The embargo imposed by Arab oil producers was intended to create a very discernible physical disruption; in fact, the result was long lines of cars at the gas stations in the U.S. in the early 1970s.

“The genesis of the SPR was focused especially on deliberate and dramatic physical disruptions of oil flow, and on blunting the significant economic impacts of a shortage stemming from international events,” according to a report by the Congressional Research Service, the independent research arm of Congress. The Arab oil embargo also was the impetus for the establishment of the International Energy Agency, a group of 28 member countries that maintain their own emergency reserves in order to respond to energy crises.

The SPR has an estimated value of $64 billion in crude oil, and the U.S. has invested $23.3 billion over time to build and maintain the emergency reserves.

The president has the authority to tap it only in the case of a “severe energy supply interruption,” according to legislation, which has occurred under these findings only three times over the past 36 years. President George H.W. Bush ordered the first release in 1991 at the beginning of the first Gulf War. President George W. Bush ordered the second release in 2005 after Hurricanes Katrina and Rita caused damage to the oil industry. And finally, the third was in 2011 when President Barack Obama ordered a drawdown as part of a coordinated IEA drawdown in response to the shutdown of Libyan oil exports.

The Energy Policy and Conservation Act says the reserve should be used only to ameliorate discernible physical shortages of crude oil, although the meaning of law’s language has been debated. Its use, cost and policies have inspired heated arguments in Congress and elsewhere over its purpose and its management, with critics noting that in today’s global economy the U.S. can buy oil on the open market. In addition, some question whether a stockpile of emergency fuel is necessary if the government is using other means to intervene in oil markets. For example, a Foreign Policy article noted, “Every president since Ronald Reagan has used Saudi Arabia as his de facto SPR” and that for decades, the U.S. presidents have been able to rely on Middle Eastern producers to pre-release oil in anticipation of times of war.

The reserve facilities are tightly guarded. The Bayou Choctaw facility outside of Baton Rouge, La., has metal fences topped with barbed wire, security posts, armed guards, and multiple “No Trespassing” signs. Treated almost like a nuclear site, according to one former Energy Department official, the SPR is America’s petroleum Fort Knox, patrolled by small armies of private security guards. The Department of Energy has declined to discuss what goes inside the heavily guarded sites.

A reporter from the Medill National Security Reporting Project spent months trying to gain access and had multiple requests denied by the Strategic Petroleum Reserve office, which is part of the Department of Energy. Officials said they were “unable to accommodate requests for a site visit at this time.”
 
 


History

History of the Strategic Petroleum Reserve

Picture 1 of 14

The United States is the largest consumer of crude oil and petroleum products. The origin of the Strategic Petroleum Reserve is the Arab oil embargo that halted exports to the U.S. during the 1973 Arab-Israeli War. As a result, fuel shortages caused economic disruptions in the U.S. economy. U.S. Department of Energy


How It Works
The Strategic Petroleum Reserve is a U.S. government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. The caverns have a capacity of 727 million barrels and store emergency supplies of crude oil owned by the U.S. government.

  • Bryan Mound holds 254 million barrels in 20 caverns
  • Big Hill holds 170.1 million barrels in 14 caverns
  • West Hackberry holds 228.2 million barrels in 22 caverns
  • Bayou Choctaw holds 73.2 million barrels in 6 caverns

America’s Strategic Reserve of Oil

In case of an emergency disruption to its oil supply, the U.S. has the largest stockpile of government-owned emergency crude oil in the world, which would provide about 82 days of import protection for Americans. But how does the Strategic Petroleum Reserve work?

Shages-SPR Presentation 2007
Where is it stored?
U.S. emergency crude oil is stored thousands of feet underground in salt caverns, some of them extending a mile beneath the earth’s surface. There are four locations in the Gulf region: Bryan Mound in Brazoria County, TX; Big Hill in Jefferson County, TX; West Hackberry in Cameron Parish, LA; and Bayou Choctaw in Iberville Parish, LA.
Why salt caverns?
They were deemed a more secure, affordable and long-lasting means of storage than above ground tanks. Salt caverns have been used for storage for many years by the petrochemical industry, so the U.S. government acquired previously created salt caverns to store crude oil when they created the SPR.
Why crude oil?
Crude oil is cheaper to acquire, store and transport than refined products. It also doesn’t degrade over time.
Administrative costs?
It costs about $3.50 per barrel stored per year, considerably lower than in Europe and Asia. The U.S. has invested $23.3 billion to build and maintain the SPR, according to government estimates.

How It Is Stored

Screen Shot 2012-12-13 at 5.38.02 PM
Salt caverns are carved out of underground salt domes by a process called “solution mining.” The process involves drilling a well into a salt formation, then injecting massive amounts of water. The water dissolves the salt. The dissolved salt becomes brine and is piped offshore into the Gulf of Mexico. Oil is then pumped into the caverns.
Screen Shot 2012-12-13 at 5.48.53 PM
In the event of a drawdown, water is pumped into the bottom of the cavern. Since oil floats on water, the oil will rise to the surface. The oil can be quickly withdrawn and distributed quickly to nearby refineries, pipelines and tankers in the Gulf Coast.



The oil reserve inventory was 694.9 million barrels as of Nov. 30, 2012

What is the difference between sweet and sour crude oil?

The difference is the crude’s sulfur content. Sweet grades have less than 0.5 percent sulfur, whereas sour crude has a higher level. The SPR holds both sweet and sour crude, and they are contained in caverns designed as either sweet or sour.

Why is there more sour than sweet oil?
The ratio was determined to meet the needs of the U.S. refining industry. Nearly all refiners can process sweet crude oil; the same is not true for sour crude.

Which is more requested?
Sweet crude is mostly requested during times of emergency because of its value to refiners to produce transportation fuels.

[chart]

  • Two major types of crude oil: “Sweet” and “Sour” grades
  • Maximum drawdown capability: 4.4 million barrels per day
  • Time for oil to enter the market: 13 days from presidential decision
  • Average price paid for oil in the reserve: $29.76 per barrel

Process of Emergency Oil Drawdown

Screen Shot 2012-12-13 at 6.41.19 PM

Controversy

Created as a buffer against energy supply disruptions that affect our national security, the Strategic Petroleum Reserve has caused much controversy over the years. Some critics have raised questions about its operations and oversight, including when and how the SPR should be used. Some argue that it should only be tapped during a full-scale national emergency, while others say it should also be used occasionally as a means to alleviate high domestic oil and gasoline prices.

Alvin Alm, the former director of the Harvard Energy Security Program described this controversy in his book, “Oil Shock: Policy Response and Implementation”: “Although almost all energy experts and politicians agree that a Strategic Petroleum Reserve is desirable, serious disagreement exists on the purpose of the reserve and how it should be managed. Some view it as a tool of military and foreign policy, only to be used during periods of dire national security threats. The majority of political leaders and interested citizens view the Reserve as a source of fuel to prevent physical shortages.”

There are a lot of other arguments about the SPR too, including whether it’s even needed, and why taxpayers are footing the bill.

Jerry Taylor, a senior fellow at the Cato Institute, co-authored a 2005 report that included that passage from Alm’s book. He and co-author Peter Van Doren also wrote that, “The Strategic Petroleum Reserve has been almost uniformly embraced by politicians and energy economists as one of the best means to protect the nation against oil supply shocks.’’

But, they added, “This study finds little evidence for the proposition that government inventories are necessary to protect the country against supply disruptions. Absent concrete market failures, government intervention in oil markets is unlikely to enhance economic welfare.’’

In an interview, Taylor said the government has misused the reserve, “The history of SPR management is a good example of the inventory being used based on political calculus, not by economic calculus.” He said “politicians are in the business of maximizing political capital” so they will manage the SPR in a way that will get the most political support, unlike private inventory holders that are primarily interested in maximizing profit. This may not be done out of concern for the consumer, but it will have a positive effect on them because private inventory holders will deliver products to the market when they are desired at the time, said Taylor.

And finally, Taylor and Van Doren concluded in their study, the SPR had cost taxpayers at least $41.2 billion by 2004, even though it had only been tapped three times, “and in each of those instances, the releases were too modest and, with the exception of the 2005 release related to Hurricane Katrina, too late to produce significant benefits. Accordingly, the costs associated with the SPR have been larger than the benefits thus far.’’

Others have been far more supportive of the SPR, and say it is a critically important aspect of U.S. energy security.

But even some supporters have concerns.

John Shages, a former deputy assistant Energy secretary for the Strategic Petroleum Reserve, argues that the SPR hasn’t been used to its full potential. “I think the single biggest problem is that the people don’t understand how powerful this thing can be in its actual usage,” in context of balancing out erratic oil price fluctuations, Shages said in an interview.

“Both the law and policy makers have treated the Strategic Petroleum Reserve as an emergency response of last resort. The legal requirement for a Presidential finding to authorization sales is close in concept to a declaration of war. This is unfortunate. If this tremendously powerful tool were more frequently used in response to economic and energy problems our economy and energy security would be tremendously enhanced,” said Shages, now with Strategic Petroleum Consulting LLC.

Amy Jaffe, an energy expert and co-author of “Oil, Dollars, Debt and Crises: The Global Curse of Black Gold,” wrote in Foreign Policy on Aug. 2012 that the U.S. has been “surprisingly reluctant to release SPR during times of crises, preferring instead to let Saudi Arabia handle the problem by simply increasing its production.” For years, the U.S. has relied on Middle Eastern producers to pre-release oil in anticipation of times of war.

There is also confusion and debate over who, exactly, is in charge, thanks to what some critics say is a lack of a comprehensive policy. The President has the primary authority to decide when to use the SPR, according to the Energy Policy and Conservation Act. It authorizes the President to use the SPR in the event of a “severe energy supply disruption” or when the U.S. is required to meet the obligations of the International Energy Agency.

But a Rand Corporation report from 2009 also concluded that U.S. policies governing the use of the Reserve are confusing and ambiguous, therefore reducing its effectiveness.

The Rand report said, the absence of a publicly stated policy on when the SPR will be used “has the potential to trigger panic hoarding if market participants fear a major supply disruption, bringing on the very conditions that SPR use is supposed to ameliorate.”

The report concluded that such secrecy may be necessary. “Policy makers have been reluctant to spell out in advance what would trigger SPR use, since, under current law, this would mean defining in advance what constitutes a national emergency related to oil supply disruptions and what responses would be taken.”

In a 2009 hearing before the U.S. Senate Committee on Energy and Natural Resources, Sen. Lisa Murkowski (R-AK) was critical of the ambiguity. “We don’t have a policy, a stated policy, as to when the SPR, when there should be a drawdown. As I say, according to this report it creates that same level of uncertainty that we’re looking to ameliorate.” She urged the Obama administration to review the issue.

McKie Campbell, the Republican staff director for the Senate Committee on Energy and Natural Resources who works closely with Sen. Murkowski, said the committee doesn’t have specific recommendations as of now, but there is a “fair chance” that the SPR will be discussed this upcoming session of Congress.

According to a Government Accountability Office report from 2006, the current legislation allows broad presidential discretion and provides only general guidance for the SPR’s use, making use of the SPR a matter of judgment by the President.

“It should be clarified to essentially put more power into the hands of the President, to do it based on circumstances of the time rather than trying to find the situations under which it should be used,” Shages said, referring to the current Energy Policy and Conservation Act. Trying to define specifically what an emergency of a national scope could be difficult. “I think everybody should have realized is now that all these years later, there are events that you can’t foresee for which you could appropriate to use the Strategic Petroleum Reserve,” Shages said.

Also, the Government Accountability Office report said that “the SPR is an extremely valuable asset, and releasing oil from the reserve during oil supply disruptions could greatly reduce the damage to the U.S. economy.” Since oil plays a critical role in the U.S., price increases in products made from crude oil, such as gasoline diesel, home heating oil, and petrochemicals and even fertilizer, can cause serious financial hardship for consumers, thus reducing economic activity. Past studies have shown that oil price shocks in economic damage to the U.S., according to this report.

The Strategic Petroleum Reserve was created to be a buffer; it’s not meant to be a substitute for crude oil in a case of a severe energy supply disruption, said Rep. Glenn Anderson (R-WA). “It can’t prevent the shock that will come. It’s just meant to soften the blow,” Anderson said.

With oil as the largest primary source of energy in the U.S., the Energy Information Administration projects that transportation will comprise an even larger part of the nation’s oil use in the future, about 72 percent in 2030. According to recent EIA data, the U.S.’s transportation petroleum use is 67 percent of total U.S. petroleum use, and about 93 percent of energy used for U.S. transportation comes from oil. The Strategic Petroleum Reserve will still be relevant for many years to come as oil continues to be the defining transportation energy fuel, Anderson said.

“We have no viable substitute for oil and gasoline in terms of transportation at all.” Anderson said. “We’re trying to work on natural gas and batteries, but those have not developed to a scale that they even remotely come close to replacing oil as the primary fuel.”


Community Impact

While the neighbors who live near the Strategic Petroleum Reserve in Plaquemine, La. have heard about the site, many of them aren’t exactly sure what goes on beyond those heavily guarded gates.


Secrecy

Welcome to Bayou Choctaw

Picture 1 of 10

The Bayou Choctaw Reserve sign sits at the end of a short Louisiana highway in Plaquemine, La. Christina Choi/MNSJI

Plaquemine, La. — The Department of Energy states that the Strategic Petroleum Reserve is part of the agency’s critical infrastructure and serves as the nation’s first line of defense against an interruption in petroleum supplies and as a national defense fuel reserve. In 2005, the DOE inspector general concluded that “any disruption in the ability of the SPR to provide emergency crude oil may have an adverse impact on the nation’s economy and security.”

The Energy Department is required to ensure that there is adequate security to extract the oil and supply it to commercial pipelines. It is not responsible for security of pipelines beyond the SPR site boundaries.

Each SPR site has a security force managed by Pinkerton Government Services, a subcontractor to the Energy Department’s primary SPR managing contractor, DM Petroleum Operations Co.

Security is extremely tight at all of the Reserve sites. “You have to surpass systems of detection, all sorts of fencing, multi-barrier fencing. You have live individuals who are armed and trained,” said John Shages, a former DOE deputy assistant secretary for the Strategic Petroleum Reserve. The Security Police Officers are “former military, and they go through the same kind of screening that we would put them through if we were hiring for a federal position.’’ The security force at each of the sites also undergoes performance tests involving simulated explosives and helicopters.

I experienced how strict the security was when I visited the Bayou Choctaw site, at the end of a Louisiana highway, in November. It was a heavily guarded fortress. As I walked around the perimeter, there were guards wearing gray Strategic Petroleum Reserve Police Officer uniforms, with bulletproof vests and guns, patrolling in white SUVs. I accidentally took a few steps onto the Reserve property, and they immediately took down my driver’s license information and the license plate number from my rental car.

The use of private contractors for SPR security is not anything new and has “just worked out well in history,” said Shages, who is now the president of Strategic Petroleum Consulting LLC.

The SPR crude oil is stored in deep underground salt domes that minimize access to the oil by potential adversaries, according to SPR officials quoted in the inspector general’s report. The report also noted that the loss of SPR assets, the crude oil, “does not pose grave danger to the public sufficient to warrant the use of deadly force as even a catastrophic event at SPR would have limited effect outside the boundaries of a SPR site.” In addition, the report said there was no feasible way for an opponent to steal sufficient quantities of oil to significantly endanger the public or environment.


International Energy Agency

Since 1974, the United States and 27 other nations have become members of the International Energy Agency. The founding treaty called the International Energy Program (I.E.P. Agreement) obliged all member countries to maintain reserves of oil or petroleum products equaling 90 days of net imports and to release these reserves and reduce demand during oil supply disruptions. The agreement also created solidarity between the members, which means that if one or several member countries are confronted with a sudden supply disruption, all member countries would take collective action by making oil available from their reserves and reducing demand. For example, during the shutdown of Libyan oil exports in 2011, 28 member countries agreed to make 60 million barrels available to the oil market from the emergency stockpiles of eight larger IEA countries.

IEA member nations fulfill this obligation in various ways; some countries require that private companies hold reserves, others, like the United States, have created government reserves, and some countries hold a combination of the two. Some IEA countries hold refined products in addition to crude oil reserves while the U.S. holds only crude oil. In November 2012, the U.S. Strategic Petroleum Reserve contained 694.9 million barrels, equal to about 82 days of estimated fuel consumption. In addition to government reserves, private industry inventory of crude oil and petroleum products varies over time, but recent U.S. Energy Information Agency data shows that industry stocks increase the days of U.S. protection to 171 days. Thus, at the current level of oil demand, the SPR combined with private industry holdings contains enough oil and petroleum products to exceed the United States’ 90-day reserve requirement.

The 28 member countries of the International Energy Agency are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Luxembourg, The Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic (Slovakia), Spain, Sweden, Switzerland, Turkey, United Kingdom and United States.

]]>
http://oilchangeproject.nationalsecurityzone.org/strategic-petroleum-reserve-is-buffer-against-shortages/feed/ 0
Vulnerabilities pose risks in top U.S. oil suppliers http://oilchangeproject.nationalsecurityzone.org/how-secure-is-our-oil-vulnerabilities-of-our-top-five-oil-suppliers/ http://oilchangeproject.nationalsecurityzone.org/how-secure-is-our-oil-vulnerabilities-of-our-top-five-oil-suppliers/#comments Tue, 20 Nov 2012 15:31:05 +0000 Elizabeth Bunn http://oilchangeproject.nationalsecurityzone.org/?p=63

There is a striking overlap between the world’s sources of energy and the world’s sources of instability.

- Sen. John Kerry, Testimony before the Senate Committee on Foreign Relations, 2009

Many of the countries the U.S. depends on for oil and petroleum products have corrupt governments at varying levels, crime problems and face civil unrest. Whether initiated al-Quida in Iraq, militant groups in Nigeria or armed rebels along the Columbia-Venezuela and also the Columbia-Ecuador border, attacks on the oil and gas industry can cripple and cause major economic damage.

The United States spends a tremendous amount of time and money to secure our oil and counter the threats that disseminate throughout the global supply chain.

Top exporters to the U.S.

A look at some of the major threats to the U.S. oil supply today:

High risk Medium risk Low risk

Terrorism Natural disaster Crime Government corruption Cyber attack

Canada

medium low low low high

Saudi Arabia

high medium low low high

Mexico

medium medium high medium medium

Venezuela

medium low high high medium

Nigeria

high medium high high low

Iraq

high medium high medium high

Columbia

high low high high low

Angola

medium medium high high medium

Brazil

medium medium medium medium high

United States

medium high low low high

The U.S. receives nearly 60 percent of its oil and petroleum imports via tanker, according to a 2011 report from the American Petroleum Institute. Many of the tankers arriving in U.S. ports carry crude oil and petroleum from Mexico, Saudi Arabia, Venezuela and Nigeria. Threats to production in these crucial supplier countries – whether from natural disaster, crime, or terrorist or cyber attacks – threaten both the global supply chain and the Unites States’ access to oil.

Canada

Canada is by far the largest supplier of foreign oil to the United States, accounting for approximately 25 percent of U.S. crude oil imports in 2011. The majority of Canada’s estimated 180 billion barrels of oil reserves come to the U.S. via pipeline from the oil or tar sands in Alberta’s Athabasca region.

If you have a 2,000-mile pipeline from Canada to Texas, you simply cannot protect the entire pipeline.

- Paul Rosenzweig, former deputy assistant secretary for policy, Department of Homeland Security


Mexico

The United States imported roughly 1.1 million barrels of crude oil per day from Mexico in 2011, making it the third largest net exporter of oil to the United States. Almost all of Mexico’s exports arrive in the U.S. by oil tanker.

The national pipeline network [is practically taken over] by organized crime gangs, associated with heavily armed groups.

- Petroleos Mexicanos, or PEMEX, the Mexican state-owned petroleum company, August 2012


Saudi Arabia

Oil powerhouse Saudi Arabia is still the hub of the global oil market, although its importance as a supplier to the U.S. has declined in recent years. In terms of infrastructure, Saudi Arabia is a unique case because of the concentration of a lot of oil – five or six million barrels per day – running through only a few facilities each day.

Abqaiq or Ras Tanura is what Wall Street is for the financial system. What Hollywood would be for the movie industry.

- Gal Luft, Institute for the Analysis of Global Security and author of several books on oil security


Venezuela

Venezuela boasts the second largest oil reserves in the world, but many of the country’s fields require heavy investment to maintain production capacity. Turmoil within the country – opposition to socialist policies touted by former President Hugo Chávez, civil unrest and high crime rates, especially along the Venezuela-Colombia border – discourage foreign investment and consequently pose a challenge to the country’s profit-driving oil industry. In August, an explosion at a Venezuelan oil refinery that killed more than 40 people raised further questions about whether the government and state-owned oil company Petroleos de Venezuela, or PdVSA, have neglected maintenance and safety in the country’s oil sector.

Venezuela has become the Wild West under thugocrat Hugo Chavez.

- Rep. Connie Mack, 2011 hearing entitled “Venezuela’s Sanctionable Activity”


Nigeria

Militant groups seeking a share of Nigeria’s oil wealth – such as the Movement for the Emancipation of the Niger Delta, or MEND – repeatedly attack the country’s oil infrastructure and personnel. Since 2005, when Nigeria reached its oil production peak, the county has seen a steep increase in pipeline vandalism, kidnappings and militant takeovers of oil facilities in the Niger Delta, the heart of Nigerian oil production.

There has been attacks on oil pipelines, and foreign oil workers are being held hostage… this escalating attack is also helping drive up oil prices.

- Testimony of economist George N. N. Ayittey, U.S. House of Representatives hearing, “Nigeria’s Struggle with Corruption,” 2006

]]>
http://oilchangeproject.nationalsecurityzone.org/how-secure-is-our-oil-vulnerabilities-of-our-top-five-oil-suppliers/feed/ 0