Fossil Energy Petroleum Accounts: FY2021 Appropriations

Fossil Energy Petroleum Accounts: FY2021 Appropriations

link to page 1

June 16, 2020
Fossil Energy Petroleum Accounts: FY2021 Appropriations
Introduction
contents. DOE would deposit up to $19 million in proceeds
In February 2020, the U.S. Department of Energy (DOE)
from the proposed sale into the SPR Petroleum Account.
submitted to Congress its FY2021 Budget Request,
DOE would use the funds to cover costs associated with
including appropriations for the Fossil Energy Petroleum
congressionally directed sales of crude oil from the SPR.
Accounts. These accounts (Figure 1) consist of three
energy security programs: the Strategic Petroleum Reserve
DOE can also use appropriations in the SPR Petroleum
(SPR), Northeast Home Heating Oil Reserve (NEHHOR),
Account to purchase crude oil to fill the SPR. Statute (42
and the Naval Petroleum and Oil Shale Reserve (NPOSR).
U.S.C. §6240) identifies the various objectives, procedures,
The Office of Petroleum Reserves, within the Office of
and other authorities for the Secretary of Energy to acquire
Fossil Energy, manages these accounts.
crude oil for the SPR. The Secretary may acquire petroleum
products through purchase or exchange. For purchases,
Strategic Petroleum Reserve
Congress must appropriate funds to the SPR Petroleum
The SPR, authorized by the Energy Policy and
Account.
Conservation Act (P.L. 94-163) in 1975, consists of a
stockpile of crude oil kept in caverns built within naturally
Figure 1. Requested and Appropriated Fossil Energy
occurring salt domes in Louisiana and Texas. The SPR is
Petroleum Accounts Funding, FY2019-FY2021
the U.S. emergency stockpile of crude oil, providing
$ in Mil ions
strategic and economic security against foreign and
domestic disruptions in U.S. oil supply. The program
provides a deterrent against energy supply disruptions and
fulfills U.S. obligations under the International Energy
Program agreement, which avails the United States of
International Energy Agency (IEA) assistance through its
coordinated energy emergency response plans.
According to DOE data from June 3, 2020, the SPR held
647.8 million barrels of crude oil. According to its FY2021
Budget Justification, DOE is requesting approximately
$187 million in appropriations for Facilities Development
and Operations ($159.2 million) and for Management of
SPR Operations ($27.9 million).
Northeast Gasoline Supply Reserve

A component of the SPR, the Northeast Gasoline Supply
Source: U.S. Department of Energy, FY2021 Congressional Budget
Reserve (NGSR) consists of 1 million barrels of
Request, Budget in Brief, Office of the Chief Financial Officer, February
government-owned refined petroleum products (gasoline
2020, p. 30.
blend stock) in storage in the Northeast. Former Secretary
Notes: Does not include offsets. The Strategic Petroleum Reserve,
of Energy Ernest Moniz, under direction of President
Northeast Gasoline Supply Reserve, and SPR Petroleum Account are
Obama, authorized the creation of the NGSR in 2014, in
al components of the Strategic Petroleum Reserve security program.
response to the gasoline shortage following Superstorm
Sandy in 2012.
Northeast Home Heating Oil Reserve
In response to the near doubling of heating oil prices in
The NGSR was fully funded through FY2017 by proceeds
some Northeastern states during the winter of 1999-2000,
from a 2014 SPR test sale. DOE’s FY2021 budget request,
Congress authorized the 2 million barrel Northeast Home
similar to the FY2020 request, does not request
Heating Oil Reserve (NEHHOR) in the Energy Act of 2000
appropriations for the NGSR. It instead seeks to dissolve
(P.L. 106-469). NEHHOR is not part of the SPR, but is a
the program and sell the 1 million barrels of gasoline blend
separate reserve with its own criteria for release. As an
stock. DOE would deposit the proceeds from the NGSR
emergency stockpile of government-owned heating oil,
sale into the SPR Petroleum Account.
Congress intended NHHOR to contain roughly 10 days (the
SPR Petroleum Account
time required for ships to transport heating oil from the
Gulf of Mexico to the New York Harbor) worth of demand
The SPR Petroleum Account “funds SPR petroleum
acquisition, transportation, and drawdown activities.” As
by the Northeastern states at the time. The first emergency
use of NEHHOR was in 2012 in response to Superstorm
noted, DOE is requesting to eliminate the NGSR and sell its
Sandy.
https://crsreports.congress.gov

Fossil Energy Petroleum Accounts: FY2021 Appropriations
For FY2021, DOE is requesting to dissolve the NEHHOR
purchase. DOE would fund the associated costs of these
and to sell the entirety of the reserves—one million barrels
activities, and the actual purchase of crude oil, with the SPR
of ultra-low sulfur distillate. DOE would eliminate the
Petroleum Account. DOE would also use funding from the
NEHHOR on the grounds that it “has never been used for
SPR Petroleum Account for transport activities from the
its intended purpose ... and the reserve is not a good use of
sale of crude oil previously directed by Congress.
taxpayer funds.”
Dissolving the NGSR and the NEHHOR
Naval Petroleum and Oil Shale Reserves
Congress may consider approving the elimination of both
Created through a series of Executive Orders in the early
the NGSR and the NEHHOR. Once funds from the 2014
1900s, the Naval Petroleum and Oil Shale Reserves
SPR test sale were expended, DOE began requesting to
(NPOSR) secured an emergency supply of crude oil for
dissolve the NGSR. DOE contends that the NGSR has
U.S. naval vessels. As the national defense needs changed,
never been utilized and that it is not economic. According
Congress opened the oil reserves to private production and
to DOE, operating the NGSR as a regional product reserve
eventually sold them. Since a 1998 sale, NPOSR manages
is challenging. The NGSR is a component of the SPR and
five legal agreements for the Naval Petroleum Reserve 1
therefore follows SPR statutory release authorities that
(NPR-1) in Elk Hills, California. DOE continues to resolve
require national impact thresholds. While the NEHHOR
NPR-1 environmental findings as required by a 2008
release arguably demonstrated the utility of maintaining a
agreement with California’s Department of Toxic
distillate stockpile, it was the result of a natural disaster, not
Substances Control. DOE has been responsible for
a market-based heating oil supply shortage, which was the
remediation and environmental cleanup for 131 areas of
original purpose of the program.
concern. As of January 2020, 29 areas of concern continue
to require remediation.
DOE further contends that storing refined petroleum
products, versus crude oil, can be more expensive and more
DOE is requesting a total of $13 million in the FY2021
difficult to maintain. Comparatively, refined petroleum
Budget Request to address the 29 remaining areas of
products degrade more quickly; are less flexible to respond
concern. Furthermore, DOE is requesting a sale of 15
to market fluctuations; and are subject to changes in
million barrels of SPR crude oil to provide additional
environmental regulations. For example, to meet new
funding that would include $242 million needed to
Northeast states’ emission standards, in FY2012, DOE
complete the remediation work at the NPR-1 site.
converted the NEHHOR’s 2 million barrels of high sulfur
heating oil to 1 million barrels of ultra-low-sulfur distillate.
Considerations for Congress
Others, such as the Government Accountability Office
SPR Petroleum Account
(GAO), contend that there may be certain advantages to
For the FY2021 budget, Congress may consider
maintaining refined petroleum product reserves. GAO notes
appropriations to the SPR Petroleum Account. DOE’s
consumers directly use refined products and thus a reserve
budget request seeks to use funds from the sale of the
reduces the time otherwise needed to refine crude oil to get
NGSR to deposit into the SPR Petroleum Account. The
the product to consumers in an emergency. Furthermore, in
SPR Petroleum Account funds are used not only to
2018 testimony before the Subcommittee on Energy, House
purchase crude oil, but also to transport crude oil in and out
Committee on Energy and Commerce, GAO noted DOE’s
of the reserve because of test sales, exchanges, emergency
2015 Quadrennial Energy Review did not fully complete a
releases, and congressionally directed sales.
number of studies that would provide information on the
net economic benefits of regionally based refined petroleum
Global oil prices declined nearly 60% between January and
product reserves. In May 2018, GAO recommended that
mid-April 2020, because of a number of factors. While low
these studies be completed; however, DOE disagreed.
oil prices are generally positive for consumers (translating
into lower gasoline prices) and oil refiners (translating into
Other CRS Products
lower costs), sustained low prices could result in financial
stress for companies operating in the U.S. oil exploration
CRS Report R46384, Energy and Water Development: FY2021
and production sector. At the direction of President Trump,
Appropriations, by Mark Holt and Corrie E. Clark
DOE issued a solicitation to purchase an initial 30 million
CRS Report R46355, The Strategic Petroleum Reserve:
barrels of crude oil as part of a plan to acquire 77 million
Background, Authorities, and Considerations, by Heather L.
barrels. However, on March 25, 2020, DOE cancelled this
Greenley
solicitation, noting, “Given the current uncertainty related
CRS Insight IN11373, Strategic Petroleum Reserve: Recent
to adequate Congressional Appropriations for crude oil
Developments, by Phil ip Brown
purchases associated with the March 19, 2020 solicitation,
the Department is withdrawing the solicitation. Should

funding become secure for the planned purchases, the
Department will reissue the solicitation.”
Heather L. Greenley, Analyst in Energy Policy
Since the cancellation, DOE has issued two other
IF11579
solicitations, one for an exchange of storage and one trial

https://crsreports.congress.gov

Fossil Energy Petroleum Accounts: FY2021 Appropriations

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF11579 · VERSION 1 · NEW