Audit Report: DOE-OIG-20-43

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June 1, 2020

The Strategic Petroleum Reserve’s Modernization Program

Since 1975, it has been the policy of the United States to maintain a strategic supply of federally owned petroleum products.  Under the authority of the Secretary of Energy, the Strategic Petroleum Reserve (SPR) is intended to reduce the impact of petroleum supply disruptions, as well as fulfill the International Energy Program obligations of the United States.  The Department of Energy’s Office of Petroleum Reserves is responsible for the executive oversight of all aspects of the SPR program, and the SPR Project Management Office in New Orleans, Louisiana oversees the day-to-day operations of the storage sites.  In the Bipartisan Budget Act of 2015, Congress found that the age and condition of SPR had diminished its value as a Federal energy security asset.  Meanwhile, global oil markets, as well as the location and amount of United States oil production, had dramatically changed in the 40 years since SPR was established.  According to Congress, maximizing the energy security value of SPR requires a modernized infrastructure that meets the drawdown and distribution needs of these changed oil markets.  To that end, Congress directed the Secretary of Energy to establish an SPR modernization program and authorized the Secretary to sell up to $2 billion worth of SPR oil to carry it out.  Congress specified that the modernization program could include operational improvements to extend the useful life of SPR’s infrastructure, but also new infrastructure and facilities to optimize SPR’s drawdown and distribution capabilities.  We initiated this audit to determine whether the Department’s SPR modernization program was addressing the congressional findings in the Bipartisan Budget Act of 2015.

We determined that the Department’s SPR modernization program may not fully address the congressional findings in the Bipartisan Budget Act of 2015.  In particular, while the Department’s modernization plans address congressional concerns regarding the age and condition of SPR, the current plans may not ensure that the modernized SPR infrastructure would meet the drawdown and distribution needs of changed domestic and international oil markets.  The Department originally scoped the modernization program to include two distinct projects, a life extension project to address SPR’s aging infrastructure, and a distribution enhancements project to increase SPR’s distribution capabilities.  However, due to a lack of specific congressional funding authority, the Department decided to cancel the distribution enhancements project, leaving life extension as the only project in the SPR modernization program. 

Without a complete examination of the role and mission of SPR, the Department is at risk of not allocating its limited modernization resources toward those activities most critical to the future of SPR.  We made two recommendations to ensure that the SPR is optimized for the energy security challenges of the 21st century.  Management concurred with the report’s recommendations and stated that corrective actions have been initiated to address the issues identified in the report.  As a result of world events leading to simultaneous global oil demand reduction and over production, the Department’s leadership has begun policy discussions on the need for SPR capacity in response to oversupply conditions.  Thus, the Office of Petroleum Reserves stated that it will complete an SPR Post-Sale Configuration Study to include an evaluation of responses to this new market reality.  According to management, the revised study will inform deliberations within the Administration and in Congress toward decisions on the SPR’s future size and configuration.  Additionally, management stated that it has organized the Life Extension – Phase II sub-projects into categories that provide agility in adjusting the project’s scope and completion criteria to correspond with changes, if any, to the SPR’s configuration.

Topic: Management and Administration