Government Accountability Office criticizes management of Strategic Petroleum Reserve

The Government Accountability Office has reaffirmed its concerns that the Department of Energy is not properly considering changes in global oil markets when calibrating its ability to “respond to supply disruptions” in its management of the Strategic Petroleum Reserve.

“In the decades since its creation, the structure of the [Strategic Petroleum Reserve] generally has not changed, though markets for crude oil and petroleum products have changed significantly,” the GAO said in a publicly released letter of recommendations to the department.

The federal watchdog’s guidance to the Energy Department comes amid complaints from the world’s top oil companies that some supply they purchased from the reserve last year was tainted with poisonous gas.

ExxonMobil recently alleged that 1.5 million barrels of Bryan Mound sour crude that it bought in August contained levels of deadly hydrogen sulfide gas 250 times higher than allowed by federal safety standards.

The oil company’s complaints were detailed in emails obtained under the Freedom of Information Act and first published by Bloomberg News. Exxon has declined to comment on the matter.

Similar complaints also have been filed by Royal Dutch Shell, Macquarie Group and PetroChina about purchases of Bryan Mound sour crude made from the Strategic Petroleum Reserve in August.

Energy officials dispute the complaints and contend that the high gas readings resulted from the crude oil being contaminated during shipping.

In PetroChina’s case, the agency did acknowledge spending about $1 million to clean up contaminated cargo. It also admitted it is working with Exxon to resolve the issue and “find alternate options” for delivery.

Energy officials declined to comment.

The GAO’s guidance to the Energy Department about the reserve was part of an “open priority recommendations” letter highlighting policy amendments the watchdog is pushing to see implemented.

A GAO official told The Washington Times that such communications were previously private but the office began making them public in April “to bring attention to unaddressed recommendations.”

The policy guidance about the reserve comes from a 2018 GAO report and delves into a question the Trump administration has wrestled with — how large should the strategic reserve be? While the report made no recommendations on what an optimal stockpile could look like, it did suggest that the Energy Department conduct periodical reviews of the size and value of the reserve in relation to the global oil markets.

The department officially agreed with the need for periodic reviews but disagreed with other guidance regarding regional stockpiles, calling government-owned reserves “an inefficient and expensive solution to respond to regional fuel supply disruptions.”

According to the GAO, the Energy Department has implemented policy changes it has suggested 70% of the time, but the department has “not implemented any priority recommendations since GAO’s last open priority recommendation letter in April 2018.”

Established after the 1973-74 Arab oil embargo, the reserve stockpile is kept in four underground storage caverns in salt domes along the Texas and Louisiana Gulf coasts. It provides presidents with an emergency supply in the case of shortages that threaten the U.S. economy and national security.

As of April 12, the last published inventory update, the reserve held about 649 million barrels of crude oil, worth more than $40 billion.

Tapping into the reserve is rare, such as during the 1991 Gulf War and in 2005 after Hurricane Katrina disrupted oil supplies from the Gulf Coast region, according to the Energy Department. Minor sales of oil, like those in August, tend to happen annually.

Analysts say the reserve has special relevance right now because world supplies have tightened in the wake of tougher U.S. sanctions on Iranian and Venezuela oil exports.