Strategic petroleum reserve, why needed?

Recently Joe Biden POTUS, ordered release of part of strategic petroleum reserve (SPR) due to the prevailing high demand for gasoline throughout America. As an emergency measure, he did the right thing. What is SPR and why we need it?

World War II taught a lesson or two about saving for the rainy day. One lesson is to build-up reserves of petroleum in tanks mostly underground. The British had one of the extensive tanks farm in Trincomalee a port city located in North-East of Ceylon where Royal Navy held sway over the entire Indian Ocean.

America has the world’s largest such strategic petroleum reserve stored in salt caverns at four storage facilities in Texas and Louisiana. Generally these underground stores have crude oil and are located close to coastline. Salt caverns are cost effective compared to steel tanks or concretised rock tanks. 

The overall capacity is said to be 714 Million Barrels (MB).  Five times of annual consumption is the formula under which the storage quantum is specified. Safety margin is between 600 to 700 MB. However the threshold level is fixed at 500 MB when it dips below that point, emergency measures are called for to replenishing. Right now that is the case in USA due to heavy draw down.

American predicament is not shared by countries such as Russia, China or even India. As Russia sits on humongous fossil fuel resources, her SPR is the lowest among the three countries at 15 MB. India has 38 MB, though not adequate in relation to her size of population, she  enjoys seamless procurement procedure earlier with Iran which predicated after US sanctions, and now with Russia that too at discounted price. China is next to USA with the second largest SPR at 500 MB and enjoys assured resupply overland from Russia during any emergency.

Unlike America, both China & India implement business strategy of not depending on single source for re-supply. By diversifying fossil fuel suppliers their business strategy is to source from varied suppliers and in multiple ways in order to ensure uninterrupted supply at any given time.

Strategic petroleum reserve is effective only if you have corralled ready suppliers. In the case of America it has burned bridges with Venezuela which is close by and has soured relationship with Saudi Arabia. Due to prevailing sanctions she cannot turn to Russia for help. Therefore the only solution is to accelerate domestic oil production. Shale oil appears to be workable one provided that environmental caution is thrown out of window!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist