President Directs Energy Secretary to Increase Strategic Petroleum Reserve

Energy, Interior Departments to Extend Royalty-in-Kind

Washington DC - President Bush today directed the Secretary of Energy to increase the U.S. Strategic Petroleum Reserve up to its 700 million barrel capacity using principally royalty oil from federal offshore leases. The President's directive will add up to 108 million barrels of crude oil to the nation's emergency oil stockpile. The President's action will enhance the energy security of the United States by strengthening the nation's capability to respond to potential oil supply disruptions.

"Today marks a major step forward in our efforts to strengthen America's energy security," said Energy Secretary Abraham. "Americans count on the Strategic Petroleum Reserve as a readily available supply of emergency crude oil, and the President's action today should increase consumer confidence that we are prepared to protect this nation from economic harm in the event of significant energy disruptions."

Comprised of deep underground oil storage caverns in salt formations along the Texas and Louisiana Gulf Coast, the U.S. Strategic Petroleum Reserve is the world's largest inventory of emergency crude oil. It currently holds approximately 545 million barrels of oil with another 47 million barrels scheduled under previous agreements to arrive over the next 14 months. In the event of a major oil supply disruption, the President can order a release of the crude oil to counter potential economic harm to consumers and to provide fuel for national defense.

The President's decision will expand an ongoing "royalty-in-kind" program, adding oil to the Reserve in a deliberate and cost-effectve manner at rates of up to 130,000 barrels per day beginning next year.

The royalty-in-kind program applies to oil owed to the U.S. government by producers who operate leases on the federally-owned Outer Continental Shelf. These producers are required to provide from 12.5 percent to 16.7 percent of the oil they produce to the U.S. government. The government can either acquire the oil itself or receive the equivalent dollar value.

In 1999 the government agreed to use royalty oil from federal leases in the Gulf of Mexico to replenish 28 million barrels of oil previously sold from the Reserve.

The first contracts for delivering the additional royalty oil are expected to be in place by April of next year. With the Department of the Interior projecting increasing oil production from the Gulf of Mexico, transferring federal royalty oil to the Reserve is not expected to affect oil prices or privately held stocks.

As in the current royalty-in-kind program, the Department of Energy will likely arrange exchange provisions with offshore producers to ensure that oil to be deposited in the Strategic Reserve meets required quality specifications.

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News Media Contact:
Jill Schroeder, Office of Public Affairs, 202-586-4940
Drew Malcomb, Office of Public Affairs, 202-586-5806

Program Contact:
Robert C. Porter, Office of Fossil Energy, 202-586-6503