a

GAO

United States Government Accountability Office

Report to Congressional Requesters

August 2006 STRATEGIC 

PETROLEUM 

RESERVE

Available Oil Can 

Provide Significant 

Benefits, but Many 

Factors Should 

Influence Future 

Decisions about Fill, 

Use, and Expansion

GAO-06-872
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

August 2006

STRATEGIC PETROLEUM RESERVE

Available Oil Can Provide Significant 

Benefits, but Many Factors Should 

Influence Future Decisions about Fill, 

Use, and Expansion 

Highlights of GAO-06-872, a report to 

congressional requesters 

Congress authorized the Strategic 

Petroleum Reserve (SPR), operated 

by the Department of Energy

(DOE), to release oil to the market 

during supply disruptions and 

protect the U.S. economy from 

damage. The reserve can store up

to 727 million barrels of crude oil, 

and currently contains enough oil

to offset 59 days of U.S. oil imports. 

GAO answered the following

questions: (1) What factors do 

experts recommend be considered

when filling and using the SPR? 

(2) To what extent can the SPR 

protect the U.S. economy from 

damage during oil supply 

disruptions? (3) Under what 

circumstances would an SPR larger

than its current size be warranted? 

As part of this study, GAO 

developed oil supply disruption 

scenarios, used models to estimate

potential economic harm, and

convened 13 experts in conjunction

with the National Academy of

Sciences. 

What GAO Recommends

GAO is recommending that the 

Secretary of Energy (1) assess the 

effectiveness of experts’ proposals 

to use dollar cost averaging when 

filling the SPR and allow delays in 

SPR fill; (2) to better serve users, 

store some heavy sour oil in the 

SPR; (3) clarify the difference in 

assumptions and purposes of two

models DOE uses to estimate the 

impact of using the SPR; and (4) 

periodically reassess the ideal size

of the SPR in light of changing oil

market conditions. DOE generally

agreed with the report and

recommendations. 

The group of experts recommended a number of factors to be considered 

when filling and using the SPR. They generally agreed that filling the reserve 

by acquiring a steady dollar value of oil over time, rather than a steady

volume of oil over time as has occurred in recent years, would ensure that 

more oil will be acquired when prices are low and less when prices are high.

Experts also suggested allowing oil producers to defer delivery of oil to the 

reserve at times when supply and demand are in tight balance, with oil 

producers providing additional oil to the SPR to pay for the delay. Regarding 

use of the SPR, experts described several factors to consider when making

future use decisions, including using the reserve without delay when it is 

needed to minimize economic damage. 

During oil supply disruptions, releasing oil from the SPR could greatly 

reduce damage to the U.S. economy, based on our analyses and expert 

opinions. Particularly when used in conjunction with reserves in other 

countries, the SPR can replace the oil lost in all but the most catastrophic oil 

disruption scenarios we considered, lasting from 3 months to 2 years. DOE 

uses one model to estimate the optimal size of the SPR and another to 

estimate the economic effects of oil supply disruptions. Both models predict 

positive effects from using the SPR, but the magnitude of such benefits 

differ. The substantial differences between the results of these two models 

could lead DOE to provide inconsistent advice about expanding and using 

the reserve. Furthermore, factors beyond the SPR’s ability to replace oil 

affect the extent to which the SPR can protect the U.S. economy from 

damage. For example, SPR crude is not compatible with all U.S. refineries. 

During a disruption of heavy sour crude oil, refineries configured to use this 

type of oil would have to reduce production of some petroleum products 

when refining the lighter oil in the SPR, decreasing the reserve’s 

effectiveness at preventing economic damage. 

If demand for oil increases as expected, a larger SPR would be necessary to 

maintain the existing level of protection for the U.S. economy. The Energy 

Information Administration recently projected increases in U.S. demand for 

petroleum of approximately 12 percent by 2015 and 24 percent by 2025, 

compared with the 2005 level. In this regard, a 2005 study prepared for DOE 

found that the benefits of expanding the reserve to 1.5 billion barrels exceed 

the costs over a range of future conditions. However, many factors that 

influence the SPR’s ideal size are likely to change over time. For example, 

although projections show increasing oil demand, the level of demand 

depends on many factors, including rates of economic growth, the price of 

oil, policy choices related to alternatives to oil, and technology changes. 

Consequently, periodic reassessments of the SPR’s size in light of new 

information could be helpful as part of the nation’s energy security planning. www.gao.gov/cgi-bin/getrpt?GAO-06-872.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Jim Wells at 

(202) 512-6877 or wellsj@gao.gov. 
Page i GAO-06-872 Strategic Petroleum Reserve

Contents

Letter 1

Results in Brief 7

Background 9

Based on Historical Experience, Experts Suggested Alternative 

Practices for SPR Fill and Points to Consider for Use 16

SPR Use during Disruptions Can Provide Substantial Benefits, but 

the Magnitude of These Benefits Is Uncertain 24

A Larger SPR Is Warranted If Demand for Oil Grows as 

Expected 37

Conclusions 45

Recommendations for Executive Action 47

Agency Comments and Our Evaluation 47

Appendixes

Appendix I: Scope and Methodology 50

Appendix II: Economic Modeling of Oil Supply Disruptions 54

Oil Supply Disruption Scenarios 54

Modeling of Economic Impacts 57

Appendix III: Comments from the Department of Energy 61

Appendix IV: GAO Contact and Staff Acknowledgments 66

Tables Table 1: Ability of the SPR and International Reserves to Replace 

Oil 27

Table 2: Maximum Monthly Increases in Oil Price, According to the 

Office of Petroleum Reserves’ Model 29

Table 3: Ability of the SPR and International Reserves to Reduce 

Damage to GDP, According to the Office of Petroleum 

Reserves’ Model 30

Table 4: Maximum Quarterly Increases in Oil Price, According to 

the EIA Model 32

Table 5: Ability of the SPR and International Reserves to Reduce 

Damage to GDP, According to the EIA Model 33

Table 6: Consumption of Imported Oil and Shipping Time for SPR 

Oil to Various Regions 35

Table 7: Members of the Group of Experts Compiled by GAO and 

the National Academies 51

Table 8: Amount of Crude Oil Disrupted over a 2-Year Period, by 

Hypothetical Scenario 56
Contents

Page ii GAO-06-872 Strategic Petroleum Reserve

Figures Figure 1: World Primary Energy Consumption 10

Figure 2: U.S. Oil Consumption, by Sector, 2004 11

Figure 3: United States’ Use of Domestic and Imported Crude 

Oil 12

Figure 4: World Oil Consumption, by Region 14

Figure 5: SPR Inventory Over Time 18

Figure 6: SPR Maximum Drawdown Capability 25

Figure 7: United States’ Current and Estimated Compliance with 

International Energy Agency Obligation to Hold 

Reserves 39

Abbreviations

CAFE Corporate Average Fuel Economy

DOE Department of Energy

EIA Energy Information Administration

GDP gross domestic product

ORNL Oak Ridge National Laboratory

SPR Strategic Petroleum Reserve

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-06-872 Strategic Petroleum Reserve

United States Government Accountability Office

Washington, D.C. 20548

A

August 24, 2006 Letr

The Honorable Susan M. Collins

Chairman

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Carl Levin

Ranking Minority Member

Permanent Subcommittee on Investigations

Committee on Homeland Security and Governmental Affairs

United States Senate

Oil is the world’s most important energy resource. The world consumes 

approximately 83 million barrels of oil per day, accounting for nearly 

40 percent of world energy consumption. In 2004, the most recent year for 

which data are available, 40 percent of the energy used in the United States 

and 96 percent of the energy used in the U.S. transportation sector were 

derived from oil, the majority of which was imported. In 2004, the United 

States imported 65 percent of its crude oil supply, or approximately 10 

million barrels per day. Supply and demand for oil are in tight balance 

today, with only about 1 million barrels per day of spare oil production 

capacity, meaning that even small disruptions in supply can cause large 

increases in prices. Unusually high prices for petroleum products due to a 

strike at Venezuela’s national oil company in 2002 to 2003 and Hurricanes 

Katrina and Rita in 2005 demonstrated this effect. 

Because of the central role that oil plays in the U.S. economy, sudden 

increases in its price can cause economic damage. Increases in crude oil 

price are reflected in the prices of products made from crude oil, such as 

gasoline, diesel, home heating oil, and petrochemicals such as fertilizer. 

Furthermore, because petroleum products are an important part of the 

production of many goods and services, the prices of these goods and 

services also increase. These price increases can reduce the total amount 

of goods and services that consumers can afford, thus reducing economic 

activity. Past studies have shown that oil price shocks can cause hundreds 

of billions of dollars of damage to the U.S. economy.

To help protect the U.S. economy from damage caused by oil supply 

disruptions, Congress authorized the Strategic Petroleum Reserve (SPR) in 

1975, following the Arab oil embargo of 1973 to 1974. The SPR is owned by 

the federal government and operated by the Department of Energy (DOE). 
Page 2 GAO-06-872 Strategic Petroleum Reserve

It can store up to 727 million barrels of crude oil in salt caverns located at 

sites in Texas and Louisiana. Since 1976, the United States has spent about 

$45.2 billion in 2005 dollars to build, maintain, fill, and manage the SPR. In 

addition, the United States and 25 other nations that are members of the 

International Energy Agency have agreed to maintain reserves of oil or 

petroleum products equaling 90 days of net imports and to release these 

reserves and reduce demand during oil supply disruptions.1

 In June 2006, 

the SPR contained about 689 million barrels, equal to 59 days of U.S. oil 

imports. In addition to government reserves, private industry inventory 

varies over time, but DOE estimates that private inventory contains an 

amount equal to an additional 59 days of U.S. oil imports. Thus, at the 

current level of oil demand, the SPR combined with private industry 

holdings contains enough oil to exceed the United States’ 90-day reserve 

requirement.

Under conditions prescribed by the Energy Policy and Conservation Act, as 

amended, the President and the Secretary of Energy have discretion to 

authorize release of the oil in the SPR to minimize significant supply 

disruptions.2

 In the event of an oil supply disruption, the SPR can provide 

supply to the market—by selling stored crude oil or trading this oil in 

exchange for a larger amount of oil to be returned later. When oil is 

released from the SPR, it flows through commercial pipelines or on 

waterborne vessels to refineries, where it is converted into gasoline and 

other petroleum products, then transported to distribution centers for sale 

to the public. 

Refineries are configured to refine specific types of crude oil. Crude oil is 

generally classified according to two parameters: density and sulfur 

content. Less dense crudes are known as “light,” while denser crudes are 

known as “heavy.” 3

 Crudes with relatively low sulfur content are known as

1

The 26 member countries of the International Energy Agency are Australia, Austria, 

Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, 

Ireland, Italy, Japan, Republic of Korea, Luxembourg, the Netherlands, New Zealand, 

Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United 

States.

2

Pub. L. No. 94-163 (1975), as amended.

3

The density of crude oil is commonly described in terms of API gravity. Higher API gravity 

indicates less dense oil. 
Page 3 GAO-06-872 Strategic Petroleum Reserve

“sweet,” while crudes with higher sulfur content are known as “sour.” 4 In 

general, heavier and more sour crudes require more complex and 

expensive refineries to process the oil into usable products, but are less 

expensive to purchase than light sweet crudes. Many refiners in the United 

States have upgraded their facilities in recent years to process heavy sour 

crude. The SPR contains about 40 percent sweet crude and 60 percent sour 

crude, stored in separate caverns. Both crude types in the SPR are 

considered “light.” 

Oil markets have changed substantially in the 31 years since the 

establishment of the SPR. At the time of the Arab oil embargo, price 

controls in the United States prevented the prices of oil and petroleum 

products from increasing as much as they otherwise might have, 

contributing to a physical oil shortage that caused long lines at gasoline 

stations throughout the United States. Now that the oil market is global, the 

price of oil is determined in the world market primarily on the basis of 

supply and demand. In the absence of price controls, scarcity is generally 

expressed in the form of higher prices, as purchasers are free to bid as high 

as they want to secure oil supply. In a global market, an oil supply 

disruption anywhere in the world raises prices everywhere. Releasing oil 

reserves during a disruption provides a global benefit by reducing oil prices 

in the world market.

Use of the SPR during an oil supply disruption mitigates damage to the 

economy by replacing the oil lost, thereby reducing the price spike and the 

resulting economic damage. Such damage is typically reflected in a 

temporary reduction in gross domestic product (GDP), the total market 

value of all goods and services produced in the U.S. economy in a given 

year, compared with what it would have been without the disruption. The 

reduction in GDP caused by an oil supply disruption and the resulting price 

increases depends on several factors, including the size and duration of the 

disruption; the availability of oil market “cushions,” such as excess oil 

production capacity and private inventories; and the importance of oil to 

economic activities. Severe oil supply disruptions in the past, such as the 

Arab oil embargo, caused sudden spikes in oil prices accompanied by 

economic losses of billions of dollars in the United States and other major 

oil-consuming economies. More recent disruptions, such as the Venezuelan 

strike in 2002 to 2003, have involved smaller quantities of oil for shorter 

4

The sweet oil in the SPR contains less than 0.5 percent sulfur, while the sour oil in the SPR 

contains approximately 1.4 percent sulfur.
Page 4 GAO-06-872 Strategic Petroleum Reserve

durations and caused less economic damage. Two offices within DOE—the 

Office of Petroleum Reserves and the Energy Information Administration 

(EIA)—use models to analyze the effects of oil supply disruptions and SPR 

use on the economy. The Office of Petroleum Reserves is in charge of the 

day-to-day operations of the SPR, and it uses a model to calculate the 

effects of oil supply disruptions and SPR use as part of a study of the net 

benefits of expanding the reserve. EIA is a statistical agency that uses a 

separate model to estimate the impact of oil supply disruptions and to 

advise officials about their potential consequences. 

From 1977 to 1992, Congress appropriated money to purchase oil from the 

market to fill the SPR. Since 1999, oil for the SPR has been obtained 

through the royalty-in-kind program. Through this program, the 

government receives oil instead of cash for payment of royalties on leases 

of federal land in the Gulf of Mexico. Because oil produced in the Gulf 

generally does not meet the specifications to be stored in the SPR, DOE 

trades this oil with contractors who provide oil that can be stored in the 

SPR. Recently, the Energy Policy Act of 2005 directed DOE to increase the 

SPR inventory to 1 billion barrels and required DOE to select sites for the 

expansion to accommodate the inventory no later than 1 year after 

enactment, or by August 2006.

Historically, DOE has added oil to the SPR in response to specific concerns 

about oil supply security. For example, when DOE acquired oil for the SPR 

after the Arab oil embargo of 1973 to 1974 and the Iranian revolution in 

1979, the goal was to rapidly create a reserve large enough to be useful in 

case of a severe oil supply disruption. During the mid- to late-1990s when 

oil prices were relatively low, there were no significant oil security 

concerns and little oil was added to the SPR. In contrast, following the 

terrorist attacks of September 11, 2001, the President directed that oil be 

added to the SPR, even though it already contained enough oil to meet 

potential near-term supply disruptions. The stated goal was to maximize 

long-term protection against oil supply disruptions. Some have criticized 

filling the SPR at that time because they believe doing so increased the 

price of oil. 

The President has the primary authority to decide when to use the SPR. 

Additionally, the Secretary of Energy is authorized to carry out exchanges 

from the SPR and test drawdowns to evaluate SPR procedures. Presidents 

have twice ordered that oil be sold from the SPR in response to oil supply 

disruptions: that is, in response to the 1990-1991 Persian Gulf War and 

Hurricane Katrina in 2005. Additionally, the SPR has sold or exchanged oil 
Page 5 GAO-06-872 Strategic Petroleum Reserve

on several other occasions, including providing small quantities of oil to 

refiners to help them through short-term localized oil shortages. 

In conducting our review, we answered the following questions: (1) Based 

on past experience, what factors do experts recommend be considered 

when filling and using the SPR? (2) To what extent can the SPR protect the 

U.S. economy from damage during oil supply disruptions? (3) Under what 

circumstances would an SPR larger than its current size be warranted? 

In addressing these questions, we developed six hypothetical oil supply 

disruption scenarios. These scenarios are set in today’s oil market, with 

global crude oil demand of approximately 83 million barrels per day and 

U.S. demand of approximately 21 million barrels per day. The scenarios are 

as follows:

• A hurricane in the U.S. Gulf Coast disrupts oil supplies by up to 

1.5 million barrels per day for 6 months, similar to the disruptions 

caused by Hurricanes Katrina and Rita in 2005. 

• A strike among oil workers in Venezuela disrupts oil production by up to 

2.2 million barrels per day over 5 months, similar to a strike that 

occurred in 2002 to 2003.5

 Production then remains 0.2 million barrels 

per day below its prestrike level for an additional 19 months.

• Iran stops exporting oil for 18 months, removing 2.7 million barrels per 

day from the market. 

• A terrorism event at an oil facility in Saudi Arabia disrupts up to 

6 million barrels per day over 8 months. 

• Closure of the Strait of Hormuz, which is a vital oil shipping lane located 

at the entrance to the Persian Gulf, disrupts 17 million barrels per day 

for 1 month. Supply then recovers over the next 2 months. 

5

Although the strike among oil workers in Venezuela in 2002 to 2003 lasted only 63 days, 

the resulting oil supply disruption lasted for approximately 5 months. See GAO, Energy 

Security: Issues Related to Potential Reductions in Venezuelan Oil Production, 

GAO-06-668 (Washington D.C.: June 27, 2006).
Page 6 GAO-06-872 Strategic Petroleum Reserve

• Saudi Arabia stops oil production, removing 10 million barrels per day 

from the market for 18 months. Production then recovers over the 

following 6 months. 

We selected these hypothetical scenarios to illustrate the potential benefits 

of strategic reserves in a wide range of different situations, not because we 

consider these scenarios likely. 

To collect expert opinions on the impacts of past SPR fill and use and 

recommendations for the future, we convened a group of experts in 

conjunction with the National Academy of Sciences6

 and interviewed 

experts from industry and academia. We convened the group to allow the 

experts to exchange and challenge ideas, but the group was not designed to 

reach consensus on the issues discussed. We also reviewed records and 

reports from DOE and the International Energy Agency and interviewed 

officials from these agencies and other oil industry experts. 

To analyze the ability of the SPR to reduce economic damage caused by oil 

supply disruptions, we reviewed the economic literature on the impact of 

oil supply disruptions and used two DOE simulation models to estimate the 

reduction of harm to U.S. GDP that would result from releasing oil from the 

SPR and international reserves during our oil supply disruption scenarios. 

These two models estimate the increase in oil prices and the reduction in 

GDP that are likely to occur during an oil supply disruption of a given size. 

Although the models provide useful information, they make assumptions 

and do not include some factors that could influence the reserve’s 

operation, such as the compatibility of SPR oil with U.S. refineries. 

Therefore, we interviewed oil industry experts, members of our group of 

experts, and representatives from companies that comprise 76 percent of 

the refining capacity of the United States to learn about issues with SPR 

operation not included in the models that affect the extent to which the 

SPR can protect the economy.

To learn about the circumstances under which a larger SPR would be 

warranted, we reviewed U.S. stockholding obligations to the International 

Energy Agency, estimates of future U.S. oil demand, and a 2005 study 

performed by a contractor for DOE that analyzed the expected costs and 

6

Four organizations comprise the National Academies: the National Academy of Sciences, 

the National Academy of Engineering, the Institute of Medicine, and the National Research 

Council.
Page 7 GAO-06-872 Strategic Petroleum Reserve

benefits of expanding the SPR.7 We also reviewed studies and interviewed 

members of our National Academy of Science group of experts and other 

oil market experts about factors that influence the ideal size of the SPR. 

Our intent was to present useful information and discussion of key 

considerations about expanding the SPR, not to make recommendations 

about whether the SPR should be expanded.

We did not independently verify information about security, drawdown 

rates, or other operational factors reported by the Office of Petroleum 

Reserves, nor did we analyze or verify strategic reserves held by other 

countries that belong to the International Energy Agency. A more detailed 

description of our scope and methodology is included in appendix I. We 

performed our work between March 2005 and July 2006 in accordance with 

generally accepted government auditing standards.

Results in Brief The group of experts with whom we consulted recommended a number of 

factors to be considered for filling and using the SPR. With regard to filling 

the SPR, although recent fill activity during a time of tight supply and 

demand conditions raised some concerns that filling the SPR was 

increasing world oil prices, experts generally agreed that the nearly steady 

acquisitions of oil for the SPR from late 2001 through 2005 caused minimal 

increase in world oil prices. To reduce the cost of filling the reserve, 

experts in our group and others recommended acquiring a steady dollar 

value of oil over time—that is, a dollar-cost-averaging approach—to ensure 

that more oil is acquired when prices are low and less oil is acquired when 

prices are high. We estimated that if DOE had followed a dollar-costaveraging approach when filling the SPR from October 2001 through 

August 2005, it could have saved approximately $590 million while 

acquiring the same amount of oil. Simulations we performed of this 

approach under various potential oil market conditions, including 

scenarios of rising and falling prices and periods of smaller and larger price 

volatility, showed that this approach would likely save money in the future 

as well. Some experts also suggested that DOE should allow oil producers 

to delay oil delivery to the SPR when supply and demand are in tight 

balance. Producers could provide additional oil to the SPR to pay for the 

privilege of delaying delivery. With regard to using the SPR, experts 

7

Leiby, Paul and David Bowman, Economic Benefits of Expanded Strategic Petroleum 

Reserve Size or Drawdown Capability, Oak Ridge National Laboratory (Oak Ridge, TN: 

Dec. 31, 2005).
Page 8 GAO-06-872 Strategic Petroleum Reserve

generally supported providing broad discretion about when to use the 

reserve, although they questioned some past presidential decisions about 

SPR use. Experts also described several key factors to consider when 

making future decisions about using the SPR, including using the SPR 

without delay when it is needed to minimize economic damage. 

The SPR is an extremely valuable asset, and releasing oil from the reserve 

during oil supply disruptions could greatly reduce the damage to the U.S. 

economy, as measured by losses in GDP. According to DOE, the SPR can 

currently release up to 4.4 million barrels of oil per day—about 44 percent 

of U.S. daily oil imports—for 90 days, and can release a diminishing amount 

of oil for an additional 90 days. This level alone is sufficient to completely 

replace oil lost in the Gulf Coast hurricane and Venezuelan strike scenarios 

we evaluated and, when combined with international reserves, can 

completely replace the losses from our Iranian embargo and Saudi 

terrorism scenarios. However, world reserves are inadequate to fully 

replace the oil lost in our most catastrophic scenarios: that is, the closure 

of the Strait of Hormuz and the loss of Saudi oil production. DOE uses one 

model to estimate the net benefits of expanding the SPR and another model 

to estimate the economic effect of oil supply disruptions. These models 

rely on different assumptions, particularly about the effect of oil price 

increases on GDP. Both models show a positive effect from using SPR, 

although the results are very different in magnitude. For example, for our 

Gulf Coast hurricane scenario, the Office of Petroleum Reserves and EIA 

models estimate avoided GDP damage of $7 billion and up to $400 million, 

respectively; in our Saudi shutdown scenario, the models estimate avoided 

GDP damage of $170 billion and up to $66 billion, respectively. The 

substantial differences between the results of these two models could lead 

offices within DOE to provide inconsistent advice about expanding and 

using the SPR. Additionally, several factors beyond the SPR’s ability to 

replace oil could decrease or increase the economic benefit of the reserve. 

For example, the crude oil in the SPR is not compatible with all U.S. 

refineries. During a disruption of heavy crude oil supply, refineries 

configured to use this type of crude oil would have to reduce production of 

some petroleum products if they processed the lighter oil stored in the 

SPR. This decrease in production could raise prices for these products and 

decrease the SPR’s effectiveness in reducing economic damage. 

If demand for oil in the United States increases as expected, a larger SPR 

would be necessary and desirable to maintain the economy’s existing level 

of protection. EIA recently projected increases in U.S. demand for 

petroleum products of approximately 12 percent by 2015 and 24 percent by 
Page 9 GAO-06-872 Strategic Petroleum Reserve

2025, compared with the 2005 level. Using these demand projections, DOE 

estimates that the United States will drop below its stockholding obligation 

to the International Energy Agency by 2025. Additionally, a 2005 study 

prepared for DOE finds that the benefits of expanding the SPR to 1.5 billion 

barrels exceed the costs over a range of future conditions. However, 

factors that influence the SPR’s ideal size are likely to change over time. 

For example, although projections show increasing oil demand in the 

United States and world, the level of oil demand depends on many factors, 

including rates of economic growth, the price of oil, future policy choices 

related to increasing conservation and availability of alternative energy 

sources, and technology changes. As the world oil market changes over 

time, periodic reassessments by DOE of the appropriate size of the SPR 

could be helpful as part of the nation’s long-term energy security planning.

We are making four recommendations to the Secretary of Energy to 

improve the operation of the SPR and to improve decisions surrounding the 

SPR’s use and expansion. Specifically, we are recommending that the 

Secretary should (1) study how to best implement experts’ suggestions to 

fill the SPR more cost-effectively, including acquiring a steady dollar value 

of oil for the SPR over the long term and providing industry with more 

flexibility in the royalty-in-kind program to delay oil delivery to the SPR; 

(2) conduct a new review to examine the maximum amount of heavy oil 

that should be held in the SPR and ensure that DOE implements its own 

recommendation to hold at least 10 percent heavy oil in the SPR; (3) clarify 

the differences in structure and assumptions between the models used by 

the Office of Petroleum Reserves and EIA and clarify to policymakers how 

the models are used; and (4) periodically reassess the appropriate size of 

the SPR in light of changing oil supply and demand in the United States and 

the world. In commenting on a draft of this report, DOE generally agreed 

with the report and recommendations.

Background Oil is vitally important to the world and U.S. economy, accounting for 

nearly 40 percent of world primary energy consumption.8

 As shown in 

figure 1, although world oil consumption has increased significantly over 

the past 20 years, oil’s share of primary energy consumption has remained 

fairly constant. EIA projects similar trends for the next 20 years, with total 

8

Primary energy is all energy consumed by end-users—excluding electricity, but including 

the energy consumed at electric utilities to generate electricity.
Page 10 GAO-06-872 Strategic Petroleum Reserve

world energy consumption increasing 2 percent annually through 2025 and 

oil comprising about 38 percent of all energy consumption in 2025.9

Figure 1: World Primary Energy Consumption

Note: Percentage shares may not add to 100 percent due to rounding.

Oil is also the largest primary source of energy in the United States, 

accounting for about 40 percent of all energy consumed in 2004. As shown 

in figure 2, two-thirds of the oil consumed in the United States is used for 

transportation. About 96 percent of energy used for transportation in the 

United States comes from oil. The transportation sector is almost 

exclusively dependent on oil because there are no significant competitive 

alternatives. EIA projects that transportation will comprise an even larger 

part of U.S. oil use in the future, about 72 percent in 2030, because it 

9

DOE, EIA, International Energy Outlook 2005, DOE/EIA-0484(2005) (July 2005).

0 

50 

100 

150 

200 

250 

300 

350 

400 

450 

Other 

Natural gas

Coal 

Oil

 1983 1993 2003 

Quadrillion BTU 

Source: GAO analysis of EIA data.

42%

26%

19% 

12% 

39%

24%

22% 

14% 

38%

24%

24% 

14% 

Year 
Page 11 GAO-06-872 Strategic Petroleum Reserve

expects the growth in demand for transportation to far exceed increases in 

fuel efficiency.10

Figure 2: U.S. Oil Consumption, by Sector, 2004

As shown in figure 3, the United States’ demand for imported crude oil 

increased rapidly after 1970, when domestic crude oil production peaked. 

Although the percentage of imported crude oil decreased from about 

45 percent in 1977 to about 26 percent in 1985 due to a reduction in demand 

for oil, imported crude oil increased again to 65 percent by 2004 due to a 

combination of increases in consumption and decreases in domestic 

production.

10DOE, EIA, Annual Energy Outlook 2006, DOE/EIA-0383(2006) (February 2006).

Source: GAO analysis of EIA data.

Oil

Other

2% Commercial

Transportation

2% Electric power

4% Residential

Industrial

Natural gas

Coal

14%

23%

40% 27%

65% 23%

Primary energy consumption Oil use, by sector
Page 12 GAO-06-872 Strategic Petroleum Reserve

Figure 3: United States’ Use of Domestic and Imported Crude Oil

The United States created the SPR because the country’s reliance on oil 

imports makes it vulnerable to disruptions in oil supply. Strategic oil 

reserves like the SPR are particularly important now because oil market 

cushions, such as excess oil production capacity and private inventories, 

have decreased in recent years. Although estimates of spare production 

capacity are uncertain, experts believe that spare production capacity 

dropped to around 1 million barrels per day in 2004, close to a 20-year low. 

Additionally, private inventories of oil and oil products have been on a longterm declining trend, in part because of a trend toward just-in-time 

inventory. The absence of these market cushions means that less oil is 

available in the market to mitigate price spikes during oil supply 

disruptions. Thus, a supply disruption that takes even a small amount of oil 

off the market could cause the price of oil to rise dramatically.

One factor limiting excess oil production capacity is recent steep increases 

in world consumption of oil. Together, the United States and Western 

Europe accounted for 44 percent of the 80 million barrels of oil per day of

Source: GAO analysis of EIA data.

Millions of barrels per day

0

2

4

6

8

10

12

14

16

18

Imported crude oil

Domestic crude oil

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

1985 

26% 

2004 

1977 65% 

45% 

1970 

12% 

Year 
Page 13 GAO-06-872 Strategic Petroleum Reserve

world oil consumption in 2003.11 The United States is the world’s largest oil 

consumer, accounting for about 25 percent of the world’s oil consumption, 

despite having only 5 percent of the world’s population. In addition to the 

high levels of consumption in the United States and Western Europe, oil 

consumption has also been rising rapidly in Asia and Oceania, as shown in 

figure 4. For example, according to a recent study by the International 

Monetary Fund, China and India accounted for 35 percent of incremental 

oil consumption between 1993 and 2003, even though they accounted for 

only 15 percent of world economic output over the period.12 China has 

overtaken Japan as the second largest oil consumer in the world, second to 

the United States. 

11The countries included in Western Europe are as follows: Austria, Belgium, Bosnia and 

Herzegovina, Croatia, Denmark, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, 

Iceland, Ireland, Italy, Luxembourg, Macedonia, Malta, the Netherlands, Norway, Portugal, 

Serbia and Montenegro, Slovenia, Spain, Sweden, Switzerland, Turkey, and the United 

Kingdom.

12International Monetary Fund, World Economic Outlook, Globalization and External 

Imbalances (April 2005).
Page 14 GAO-06-872 Strategic Petroleum Reserve

Figure 4: World Oil Consumption, by Region 

Since 1976, the United States has spent about $26.3 billion—$45.2 billion 

when valued in year 2005 dollars—to build, maintain, fill, and manage the 

SPR. The largest cost has been the cost of filling the reserve. Since filling 

began in 1977, $20.0 billion has been spent to obtain oil ($35.1 billion in 

2005 dollars).13 This amount includes $15.7 billion of oil purchased with 

13Our cost estimate for obtaining oil is the cost of filling the reserve to its current level. 

Funds appropriated for purchasing oil that were later rescinded are not included, nor are 

funds used to purchase oil that has since been withdrawn from the SPR and sold. 
Page 15 GAO-06-872 Strategic Petroleum Reserve

funds appropriated from 1977 through 1992, and $4.3 billion of oil received 

in lieu of government royalty payments since 1999. 

Since 1999, oil for the SPR has been obtained through the royalty-in-kind 

transfer program, in which royalties from government oil leases in the Gulf 

of Mexico are taken in the form of oil, rather than in cash. The Department 

of the Interior’s Minerals Management Service, which collects the royalties, 

contracts for delivery of the royalty oil to designated market centers. 

Because the oil delivered to these market centers often does not meet SPR 

quality specifications and is distant from the SPR storage sites, DOE 

awards complementary contracts to exchange royalty oil at the market 

center for SPR-quality oil delivered to the SPR facilities. However, the 

logistics of Gulf of Mexico oil production from federal leases limits the rate 

at which royalty oil can be economically delivered to the SPR sites.

The SPR oil is stored in salt caverns at the following four facilities: Bayou 

Choctaw and West Hackberry in Louisiana, and Big Hill and Bryan Mound 

in Texas. These caverns range in size from 6 million to 35 million barrels 

and were created by solution mining, in which water injected into an 

underground salt formation dissolves the salt and creates a cavern. 

According to DOE, salt caverns offer the lowest cost, most environmentally 

secure way to store crude oil for long periods of time. Storing oil in 

aboveground tanks generally costs 5 to 10 times as much. Also, because the 

salt caverns are 2,000 to 4,000 feet below the surface, geologic pressure will 

seal any crack that develops in the salt formation, ensuring that no crude 

oil leaks from the cavern. An additional benefit is the natural temperature 

difference between the top of the caverns and the bottom, which keeps the 

crude oil continuously circulating in the caverns, ensuring that the oil in the 

cavern is of consistent quality.

Areas near the Gulf of Mexico were a logical choice for locating the SPR. In 

addition to the more than 500 salt domes concentrated along the Gulf 

Coast, many U.S. refineries and distribution points for tankers, barges, and 

pipelines are available. The four SPR storage areas are connected via 

pipelines to the Gulf Coast and the Midwest refining regions. Oil can be 

transferred via tanker to the Louisiana Offshore Oil Port, which is a major 

facility in the Gulf of Mexico that is connected via pipeline to over 50 

percent of the United States refining capacity. The location of the SPR is 

less advantageous for distributing oil to or receiving it from the western 

United States. 
Page 16 GAO-06-872 Strategic Petroleum Reserve

Past drawdowns of the SPR have occurred for a wide variety of reasons. 

The SPR has sold oil twice under emergency conditions, 17.3 million 

barrels in 1991 at the beginning of Operation Desert Storm and 11.0 million 

barrels in 2005 after Hurricane Katrina. In response to problems ranging 

from a blocked pipeline to a potential shortage of commercial heating oil 

stocks, exchanges of crude oil from the SPR with private companies have 

occurred eight times, ranging in size from 500,000 barrels to 30 million 

barrels. The largest exchange occurred in the fall of 2000 in response to 

concerns about low inventories of heating oil in the Northeast. In these 

exchanges, the borrowing parties returned the amount of oil borrowed plus 

additional volumes of oil as interest. In two cases, conducted for 

operational reasons, the SPR exchanged 11.0 million barrels of lower 

quality oil for 8.5 million barrels of higher quality oil and 2.7 million barrels 

of crude oil for 2.0 million barrels of heating oil. DOE has also conducted 

two test sales to demonstrate the readiness of the SPR, in 1985 and 1990. In 

addition, sales to reduce the federal deficit occurred mainly in 1996. 

Based on Historical 

Experience, Experts 

Suggested Alternative 

Practices for SPR Fill 

and Points to Consider 

for Use

Recent concerns about filling the SPR and long-standing concerns about its 

use can be addressed in ways that improve SPR effectiveness, according to 

numerous energy and oil market experts. A number of persons have raised 

questions because they believe that recent efforts to fill the SPR during 

tight oil supply conditions put upward pressure on oil prices. Others have 

expressed concerns that the SPR has not been used in disruptions where its 

use was warranted and, when used, has not been used early enough after a 

disruption has occurred. In addressing these concerns, experts with whom 

we spoke suggested alternative practices to consider when filling the SPR 

to reduce fill costs, as well as various points to consider when deciding 

whether to use the SPR. 

Experts Suggested Practices 

to Reduce the Cost of Filling 

the SPR

While early SPR fill activity focused on establishing an oil reserve large 

enough to be useful during a supply disruption, more recent fill activity has 

focused on maximizing long-term protection against disruptions. Although 

several oil analysts and experts believe that filling the SPR from late 2001 

through 2005 during a time of tight supply and demand conditions caused 

the price of oil to increase by several dollars per barrel, most of the experts 

with whom we spoke believe that filling the SPR at that time had minimal 

impact on oil prices because the volume was so small compared with world 

oil demand. Experts suggested SPR fill practices that could reduce the cost 

of filling the SPR. They recommended that DOE acquire a fixed dollar value 
Page 17 GAO-06-872 Strategic Petroleum Reserve

of oil per time period, rather than a fixed volume of oil per time period, and 

allow industry more flexibility in the timing of oil deliveries to the SPR.

Early Fill Activity Was Generally 

Focused on Making the SPR 

Large Enough to Respond to 

Disruptions

Prior to 1984, several pieces of legislation set forth minimum fill rates for 

the SPR, in an effort to increase the volume of the reserve to a level large 

enough to be useful during an oil supply disruption. However, the actual 

rate of fill often fell short of these goals. Several studies completed around 

this time reported that, given the SPR’s small size, it should be reserved for 

severe disruptions since it is a one-time source of crude oil, which must be 

replenished after a drawdown. They advised that only after the SPR 

contained a minimum of 250 million to 500 million barrels of oil would it be 

advisable to use it. In a September 1981 report, we echoed this concern, 

believing that DOE should not suspend SPR fill, except during severe 

disruptions, until the SPR reached a minimum threshold size.14

Furthermore, we stated that, given the importance of the SPR, filling it 

should be considered a part of U.S. base demand and should not be cut 

back under tight market conditions. 

Figure 5 shows the progress in filling the SPR since its inception in 1975. 

Fill was suspended from September 1979 to September 1980 when oil 

supplies were disrupted following the Iranian Revolution. The SPR reached 

a volume of about 500 million barrels in 1985, and filling the reserve slowed 

considerably after that time. SPR fill was again suspended in 1990 after the 

Iraqi invasion of Kuwait. The size of the SPR did not significantly increase 

again until after the September 11 terrorist attacks, when the President 

ordered DOE to fill the SPR to its 700 million barrel capacity to maximize 

the long-term protection against potential oil supply disruptions.15 The 

President’s statement accompanying the fill order indicated that, although 

current strategic inventories in the United States and other countries were 

sufficient to meet any potential near-term supply disruption, filling the SPR 

to capacity would strengthen the long-term energy security of the United 

States. The President directed that the SPR be filled in a deliberate and 

cost-effective manner, principally through royalty-in-kind transfers. From 

April 2002 to August 2005, DOE added 138 million barrels to the SPR at a

14GAO, The United States Remains Unprepared For Oil Import Disruptions, Volumes I and 

II, GAO/EMD-81-117 (Washington, D.C.: Sept. 29, 1981).

15Since 2003, due to physical changes in the caverns and the recertification of a previously 

out-of-service cavern, SPR’s capacity has increased to 727 million barrels.
Page 18 GAO-06-872 Strategic Petroleum Reserve

cost of $4.3 billion.16 The SPR received oil from the royalty-in-kind program 

at average rates varying from about 60,000 to 116,000 barrels per day, 

although fill was suspended twice during this period, including January to 

April 2003 in response to the disruption of crude oil supplies from 

Venezuela.

Figure 5: SPR Inventory Over Time

Note: Congress authorized the SPR in 1975, but filling the reserve did not begin until 1977.

Experts Generally Agreed That 

Recent SPR Acquisitions Caused 

Minimal Increase in Oil Prices, 

and Suggested Practices to 

Reduce the Future Cost of SPR 

Fill

The President’s directive to fill SPR in 2001 became controversial. Several 

oil analysts and experts believe that filling the reserve at that time caused 

the world price of oil to increase by several dollars per barrel. Most of the 

oil experts with whom we spoke, however, believe that filling the SPR had 

minimal impact on oil prices, because the volume of oil going to the SPR 

was very small, less than one-quarter of 1 percent of total world demand. 

16Because oil was added to the SPR at that time using the royalty-in-kind program, the $4.3 

billion cost represents forgone revenue to the U.S. government, rather than federal funds 

spent.

Source: GAO analysis of EIA data.

Year

0

100

200

300

400

500

600

700

800

200

2004

3

199

1997

1998

1999

2000

2001

2002

6

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

Millions of barrels
Page 19 GAO-06-872 Strategic Petroleum Reserve

To decrease the cost of filling the SPR, many experts recommend changes 

in SPR practices, including more flexible timing of oil acquisition. 

Generally, all fill options must balance the cost of adding oil to the SPR 

now against the benefits that the additional oil will provide in the future. 

During the initial filling of the SPR, it was clear that the benefits of adding 

oil outweighed the immediate costs of doing so. However, now that the SPR 

holds nearly 700 million barrels of oil, there is a greater interest in finding 

ways to reduce the acquisition costs.

Several experts suggested that DOE should use a predictable, transparent 

long-term process to acquire oil for the SPR. For example, some experts 

suggested a dollar-cost-averaging approach, where DOE would acquire a 

steady dollar value of oil per time period (e.g., day or month) instead of a 

relatively steady volume, as has generally been the case in recent years. A 

dollar-cost-averaging approach would take advantage of fluctuations in oil 

prices, since the same dollar amount will purchase more oil when prices 

are low than when prices are high. To evaluate the effect of a dollar-costaveraging approach on SPR fill cost, we estimated the potential savings of 

this approach had it been used from October 2001 through August 2005. 

Our results showed that if DOE had followed a dollar-cost-averaging 

approach when filling the SPR during that time, it could have saved 

approximately $590 million while acquiring the same amount of oil. We also 

ran simulations to estimate potential future cost savings from using a 

dollar-cost-averaging approach over 5 years. The simulations showed that 

dollar cost averaging is likely to save money over a range of plausible paths 

of future oil prices, whether prices are rising or falling and whether price 

volatility is small or large. The savings due to dollar cost averaging were 

generally greater when oil prices were more volatile. 

As an additional measure, some experts suggested that DOE exercise 

flexibility and react to market conditions when filling the SPR. They said 

that DOE should not fill the SPR when the oil market is tight or when doing 

so would significantly tighten the market. DOE officials told us that the 

department has approved some delivery deferrals that contractors have 

requested, in particular after the oil workers’ strike in Venezuela, but DOE 

has also turned down some requests. In return for these deferrals, DOE 

received additional barrels of oil as a premium. From October 2001 through 

August 2005, payment for deferrals added 4.6 million barrels of oil to the 

SPR, with a value of approximately $110 million. Some experts suggested 

that DOE could expand the use of deferrals by allowing oil producers to
Page 20 GAO-06-872 Strategic Petroleum Reserve

delay oil delivery to the SPR when they believe that supply and demand are 

in tight balance and current prices are higher than expected future prices.17

Under these conditions, it is financially advantageous for oil producers to 

delay delivery, and producers could provide additional oil to the SPR to pay 

for the privilege of delaying delivery. Experts noted that there may be 

considerations beyond the oil market, such as national security concerns, 

that would necessitate the delivery of oil to the SPR at a particular time, 

therefore, DOE would want to exercise its authority to disallow deferrals at 

times when it is in the national interest that oil deliveries not be delayed. 

Experts Suggested Several 

Points to Consider When 

Deciding on SPR Use

The law allows broad presidential discretion and provides only general 

guidance for the SPR’s use, making use of the SPR a matter of judgment by 

the President. SPR use decisions are largely a matter of judgment, and 

members of our group of experts disagreed about the appropriateness of 

past use decisions. Past drawdowns have been for widely varying purposes, 

including emergency responses, test sales, and deficit reduction. In 

addressing use-related issues, experts suggested several points to consider 

when deciding whether to use the SPR. 

SPR Legislation Allows Broad 

Presidential Discretion

The President has the primary authority to decide when to use the SPR. 

The Energy Policy and Conservation Act authorizes the President to use 

the SPR in the event of a severe energy supply disruption or when required 

to meet the obligations of the United States to the International Energy 

Agency.18 Amendments to this act in 1990 gave the President additional 

authority to use the SPR in reaction to a circumstance that constitutes or is 

likely to become a significant shortage, and where action taken would 

assist in preventing or reducing the adverse impact and would not impair 

national security. These amendments allow for only limited use of the 

SPR—no more than 30 million barrels may be sold over 60 days, and no 

sales may be made if the SPR is below 500 million barrels. 

In addition to presidential authority, the Secretary of Energy is authorized 

to carry out test drawdowns and sales or exchanges from the SPR to 

evaluate the drawdown and sale procedures. The Secretary may not release 

more than 5 million barrels of oil during such a test. DOE officials pointed 

17Expected future oil prices are reflected in the futures market, where oil is traded for 

delivery at a specified place, price, and time in the future. 

18Pub. L. No. 94-163 (1975).
Page 21 GAO-06-872 Strategic Petroleum Reserve

out that they follow a series of progressive steps in responding to a 

disruption. They can (1) identify relevant inventories and evaluate market 

impacts (with the help of EIA); (2) defer any ongoing deliveries to the SPR, 

thereby making this oil available to the market; (3) make exchanges in 

response to requests from individual companies facing problems; and 

(4) arrange for competitive exchanges, whereby companies bid for oil from 

the SPR by promising to replace it with a greater volume of oil at a 

specified date in the future. DOE officials believe that this graduated 

approach allows them a flexible and measured response appropriate to the 

size of the disruption. 

While the President’s discretion over the release of oil introduces some 

uncertainty into the market, it also has certain advantages. Members of our 

group of experts told us that uncertainty around SPR use can be valuable. 

For example, the President can use the SPR as a bargaining tool in 

diplomatic negotiations during energy crises, enabling him to encourage 

behavior by oil-producing nations that could be beneficial to the United 

States. 

Members of our Expert Group 

Disagreed about Past SPR Use 

Decisions

Members of our group of experts disagreed about the appropriateness of 

past SPR use decisions. Since the decision about whether the SPR should 

be used to ameliorate a situation is generally a matter of judgment, experts 

tend to view past decisions from the perspective of hindsight. For 

example, several members of our group told us that they believed the oil 

workers’ strike in Venezuela in 2002 to 2003 was a clear case in which SPR 

use was appropriate, although the reserve was not used in response to the 

strike. However, DOE officials stated that oil from the SPR was not needed 

during the strike. They noted that other oil-producing nations had agreed to 

increase production, and that the U.S. government allowed oil companies 

to delay delivery of oil to the SPR—which together added significant 

quantities of oil to the market.

Members of our group of experts held a range of views about the timeliness 

of past use, including the SPR’s first emergency use during the Gulf War in 

1991. While some said that reserve use in this instance was timely and 

showed the market that supply would be available, others contended that 

the United States did not use the SPR soon enough, when it could have 

dampened oil price increases and prevented the U.S. economy from 

slipping into a recession. However, these experts acknowledged the 

difficulty of disentangling the effects of the war from the effects of the SPR 

release on oil prices. 
Page 22 GAO-06-872 Strategic Petroleum Reserve

Group members were generally supportive of SPR use in response to 

Hurricane Katrina in 2005. Several experts agreed that this use of SPR 

demonstrated that the government understood its role as one of 

complementing rather than competing with the market. 

Experts Suggested Several 

Points to Consider When Making 

Decisions about SPR Use

Despite the lack of clear consensus regarding previous decisions to use the 

SPR, experts in our group suggested several points that policymakers 

should consider when deciding whether to use the SPR: (1) that recent 

increases in the size of the SPR should result in a greater willingness to use 

it during a disruption, (2) that more extensive experience with the SPR 

during oil supply disruptions may enable better understanding of the 

features of each disruption that determine whether SPR use is warranted, 

and (3) that using the SPR without delay when it is needed will minimize 

economic damage. DOE officials told us that, while they do not have a 

formal checklist, they consider all relevant features when considering SPR 

use during a disruption, including the features noted by our group of 

experts. 

First, experts in our group and in interviews noted that the SPR is much 

larger today than in the past, and that this change allows the SPR to be used 

with less concern about keeping enough oil in the reserve for future 

disruptions. Members of our expert group pointed out that today’s larger 

reserve diminishes the value of holding oil back during a disruption as a 

hedge against possible future disruptions, and they noted greater 

willingness to use reserves in response to disruptions now than in the past.

Second, more extensive experience with the SPR during past disruptions 

may enable better understanding of the unique features of future oil 

disruptions that warrant a release of oil from the SPR. In a 1993 report,19 we 

stated that U.S. policy emphasized initially relying on free market forces in 

oil supply disruptions. However, the report observed that this policy 

provides little specific guidance on how long market forces should be 

allowed to operate before the SPR is used or what conditions should 

dictate its use. Experts in our group agreed that the SPR should be used to 

supply oil during disruptions where the market cannot make up for lost 

supply. Experts also identified a variety of specific features of disruptions 

that could help determine when SPR use is warranted. These features 

included the volume of oil disrupted, the type of oil disrupted, the 

19GAO, Energy Security and Policy: Analysis of the Pricing of Crude Oil and Petroleum 

Products, GAO/RCED-93-17 (Washington, D.C.: Mar. 19, 1993).
Page 23 GAO-06-872 Strategic Petroleum Reserve

availability of spare oil production capacity, the source of the disruption 

and its distance from the United States, and the time of year that the 

disruption occurs (with implications for gasoline supplies in the summer 

and heating oil in the winter). 

Economic experts have described additional points to consider when 

making decisions about using the SPR during a disruption. 

• Experts noted that not all oil price increases are equally damaging to the 

economy. Economic research shows that rapid oil price increases, or 

price shocks, are much more harmful to the economy than oil price 

increases along a steady upward path. For example, one expert noted 

that although average world crude oil prices increased by more than 

$30 per barrel between 2001 and 2005, there was no price shock, and the 

U.S. economy remained strong, growing at about 3.5 percent annually 

during this period. 

• Under some conditions, decision makers could use monetary policy to 

partially offset economic damage from an oil price shock. The Federal 

Reserve might be able to prevent some economic damage by allowing a 

one-time increase in the money supply to stimulate spending and spur 

GDP growth. However, not all economists agree that monetary policy 

would be effective, or that monetary policy could offset the impacts of a 

disruption without having other negative impacts on the economy. 

Third, avoiding delay in using the SPR when its use is warranted will 

minimize economic damage. Expert group members encouraged early use 

of the SPR as a first line of defense against oil supply disruptions, noting 

that recent changes in the oil industry—including diminished spare crude 

oil production capacity, refining capacity, and product inventories—have 

removed sources of supply security that have covered short-term supply 

losses in the past. Additionally, some experts believe that much of the harm 

to the U.S. economy occurs in the early phases of a disruption, before the 

economy has a chance to adjust to higher prices.

Avoiding delay in SPR use is also important because even when spare 

production capacity is available in the world to take the place of disrupted 

oil supply, this oil will take time to reach the United States. EIA estimates 

that the majority of the world’s spare oil production capacity is located in 

Saudi Arabia and takes about 30 to 40 days to reach the United States. For 

this reason, experts told us that spare capacity would be unlikely to 

mitigate the early stages of a domestic disruption or a disruption affecting a 
Page 24 GAO-06-872 Strategic Petroleum Reserve

nearby oil supplier, such as Venezuela, whose oil takes about 5 to 7 days to 

reach the Gulf Coast of the United States. 

SPR Use during 

Disruptions Can 

Provide Substantial 

Benefits, but the 

Magnitude of These 

Benefits Is Uncertain

At their current capacities, the SPR and international reserves can replace 

the oil lost in all but the most catastrophic disruptions. Doing so protects 

the economy from significant damage, according to the results of two DOE 

models, although these models disagree about the magnitude of the 

avoided damage. Additionally, several factors beyond the SPR’s ability to 

replace oil could decrease or increase the economic benefit of the reserve, 

such as the compatibility of SPR oil with some U.S. refineries.

SPR and International 

Reserves at Their Current 

Size Can Replace the Oil 

Lost in All but the Most 

Catastrophic Disruptions

In June 2006, the SPR contained 689 million barrels of oil that can be 

released at a maximum initial rate of 4.4 million barrels a day, a rate that 

can replace about 44 percent of U.S. oil imports. As shown in figure 6, the 

maximum drawdown rate gradually decreases after 90 days as the storage 

caverns are emptied. If the SPR is drawn down more slowly, it could 

release a million barrels of oil per day for nearly 11⁄2 years, or at smaller 

rates for an even longer period. 
Page 25 GAO-06-872 Strategic Petroleum Reserve

Figure 6: SPR Maximum Drawdown Capability

In addition to the reserves in the United States, members of the 

International Energy Agency have about 2.7 billion barrels of public and 

industry reserves, of which about 700 million barrels are governmentcontrolled for emergency purposes.20 These government-controlled 

reserves can release a maximum of about 8.5 million barrels of oil and 

petroleum products per day, diminishing quickly to about 4.5 million 

barrels per day after 30 days, about 3.5 million barrels per day after 60 days, 

and slightly more than 1 million barrels per day after 90 days. Reserves of 

refined petroleum products, such as gasoline or diesel, can be useful during 

oil supply disruptions, but they are more expensive to store than crude

20Our definition of “emergency stocks” held by member countries of the International 

Energy Agency includes those stocks completely financed by governments and agency 

stocks. Agency stocks are generally held under a cost-sharing agreement between private 

entities and government.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Millions of barrels per day

151- 

180

121-

150

91-

120

1-30 31-60 61-90

Days

Source: DOE’s Office of Petroleum Reserves.

4.4 4.4 4.4

3.8

3.5

1.9
Page 26 GAO-06-872 Strategic Petroleum Reserve

oil.21 We did not independently verify the potential drawdown rates of 

international reserves. 

The SPR, either alone or in combination with these international reserves, 

can replace the oil lost in four of the six hypothetical disruption scenarios 

that we developed for this review. The six scenarios are (1) a hurricane in 

the U.S. Gulf Coast, (2) a strike among oil workers in Venezuela, (3) an 

embargo of Iranian oil supply, (4) a terrorism event at an oil facility in Saudi 

Arabia, (5) closure of the Strait of Hormuz, and (6) a shutdown of Saudi 

Arabian oil production. For each scenario, we assume that world excess 

crude oil production capacity and world fuel-switching capabilities, which 

together total 850,000 barrels per day, are available immediately to help 

offset a disruption.22 We also assume that private inventories of crude oil 

are neutral during a disruption—holders of private inventory neither draw 

down their inventories nor hoard oil. (See app. II for a more detailed 

description of our scenarios.)

As shown in table 1, the SPR is large enough and has enough drawdown 

capacity to completely replace the oil lost during our Gulf Coast hurricane 

and Venezuelan strike scenarios, which reduce world oil supply by 

155 million barrels over 6 months and 307 million barrels of oil over 

24 months, respectively. The SPR could eliminate these hypothetical 

disruptions by releasing 24 million and 87 million barrels of oil, 

respectively, and world spare capacity and fuel switching would make up 

the remaining 131 million and 220 million barrels.

21The Northeast Home Heating Oil reserve, located in Connecticut, Rhode Island, and New 

Jersey, contains 2 million barrels of heating oil that can be used during supply disruptions. 

This reserve is not considered in the following analysis.

22Since the majority of excess oil production capacity is currently located in Saudi Arabia, 

assuming that this capacity would be available for our Saudi disruption scenarios produces 

a conservative estimate of the economic damage that could result from such a disruption.
Page 27 GAO-06-872 Strategic Petroleum Reserve

Table 1: Ability of the SPR and International Reserves to Replace Oil 

Source: GAO assumptions and analysis of data from Leiby, Paul N. and David W. Bowman, “Disruption Scenarios and the Avoided Costs 

Due to SPR Use,” Oak Ridge National Laboratory Working Paper (Jan. 19, 2006).

The SPR alone is not large enough to replace all of the oil lost in our Iranian 

embargo scenario, and it does not have enough drawdown capacity to 

completely replace the oil lost during our Saudi terrorism scenario. Our 

Iranian embargo scenario assumes a disruption of almost 1.5 billion barrels 

of oil over 18 months. Even if the United States were to release all of the oil 

in the SPR and if excess production capacity and fuel switching were 

available in the amount assumed here, there would still be a net disruption 

of slightly more than 300 million barrels. In our Saudi terrorism scenario, 

the drawdown capacity of the SPR would be insufficient to replace the oil 

lost during the 1st month of the disruption. For the SPR to replace the oil 

during the 1st month with no assistance from international reserves, 

maximum SPR drawdown capacity would need to be increased by almost 

1 million barrels per day, to a total drawdown capacity of approximately

5.2 million barrels per day. In both of these cases, however, a coordinated 

international response could replace all of the disrupted oil. 

Even with a coordinated response, the SPR and international oil reserves 

are not adequate to replace the disrupted oil from our catastrophic Strait of 

Hormuz closure and Saudi shutdown scenarios. The drawdown capacity of 

international reserves is inadequate to replace the very large amount of oil 

that could be disrupted if the Strait of Hormuz were closed. We assume that 

a closure of the Strait of Hormuz could disrupt 17 million barrels of oil per 

day during the 1st month—more than 12 million barrels per day beyond 

what the SPR could release on its own and more than 4 million barrels per

Barrels in millions

Release from the SPR 

alone

Release from the SPR and 

international reserves

Hypothetical oil 

supply disruption 

scenario

Disruption 

length 

(months)

Disruption 

size

Excess capacity 

and fuel switching 

Can replace 

oil?

Volume of 

release

Can replace 

oil?

Volume of 

release

Gulf Coast hurricane 6 155 131 Yes 24 Yes 24

Venezuelan strike 5 307 220 Yes 87 Yes 87

Iran embargo 18 1,478 465 No 684 Yes 1,013

Saudi terrorism 8 882 207 No 650 Yes 675

Strait of Hormuz closure 3 882 78 No 344 No 688

Saudi shutdown 24 6,205 620 No 684 No 1,461
Page 28 GAO-06-872 Strategic Petroleum Reserve

day beyond what could be released during a coordinated international 

response. In contrast, the volume of oil in international reserves is 

inadequate to replace the oil lost during our Saudi shutdown scenario. 

Even if all of the oil in the SPR were used in a unilateral response, the net 

disruption would still be more than 4.9 billion barrels over 2 years, an 

amount equal to about 16 percent of the crude oil consumed in the world in 

2004. Assuming a coordinated international response, the net disruption 

would still be over 4.1 billion barrels over 2 years, an amount equal to more 

than 13 percent of the crude oil consumed in the world in 2004.

SPR Use during Disruptions 

Can Prevent Substantial 

Economic Damage

The SPR can reduce economic damage during oil supply disruptions by 

replacing some or all of the disrupted oil, moderating the resulting oil price 

increase and its negative effect on U.S. economic activity, as measured by 

GDP. As previously noted, DOE uses two different economic models to 

estimate the impact of oil supply disruptions on oil prices and GDP: one 

used by the Office of Petroleum Reserves and one used by EIA. We used 

both of these models to estimate the reduction in economic damage 

(avoided damage) that could result from releasing oil from the SPR and 

international reserves during our six hypothetical disruption scenarios. 

(See app. II for additional description of these models and the assumptions 

used in our analysis.)

Table 2 shows the oil price increases that the Office of Petroleum Reserves’ 

model estimates for our six disruption scenarios if reserves were not used, 

if the SPR were used alone, and if the SPR were used as part of a 

coordinated international response. This model estimates oil prices each 

month during a disruption and assumes that completely replacing the oil 

lost in a disruption eliminates the resulting price increase. Thus, this model 

predicts no price increase in situations where the SPR or international 

reserves can completely replace the disrupted oil, although experts told us 

that a price increase would likely occur in this instance due to market 

psychology. For those scenarios where some, but not all, of the oil can be 

replaced, the model estimates smaller oil price increases than if reserves 

were not used. For example, the model estimates that oil prices could rise 

by up to $47 per barrel during our Saudi terrorism scenario if reserves were 

not used.23 However, if SPR oil were released into the market, the estimated 

maximum price increase would be only $7 per barrel. If oil from 

23For all price estimates, the models assume a base oil price of $55 per barrel.
Page 29 GAO-06-872 Strategic Petroleum Reserve

international reserves were also released into the market, the model 

estimates there would be no price increase, because the reserve oil would 

completely replace the disrupted oil.

Table 2: Maximum Monthly Increases in Oil Price, According to the Office of 

Petroleum Reserves’ Model

Source: GAO analysis of data from Leiby, Paul N. and David W. Bowman, “Disruption Scenarios and the Avoided Costs Due to SPR Use,” 

Oak Ridge National Laboratory Working Paper (Jan. 19, 2006).

Note: For each scenario, we assume that world excess crude oil production capacity and world fuelswitching capabilities, which together total 850,000 barrels per day, are available immediately to help 

offset a disruption. 

a

This model shows a very large maximum oil price increase in the 1st month of the Strait of Hormuz 

closure because the disruption volume in this month is the largest of any of the scenarios, even though 

the volume of the disruption as a whole is smaller.

To estimate how much economic damage could be avoided by using the 

SPR and international reserves during our oil supply disruption scenarios, 

we first estimated the damage that would occur if no reserves were used. 

We then estimated the damage to GDP, if any, from the disruptions if the 

SPR were used, either alone or in conjunction with international reserves. 

The difference between the estimates with and without reserve use is the 

avoided damage to GDP resulting from use of the reserve. As shown in 

table 3, the Office of Petroleum Reserves’ model estimates that the ability 

of the SPR alone to curb rising oil prices reduces damage to GDP by a 

range of $7 billion for our 6-month Gulf Coast hurricane scenario to 

$142 billion for our 8-month Saudi terrorism scenario. In all but the two 

smallest scenarios, the model shows that a coordinated international 

response can provide a greater reduction in damage, ranging from $118 

billion for the 3-month closure of the Strait of Hormuz to $201 billion for 

our 18-month Iranian embargo scenario. In our 24-month Saudi shutdown 

scenario, the model shows that economic damage of approximately 

Dollars per barrel

Maximum monthly oil price increase

Hypothetical oil supply 

disruption scenarios

No 

release

SPR 

release

SPR and international 

release

Gulf Coast hurricane $5 $0 $0

Venezuelan strike 11 0 0 

Iranian embargo 16 5 0 

Saudi terrorism 47 7 0 

Strait of Hormuz closurea 175 121 34

Saudi shutdown 89 77 63
Page 30 GAO-06-872 Strategic Petroleum Reserve

$662 billion occurs even if international reserves were used in response to 

the disruption. 

The damage caused by each disruption and the portion of that damage that 

can be avoided by releasing reserves depend on the nature of the 

disruption. For example, the SPR and international reserves cannot 

eliminate all of the economic damage that could be caused by our Strait of 

Hormuz closure scenario because, even though the duration is short, it 

involves a disruption of a very large quantity of oil that the reserves cannot 

replace. Additionally, the models show that replacement of a portion of the 

oil lost in the Saudi Arabian shutdown scenario results in less benefit to the 

economy than completely replacing the oil lost in the smaller Iranian 

embargo scenario.

Table 3: Ability of the SPR and International Reserves to Reduce Damage to GDP, 

According to the Office of Petroleum Reserves’ Model

Source: GAO analysis of data from Leiby, Paul N. and David W. Bowman, “Disruption Scenarios and the Avoided Costs Due to SPR Use,” 

Oak Ridge National Laboratory Working Paper (Jan. 19, 2006).

Note: For each scenario, we assume that world excess crude oil production capacity and world fuelswitching capabilities, which together total 850,000 barrels per day, are available immediately to help 

offset a disruption. 

The way in which oil is released from the reserves also impacts how 

effective the reserves are in preventing damage to GDP. In each scenario, 

the results previously described include the assumption that release begins 

immediately and occurs at a steady rate for the entire length of the 

disruption. The results also include the assumption that the rate of release 

either completely replaces the oil lost or is the maximum sustainable rate 

Dollars in billions

Hypothetical oil supply 

disruption scenarios

GDP damage 

caused by 

disruption

GDP damage that can be 

eliminated by reserves

SPR alone

SPR and 

international 

reserves

Gulf Coast hurricane $7 $7 $7

Venezuelan strike 23 23 23

Iranian embargo 201 132 201

Saudi terrorism 149 142 149

Strait of Hormuz closure 146 56 118

Saudi shutdown 832 77 170
Page 31 GAO-06-872 Strategic Petroleum Reserve

for the entire disruption. Delaying the release of reserves in response to a 

disruption is harmful in every scenario, and the harm is greater the longer 

release is delayed. This effect is particularly large in scenarios where more 

oil is lost at the beginning of the disruption, such as the closure of the Strait 

of Hormuz or the Saudi terrorism scenarios. Replacing the oil lost during 

the disruption at the maximum rate possible instead of a steady rate gives a 

different result only in our largest disruption scenario, the Saudi shutdown. 

The maximum release strategy is advantageous in this scenario because the 

model assumes that the economic damage from the disruption is worse at 

the beginning, before the economy has had a chance to adjust. Since 

international reserves are emptied to respond to this scenario, releasing 

more oil at the beginning provides more benefit than releasing at a steady 

rate. 

Table 4 shows the oil price increases that the EIA model estimates for our 

six oil supply disruption scenarios for the same three circumstances 

described for the Office of Petroleum Reserves’ model: if reserves were not 

used, if the SPR were used alone, and if the SPR were used as part of a 

coordinated international response. The EIA model estimates a range of 

price impacts for each quarter of the disruption, rather than a single value 

for each month as in the Office of Petroleum Reserves’ model. Both models 

consider the amount of oil disrupted when calculating oil price increases, 

but the EIA model also estimates the impact of the disruption on market 

psychology. For example, an EIA official stated that disruptions caused by 

violent events would have larger price impacts than disruptions caused by 

peaceful events, such as a strike or natural disaster. Furthermore, the EIA 

model assumes that even if reserves can replace all of the oil lost in a 

disruption, oil prices may still increase because of‘ market psychology. For 

these reasons, in some cases, the EIA model predicts larger price increases 

when reserves are used than the Office of Petroleum Reserves’ model. For 

example, for the Saudi terrorism scenario, the EIA model predicts a price 

increase of $18 to $39 if the SPR were used alone (see table 4), while the 

Office of Petroleum Reserves’ model predicts a maximum price increase of 

only $7 (see table 2).
Page 32 GAO-06-872 Strategic Petroleum Reserve

Table 4: Maximum Quarterly Increases in Oil Price, According to the EIA Model

Source: GAO analysis using the EIA model.

Note: For each scenario, we assume that world excess crude oil production capacity and world fuelswitching capabilities, which together total 850,000 barrels per day, are available immediately to help 

offset a disruption. Oil price increases are modeled for each quarter of the disruption, rather than each 

month as in the previous model, meaning that the price increases are not directly comparable. 

As shown in table 5, the EIA model estimates that the ability of the SPR 

alone to mitigate increases in oil prices reduces damage to GDP by $0.4 

billion to $1.0 billion for our Gulf Coast hurricane scenario up to $15 billion 

to $38 billion for our Iranian embargo scenario. As with the Office of 

Petroleum Reserves’ model, the EIA model also shows that a coordinated 

international response reduces more economic harm in each scenario, 

except those where the SPR can replace the oil alone. As it does with oil 

price increases, the EIA model estimates a range of GDP damage for each 

scenario, rather than the single value that the Office of Petroleum Reserves’ 

model produces. 

Dollars per barrel

Maximum quarterly oil price increase

Hypothetical oil supply 

disruption scenarios No release SPR release

SPR and 

international 

release

Gulf Coast hurricane $1 - $2 $0 $0

Venezuelan strike 9 - 13 0 - 2 0 - 2

Iranian embargo 19 - 28 11 - 17 6 - 11

Saudi terrorism 39 - 67 18 - 39 15 - 35

Strait of Hormuz closure 54 - 82 32 - 52 11 - 24

Saudi shutdown 66 - 104 60 - 96 54 - 87
Page 33 GAO-06-872 Strategic Petroleum Reserve

Table 5: Ability of the SPR and International Reserves to Reduce Damage to GDP, 

According to the EIA Model

Source: GAO analysis using the EIA model.

Note: For each scenario, we assume that world excess crude oil production capacity and world fuelswitching capabilities, which together total 850,000 barrels per day, are available immediately to help 

offset a disruption. 

DOE Models Yield 

Significantly Different 

Estimates of the Economic 

Damage Avoided by Using 

the SPR

Under every scenario, the EIA model predicts much smaller avoided harm 

to GDP than the Office of Petroleum Reserves’ model. For example, in the 

Iranian embargo scenario, the Office of Petroleum Reserves’ model 

estimates that using international reserves could prevent $201 billion in 

economic harm, while the EIA Model predicts $23 billion to $60 billion in 

avoided harm. This difference occurs primarily because the EIA model 

assumes that oil price increases cause less harm to GDP, meaning that 

there is less economic harm for the SPR and other reserves to mitigate. The 

estimates of the effect of oil price spikes on GDP from the Office of 

Petroleum Reserves and EIA models are, respectively, near the high end 

and low end of the spectrum of such estimates in the economic literature. 

Officials from the Office of Petroleum Reserves and EIA acknowledged 

that they hold different views about how oil supply disruptions impact the 

economy. An EIA official also told us that EIA is currently updating its 

model, although the assumptions about how oil price changes impact GDP 

have not changed substantially.24

Dollars in billions

Hypothetical oil supply 

disruption scenarios

GDP damage 

caused by 

disruption

Damage that can be eliminated 

by reserves

SPR alone

SPR and 

international 

reserves

Gulf Coast hurricane $0.4 - $1.0 $0.4 - $1.0 $0.4 - $1.0

Venezuelan strike 2.6 - 7.5 2.6 - 6.3 2.6 - 6.3

Iranian embargo 34 - 99 15 - 38 23 - 60

Saudi terrorism 21 - 71 13 - 34 15 - 38

Strait of Hormuz closure 16 - 48 6.9 - 17 13 - 34

Saudi shutdown 137 - 442 11 - 31 24 - 66

24The EIA model’s update had not been publicly released as of May 25, 2006.
Page 34 GAO-06-872 Strategic Petroleum Reserve

This discrepancy in results between the two models is potentially 

problematic because the results of the two models are used to support 

different decisions about the SPR. The Office of Petroleum Reserves’ 

model has been used to estimate the net benefits of expanding the SPR, as 

described in the following section of this report. The larger economic 

impacts predicted by the Office of Petroleum Reserves’ model would justify 

a larger SPR than if the model predicted smaller economic impacts. The 

EIA model is used to estimate the impact of oil supply disruptions and to 

advise officials about their potential consequences. The smaller economic 

impacts predicted by the EIA model could lead to recommendations that 

the SPR not be used as often or for as many oil supply disruptions as would 

be the case if the model found larger economic impacts. The results of 

these two models pull decision makers in opposite directions, making it 

important to clarify the differences between the two models and to ensure 

that policymakers are aware of the different views within DOE. 

Other Factors, in Addition 

to the SPR’s Ability to 

Replace Oil, May Affect the 

Extent to Which the SPR 

Can Protect the U.S. 

Economy from Damage

The purpose of the SPR is to protect the economy from harm during oil 

supply disruptions by replacing the disrupted oil. However, factors beyond 

the amount of oil that SPR can replace affect the extent to which SPR can 

protect the U.S. economy from damage. For example, during some 

situations, such as a hurricane, typical transportation routes for oil could 

be blocked, reducing the benefits of releasing SPR oil. Also, the benefits of 

releasing SPR oil could also diminish if the type of oil in the SPR is not a 

good substitute for the disrupted oil, or if refining capacity is damaged. On 

the other hand, the SPR can provide economic benefits to the United States 

when it is used as a tool for diplomacy and as a deterrent against 

intentional disruptions, even when no oil is released. 

Transport of Oil to Refineries 

May Be Difficult during Some 

Disruptions 

During a drawdown, SPR oil is shipped through marine terminals or 

pipelines. Shipping time from the SPR to different parts of the country 

varies, as shown in table 6. The oil pipeline network and marine shipping 

allow SPR oil to reach every region of the United States, except for the 

Rocky Mountains. Canada provides the only imported oil to the Rocky 

Mountain region, and DOE believes that a disruption of Canadian oil is 

unlikely.25

25Although DOE considers a disruption of Canadian oil unlikely, oil supply disruptions can 

occur from any supplier, including domestic suppliers.
Page 35 GAO-06-872 Strategic Petroleum Reserve

Table 6: Consumption of Imported Oil and Shipping Time for SPR Oil to Various 

Regions

Source: GAO analysis of DOE data.

a

DOE divides the United States into five Petroleum Administration for Defense Districts for planning 

purposes. The result is a geographic aggregation of the 50 states and the District of Columbia into five 

districts.

b

This table does not include data on imports from Canada.

The ability of the SPR to reduce economic damage may be impaired if 

transport of oil to refineries is delayed. For example, the SPR was large 

enough to replace the oil lost from recent Hurricanes Katrina and Rita, but 

petroleum product prices still increased dramatically following the 

hurricanes, in part because power outages shut down pipelines that 

refineries depend upon to supply their crude oil and to transport their 

refined petroleum products to consumers. For example, Colonial Pipeline, 

which transports petroleum products to the Southeast and much of the 

East Coast, was not fully operational for a week after Hurricane Katrina. 

Consequently, short-term gasoline shortages occurred in some places, and 

the media reported gasoline prices greater than $5 per gallon in Georgia. 

SPR Oil Is Not Fully Compatible 

with Some Refineries

The crude oils stored in the SPR are compatible with many refineries in the 

United States. However, some U.S. refineries process crude oils heavier 

than those stored in the SPR. Of the 8.3 million barrels of non-Canadian oil 

imported into the United States per day in 2004, 3.5 million barrels, or 

about 40 percent, were heavy oil.26 Refineries that process heavy oil may 

have difficulty operating at normal capacity if their supply of heavy oil is 

disrupted. A December 2005 DOE report identified 74 refineries that are 

connected to the SPR that receive non-Canadian imports of oil, and the 

Regiona

2004 crude oil 

imports (millions of 

barrels per day)b

Days to reach 

region

1 - East Coast 1,370 6 - 8

2 - Midwest 519 5 - 9

3 - Gulf Coast 5,445 <1

4 - Rocky Mountain 0 N/A

5 - West Coast 864 16 - 18

26As defined by the Office of Petroleum Reserves in the Strategic Petroleum Reserve Crude 

Compatibility Study, heavy sweet oil has an API gravity less than 26 degrees and heavy sour 

oil has an API gravity less than 30 degrees.
Page 36 GAO-06-872 Strategic Petroleum Reserve

report found that the types of oil currently stored in the SPR would not be 

fully compatible with 36 of those refineries, or slightly less than 50 

percent.27, 28 DOE estimated that if these refineries had to use SPR oil, U.S. 

refining throughput would decrease by 735,000 barrels per day, or 5 

percent. DOE estimated that production of distillate fuels, such as diesel 

and jet fuel, would decrease substantially from heavy oil refineries, but 

DOE estimated that production of gasoline would increase.

To improve the compatibility of SPR oil with refineries in the United States, 

the DOE study concluded that the SPR should contain about 10 percent 

heavy oil. However, DOE may have underestimated how much heavy oil 

should be in the SPR to maximize compatibility with refiners and minimize 

oil acquisition cost. First, DOE determined the least amount of heavy oil 

that could be added to improve the compatibility of the SPR oil inventory 

with U.S. refineries. However, because heavy oil is less expensive to 

purchase than the lighter oils currently stored in the SPR, a cost-benefit 

analysis may show that a larger amount of heavy oil is beneficial, while still 

maintaining compatibility with U.S. refining capacity.29 Second, the DOE 

report may have underestimated the potential impact of heavy oil 

disruptions on gasoline production. Several refiners who process heavy oil 

told us that they would be unable to maintain normal levels of gasoline 

production if they used only SPR oil. For example, an official from one 

refinery stated that if it used solely SPR oil in its heavy crude unit, it would 

produce 11 percent less gasoline and 35 percent less diesel. 

Representatives from other refineries said that they might need to shut 

down portions of their facilities if they could not obtain heavy oil. A 

refining industry expert explained that a reduction in gasoline production 

would likely occur when some heavy oil refineries processed light oil, 

because the light oil would not provide enough feed to units designed to 

convert heavier products into gasoline.

27DOE, Office of the Deputy Assistant Secretary for Petroleum Reserves, Strategic 

Petroleum Reserve Crude Compatibility Study (December 2005). 

28Our summary of DOE conclusions does not include asphalt plants, which also would be 

harmed by a disruption of heavy oil supply.

29The price differential between light and heavy crude oils varies over time and depends on 

the types of crude oil involved. For example, the differential between Brent, a light 

European crude oil, and Maya, a heavy Mexican crude oil, varied from about $9 to nearly $18 

during the last year.
Page 37 GAO-06-872 Strategic Petroleum Reserve

Releasing Oil from the SPR Is 

Less Helpful If U.S. Refining 

Capacity Is Damaged

In addition to disrupting crude oil supplies, disasters such as hurricanes 

and terrorist acts can disrupt supplies of petroleum products by damaging 

refineries. Crude oil must be processed in refineries to be useful. Following 

Hurricanes Katrina and Rita, nearly 30 percent of the refining capacity in 

the United States was shut down, disrupting supplies of gasoline and other 

products. Because the SPR contains only crude oil, it cannot replace 

petroleum products if a disruption in refining occurs. However, some 

countries in the International Energy Agency hold petroleum products in 

their reserves, and they released these products after Hurricanes Katrina 

and Rita. DOE reported that these releases of petroleum products helped 

reduce prices for gasoline and diesel after the hurricanes. 

SPR Can Provide Benefits to the 

U.S. Economy Without Releasing 

Oil

Several members of our group of experts and other experts noted that the 

SPR has value to the United States economy in addition to physically 

replacing oil during supply disruptions. First, the ability of the SPR to 

replace supply during disruptions may deter adverse behavior on the part 

of oil-producing nations. Since the SPR can replace a large amount of 

disrupted oil, cutting off supply would not have the intended negative 

economic consequence. Second, the SPR could be used as a negotiation 

tool to encourage producers to increase oil production when needed. 

Third, experts told us that they believe the SPR may reduce oil prices by 

lowering the risk premium sometimes included in the price of oil. Oil prices 

can increase because of fear of a disruption, and some experts told us that 

the existence of the SPR may quell this fear. 

A Larger SPR Is 

Warranted If Demand 

for Oil Grows as 

Expected

If demand for oil in the United States increases as expected, a larger SPR 

will be necessary to maintain the economy’s present level of protection 

from oil supply disruptions. Expansion of the SPR could also be required 

under the U.S. agreement with the International Energy Agency. In 

addition, a recent study prepared for DOE shows that the benefits of 

expanding the SPR to as much as 1.5 billion barrels would exceed the costs 

over a range of future conditions, although expanding the reserve to this 

size would take approximately 18 years. However, factors influencing the 

SPR’s ideal size are likely to change over time, including factors such as oil 

demand and the likelihood of oil supply disruptions. 

Oil Demand Projections 

Support a Larger SPR

Future oil demand in the United States has an important impact on the 

benefits of expanding the SPR, and current projections support the interest 

in a larger SPR. Under the base case in the EIA’s most recent Annual 
Page 38 GAO-06-872 Strategic Petroleum Reserve

Energy Outlook, published in February 2006, U.S. demand for petroleum 

will rise from 21.1 million barrels per day in 2005 to 23.6 million barrels per 

day in 2015 and 26.1 million barrels per day in 2025, increases of 12 percent 

and 24 percent, respectively.30 As a result, the volume of imported oil and 

petroleum products is projected to increase over time to meet this demand, 

from 12.5 million barrels per day in 2005 to 13.2 million barrels per day in 

2015 and 15.7 million barrels per day in 2025. 

The amount of protection that the SPR provides to the U.S. economy is 

generally measured in days of net import protection. The SPR contained 

enough crude oil in 2005 to offset about 58 days of imports. Using the most 

recent EIA forecast, we calculate that the net import protection that the 

SPR provides at its current size will decrease to 53 days in 2015 and 45 days 

in 2025. 

The United States’ agreement with the International Energy Agency could 

also require an expanded SPR as imports of oil and oil products increase, if 

private inventories do not increase enough to cover the difference in 

demand. As we previously mentioned, the United States agrees to hold 

inventories of oil and petroleum products totaling 90 days of net imports as 

part of its obligation to the International Energy Agency, and the United 

States meets its obligation with a combination of public and private 

inventories. Privately held inventories of oil and petroleum products vary, 

but in 2005 DOE assumed these inventories could offset 58 days of imports. 

In total, the SPR and private inventories could offset 127 days of imports in 

2005. As shown in figure 7, DOE estimates that without SPR or private 

inventory expansion, the United States will drop below its 90-day 

stockholding obligation in 2025. With the expansion of the SPR to 1 billion 

barrels included in the Energy Policy Act of 2005, DOE estimates that the 

United States will remain in compliance with its 90-day obligation through 

2030.31 As figure 7 shows, the number of days of net import protection 

provided by private inventory of oil and petroleum products has generally 

decreased since the mid-1980s, and DOE officials expect this trend to 

30EIA publishes an Annual Energy Outlook each year that forecasts future prices and 

demand for oil and other energy sources. The 2006 edition includes a base-case forecast, a 

higher-price forecast, and a lower-price forecast.

31This analysis assumes that the volume of private inventory remains constant in the future, 

meaning that the days of import coverage from private inventory decrease as demand 

increases.
Page 39 GAO-06-872 Strategic Petroleum Reserve

continue. Holding inventory is costly to private companies, so they have an 

incentive to keep their inventory as low as possible.

Figure 7: United States’ Current and Estimated Compliance with International 

Energy Agency Obligation to Hold Reserves

0

30

60

90

120

150

180

210

240

270

300

 

SPR expansion

Industry stocks

SPR stocks

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Source: DOE’s Office of Petroleum Reserves.

Days of net imports

International Energy Agency 90-day obligation

Year
Page 40 GAO-06-872 Strategic Petroleum Reserve

DOE Estimates That Longterm Benefits of SPR 

Expansion to 1.5 Billion 

Barrels Exceed Costs

To evaluate the costs and benefits of expanding the SPR to a capacity of up 

to 1.5 billion barrels, DOE’s Oak Ridge National Laboratory (ORNL) 

prepared a study for DOE in late 2005.32 This study relies on the same 

model that the Office of Petroleum Reserves used, as discussed in the 

previous section, to estimate the reduction in economic damage from using 

the SPR during oil supply disruptions. The study shows that the benefits of 

expanding the reserve to 1.5 billion barrels exceed the costs over a 45-year 

horizon. The study estimates the costs and benefits of SPR expansion 

through 2050 because of the long construction time for additional SPR 

capacity and the large up-front investment required. The costs of 

constructing and filling the additional capacity dominate the analysis until 

2020, while benefits of the additional capacity accrue from 2021 through 

the end of the analysis in 2050. The study uses EIA forecasts of oil price and 

demand through 2025, and a linear extrapolation of these forecasts from 

2025 through 2050. Any analysis of costs and benefits so far in the future is 

inherently uncertain. However, this study is the only one of its kind to 

analyze the future net benefits of SPR expansion.

The costs of expanding the SPR to 1.5 billion barrels consist of capital costs 

to acquire and construct the facilities, the cost of crude oil to fill the new 

capacity, and ongoing maintenance and security costs for the additional 

facilities. DOE estimates that expanding the physical structure of the SPR 

to 1.5 billion barrels would take approximately 18 years and cost 

approximately $5.4 billion, in 2004 dollars. DOE assumed that expanding 

the reserve to this size would involve purchasing or constructing additional 

storage capacity at three existing SPR sites: West Hackberry and Bayou 

Choctaw in Louisiana, and Big Hill in Texas. The remaining expansion 

would be accomplished by constructing new storage sites at three sites 

selected from five potential sites in Texas, Louisiana, and Mississippi. The 

ORNL study’s authors estimate the cost of filling the additional SPR 

capacity at $23.0 billion, in 2004 dollars. This estimate is based on the basecase oil price forecast from the 2005 Annual Energy Outlook because the 

2006 volume was not yet published when the ORNL study was completed. 

The 2006 Outlook forecasts higher crude oil prices than the 2005 Outlook. 

Using the most recent base-case forecast, the ORNL authors estimated a fill 

cost of $36.2 billion in 2004 dollars. These calculations assume that the new 

SPR capacity is filled as it is completed at a maximum fill rate of 100,000 

barrels per day, a fill rate achievable using the royalty-in-kind program. 

32All benefits assessed in the ORNL study were economic benefits. 
Page 41 GAO-06-872 Strategic Petroleum Reserve

The ORNL study does not separately consider the costs and benefits of the 

expansion to 1 billion barrels authorized in the Energy Policy Act of 2005. 

DOE estimates that expanding to this size would take approximately 

15 years and cost at least $1.3 billion, in 2004 dollars, based on selection of 

the lowest-cost expansion options. This cost includes, as we previously 

described, purchasing or constructing additional capacity at three existing 

SPR sites and constructing a new storage site at one of the five potential 

locations. We estimate that filling the additional capacity would cost 

approximately $13.4 billion in 2004 dollars, using the base-case cost 

estimate in the 2006 Annual Energy Outlook. 

The ORNL study estimates that the benefits of expanding the reserve to 

1.5 billion barrels exceed the costs over a range of assumptions about 

future demand and oil prices. Expanding the SPR to 1.5 billion barrels is 

estimated to be cost-beneficial for each of the demand and world oil price 

forecasts in EIA’s 2005 Annual Energy Outlook. The 2005 Outlook contains 

four forecasts of the world oil market: a base-case forecast, a lower-price 

forecast, and two higher-price forecasts.33 A different level of oil demand is 

associated with each of these price forecasts. The estimated net benefits of 

expanding the SPR are greatest in the EIA forecast when oil demand is 

highest and oil prices are lowest, and least when oil demand is lowest and 

prices are highest. The ORNL study used the 2005 forecasts because, as we 

previously mentioned, it was completed before the 2006 Outlook was 

published. The 2005 Outlook forecasts higher oil demand and lower oil 

prices than the 2006 edition, but the author of the ORNL study noted that 

the highest-price case included in the 2005 report closely resembles the 

2006 base case. Thus, SPR expansion appears to be cost-beneficial for the 

2006 base-case forecast, but the study does not include oil prices as high as 

those in the 2006 high-price forecast, which would tend to decrease the 

benefits of a larger reserve. 

Beyond assumptions about future oil demand and price, the ORNL study 

makes a number of additional assumptions, including important 

assumptions about the probability of disruptions and the impact of oil price 

increases on GDP.

33The 2005 Annual Energy Outlook contained an additional high-price case, called the 

October futures price case. The results of this case are similar to the base case over the long 

term, and the ORNL study did not include this case.
Page 42 GAO-06-872 Strategic Petroleum Reserve

• The likelihood of oil supply disruptions in the future is uncertain and 

difficult to assess. The ORNL study considers two different estimates of 

the probability of oil supply disruptions: one that DOE created in 1990 

and a second that the Stanford Energy Modeling Forum created in 

2005.34 The benefits of expanding the SPR to 1.5 million barrels exceed 

the costs for both disruption probability estimates, but the benefits are 

larger for the 2005 Stanford Energy Modeling Forum estimate because 

this estimate (1) considers longer disruptions than those considered in 

the 1990 estimate and (2) recognizes that excess capacity will not be 

available from a part of the world where supply is disrupted.

• The measure of how much a given increase in oil price reduces GDP is 

known as the GDP elasticity of oil price. GDP loss avoided when the 

SPR is used during oil supply disruptions is a measure of the benefit of 

the SPR. The ORNL study used a range of GDP elasticity estimates and 

the results of the model runs indicate that, over that range, expanding 

the SPR is cost-beneficial. Some economists, however, believe that the 

GDP elasticity is lower than the bottom of the range of elasticity 

estimates used by the ORNL study. For example, the model we 

described in the previous section that EIA uses to estimate the impacts 

of oil supply disruptions uses values for this GDP elasticity derived from 

the Global Insight Macroeconomic Model that are one-quarter to onehalf the size of the smallest value considered in the ORNL study. A 

smaller value for the GDP elasticity would reduce the calculated 

benefits of expanding the SPR. 

Factors Influencing the 

SPR’s Ideal Size Are Likely 

to Change Over Time

Many factors influence the ideal size of the SPR, including world demand 

for oil and the probability and potential size of oil supply disruptions. 

Although current projections anticipate increasing future demand for oil in 

the United States and world, future oil demand conditions are uncertain. 

Predicting future demand is difficult because it depends on many factors, 

including the rates of economic growth, the price of oil, policy choices, and 

technology changes. 

34The Stanford Energy Modeling Forum is a structured forum for discussing important 

energy and environmental issues. Participants are leading energy experts and advisors from 

government, industry, universities, and other research organizations. DOE sponsored an 

expert panel study by the Stanford Energy Modeling Forum to quantify oil disruption risk.
Page 43 GAO-06-872 Strategic Petroleum Reserve

The rate of world economic growth strongly influences oil demand. Strong 

economic growth in China has increased its demand for oil and petroleum 

products, contributing to rising world oil prices since 2004. In that year, 

China became the world’s second largest consumer of oil, behind the 

United States, and its demand for oil grew at an annual rate of 15 percent. 

Conversely, the financial crisis in Asia in mid-1997 dramatically slowed the 

rate of oil demand growth in the region at that time, and oil demand even 

decreased between 1997 and 1998 in some countries. This change in 

demand contributed to lower oil prices in 1998 and early 1999, according to 

some experts.

Future demand for oil will also depend on its price. As we previously 

described, crude oil prices are set in the world marketplace, and are largely 

outside the control of U.S. policymakers. High oil prices can encourage 

conservation and investment in fuel-efficient technologies and alternative 

fuels, reducing demand, while low oil prices can have the opposite effect. 

Members of our group of experts suggested several policy choices that 

might diminish growth in U.S. demand for oil. First, they suggested that 

research and investment in alternative fuels might reduce the growth of 

future U.S. oil demand. Vehicles that use alternative fuels, including 

ethanol, biodiesel, liquefied coal, and fuels made from natural gas, are now 

generally more expensive or less convenient to own than conventional 

vehicles, because of higher vehicle and fuel costs and a lack of refueling 

infrastructure. Alternative-fuel vehicles could become more viable in the 

marketplace if their costs and fuel delivery infrastructure become more 

comparable to vehicles fueled by petroleum products. Second, expert 

group members suggested that greater use of advanced fuel-efficient 

vehicles, such as hybrid electric and advanced diesel cars and trucks, could 

reduce U.S. oil demand. The Energy Policy Act of 2005 directs the 

Secretary of Energy to establish a program that includes grants to 

automobile manufacturers to encourage domestic production of these 

vehicles. Third, several members of our group of experts suggested 

improving the Corporate Average Fuel Economy (CAFE) standards to curb 

demand for petroleum fuels in the United States. After these standards 

were established in 1975, the average fuel economy of new light-duty 

vehicles improved from 13.1 miles per gallon in 1975 to a peak of 22.1 miles 
Page 44 GAO-06-872 Strategic Petroleum Reserve

per gallon in 1987.35 More recently, the fuel economy of new vehicles in the 

United States has stagnated at approximately 21 miles per gallon. New 

CAFE standards for light trucks, including minivans and sport-utility 

vehicles, were announced by the administration in March 2006, which 

include larger vehicles that were not regulated under past standards. Other 

experts have questioned the need for enhanced CAFE standards, noting 

that today’s higher gasoline prices will bring about more efficient use of 

gasoline. Additionally, studies from the Congressional Budget Office 

suggest that a tax on gasoline could reduce demand at lower cost to the 

economy than enhanced CAFE standards.36

The size of the SPR needed to protect the U.S. economy also depends on 

the likelihood of oil supply disruptions. A number of factors in today’s 

energy market cause particular concern, including a reduction in global 

surplus oil production capacity in recent years, the fact that much of the 

world’s supply of oil is produced in relatively unstable regions, and rapid 

growth in world oil demand that has led to a tight balance between demand 

and supply. However, factors influencing disruption probability are likely to 

change over time.

As we described in the previous section, international reserves augment 

the SPR’s ability to replace oil during supply disruptions. Since a release of 

oil anywhere in the world during a disruption can lower oil prices 

everywhere, strategic reserves in other countries are beneficial to the 

United States and influence the SPR’s ideal size. Along these lines, some 

members of our group of experts stressed the importance of international 

reserves to U.S. oil security and suggested that the United States and the 

International Energy Agency should encourage construction of strategic 

reserves abroad to be used during oil supply disruptions and should offer 

technical assistance to countries that want to construct such reserves. 

Officials from DOE and the International Energy Agency described efforts 

to support construction of reserves in other countries, including 

sponsoring workshops and providing other assistance. Experts pointed out 

that encouraging the construction of strategic reserves is particularly 

35According to the Environmental Protection Agency, these fuel economy numbers are 

based on “real world” estimates that the federal government provides to consumers and are 

about 15 percent lower than the values used for compliance with the CAFE program. 

36Congressional Budget Office, The Economic Costs of Fuel Economy Standards Versus a 

Gasoline Tax (December 2003); and Reducing Gasoline Consumption: Three Policy 

Options (November 2002).
Page 45 GAO-06-872 Strategic Petroleum Reserve

important in developing countries that are significant oil consumers and 

that are not currently members of the International Energy Agency, such as 

China. EIA forecasts that through 2025, demand in China will increase at a 

much faster rate than demand in more developed countries. 

Projections of future oil demand and oil market conditions are inherently 

uncertain, but these projections are key to any estimate of the optimal or 

necessary size of the SPR. If demand for oil grows as projected, keeping the 

SPR at its current size may put the economy at greater risk from the 

negative effects of oil supply disruptions. However, the estimates of world 

oil demand used in current studies could be too high or too low, resulting in 

high or low estimates of the SPR’s optimal size. Therefore, as time passes 

and oil markets change, periodic reassessments by DOE of the appropriate 

size of the SPR could be helpful as part of the nation’s long-term energy 

security planning.

Conclusions The SPR is a valuable asset for protecting the U.S. economy, providing 

benefits as a source of oil during supply disruptions and as a tool of 

diplomacy in foreign policy discussions. Our work shows that the SPR, 

particularly in conjunction with reserves held by the other countries of the 

International Energy Agency, can replace the oil lost during all but the most 

catastrophic disruption scenarios and, thus, can reduce the negative 

consequences of oil supply disruptions on the U.S. economy. However, our 

work also describes issues that could impact the cost and effectiveness of 

the SPR, including the conditions under which the reserve is filled, how 

DOE estimates the economic impacts of using the reserve, and the type of 

crude oil in the reserve. Expanding the reserve makes sense and will be 

necessary to maintain the economy’s present level of protection if demand 

for oil in the United States increases as expected. However, factors that 

influence the ideal size of the SPR are likely to change over time and will 

warrant periodic reassessments.

Since the SPR’s inception, it has been filled and used in response to world 

events and changing conditions. Although some experts claimed that 

acquiring oil for the SPR after the terrorism events of September 2001 

caused substantial increases in oil prices, the majority of experts we talked 

with believe that this increase was minimal because the volume of oil going 

to the SPR was very small relative to world oil demand. Experts believe 

that changes in SPR practices—including following a “dollar-costaveraging” approach, where the government acquires a fixed dollar value of 

oil for the SPR over a specified time period, and allowing oil producers 
Page 46 GAO-06-872 Strategic Petroleum Reserve

more flexibility in the timing of delivery for oil acquired for the SPR—could 

reduce the future cost of filling the SPR.

Different parts of DOE have very different opinions on the amount of 

economic harm oil supply disruptions can cause and, thus, implicitly about 

the ideal size and use of the SPR. The estimates of the effect of price spikes 

on GDP that these different parts of DOE use are, respectively, near the 

high end and low end of the spectrum of such estimates in the economic 

literature. The two models have been used to support different kinds of 

decisions—the Office of Petroleum Reserves’ model has been used to 

support decisions about whether to expand the SPR, while the EIA model 

has been used to advise policymakers about the potential economic 

consequences of oil supply disruptions. Clarifying the differences between 

these models and how the models are used to provide policy advice would 

help ensure that DOE provides consistent transparent advice about the size 

and use of the SPR. 

The SPR protects the economy during oil supply disruptions by replacing 

the oil lost. For the SPR to be most effective, refiners need to be able to 

efficiently use the oil in the reserve in the absence of other sources of 

supply. The two types of crude oil currently stored in the SPR can be 

effectively used by most refineries during a supply disruption, but the lack 

of heavy sour oil in the SPR poses problems to refiners who use this type of 

oil. Adding some heavy sour oil to the SPR could provide a source of supply 

to these refiners during a disruption, while still leaving enough oil of other 

types for other refiners. A 2005 DOE study supports this finding, 

concluding that separately storing approximately 10 percent heavy sour 

crude in the SPR could provide oil supply to refiners who process heavy 

sour oil during a disruption and better protect the economy. Additionally, 

adding some heavy sour oil to the SPR could decrease the cost of filling the 

SPR, since this oil is generally less expensive than the lighter grades 

currently stored in the reserve. 

Although another 2005 study for DOE shows that expanding the SPR could 

be warranted, factors influencing the ideal size of the SPR are likely to 

change over time. Many factors influence the ideal size of the SPR, 

including oil demand levels and the likelihood of oil supply disruptions. 

Because these factors are very dynamic, decisions about expanding the 

SPR will always be made under uncertainty. Nonetheless, as the world 

changes, periodically revisiting decisions about SPR size would allow 

policymakers to use new information to refine their views on the SPR’s 

proper size.
Page 47 GAO-06-872 Strategic Petroleum Reserve

Recommendations for 

Executive Action

The Secretary of Energy should take the following four steps to improve 

the operation of the current SPR and to improve decisions surrounding the 

SPR’s use and expansion. Specifically, the Secretary should:

• Study how to best implement experts’ suggestions to fill the SPR more 

cost-effectively, including

• acquiring a steady dollar value of oil for the SPR over the long term, 

rather than a steady volume, to ensure a greater volume of fill when 

prices are low and a lesser volume of fill when prices are high and 

• providing industry with more flexibility in the royalty-in-kind 

program to delay oil delivery to the SPR during times when supply 

and demand are in tight balance and current prices are higher than 

expected future prices. 

• Conduct a new review about the optimal oil mix in the SPR that would 

examine the maximum amount of heavy sour oil that should be held in 

the SPR, in addition to the minimum amount determined in DOE’s prior 

report. The Secretary should ensure that DOE, at a minimum, 

implements its own recommendation to have at least 10 percent heavy 

sour oil in the SPR. 

• Clarify the differences in structure and assumptions between the 

models used by the Office of Petroleum Reserves and EIA and clarify to 

policymakers how the models are used when providing advice to 

Congress and the executive branch.

• Periodically reassess the appropriate size of the SPR in light of changing 

oil supply and demand in the United States and the world.

Agency Comments and 

Our Evaluation

We provided a draft of this report to DOE for review and comment. DOE 

generally agreed with the conclusions and recommendations presented in 

the draft report, but provided additional information regarding the 

implementation of two of our recommendations. Additionally, DOE 

explained EIA’s efforts to update its model of the economic impacts of oil 

supply disruptions. In reviewing our draft report, DOE also provided 

technical and clarifying comments, which we incorporated as appropriate. 

DOE’s written comments are reproduced in appendix III.
Page 48 GAO-06-872 Strategic Petroleum Reserve

In response to our recommendation to study how to implement experts’ 

suggestions to fill the SPR more cost effectively, DOE noted that decisions 

on when to acquire oil are extremely complex and subject to many 

strategic and tactical considerations in addition to cost. We agree that SPR 

oil acquisition decisions must consider cost, market conditions, national 

security concerns, and other issues. DOE also stated that dollar cost 

averaging as a means to improve the cost-effectiveness of SPR fill could be 

employed only when DOE is purchasing oil, and noted that recent oil 

acquisition has been accomplished by the transfer of royalty oil from the 

Interior Department. However, we believe that dollar cost averaging when 

acquiring oil through the royalty-in-kind program is possible, although it 

would require that DOE vary the amount of oil it accepts from royalties and 

perhaps purchase some oil at times of low prices. Because of the potential 

for cost savings, we continue to believe that DOE should study such an 

approach. Finally, regarding this recommendation, DOE stated that it 

believes that the value of deferring oil deliveries to the SPR during the 

period of 2002 to 2004 would have been less than $590 million. To clarify, 

we did not attempt to value deferrals that DOE might have approved during 

this time period. Instead, the $590 million of potential savings referred to in 

the report reflects the potential savings from applying a dollar-costaveraging approach from October 2001 through August 2005, not to the 

savings that could have occurred from deferring oil delivery.

In response to our recommendation to consider storing heavy sour oil in 

the SPR, DOE stated that it does not believe the advantages of holding a 

heavier crude stream would justify replacing any of the current inventory. 

Instead, it believes that studying and implementing this recommendation 

should wait until the SPR is expanded. Neither our work nor DOE’s recent 

study explored the costs and benefits of adding heavy sour oil to the SPR. 

We believe that DOE should study the costs and benefits of adding heavy 

sour oil with and without SPR expansion. Without such analysis, DOE does 

not have data to determine whether replacing of any of the current 

inventory with heavy sour oil is economically justified. 

Regarding the last two recommendations, DOE agreed that officials will 

work together to better articulate the different approaches and 

perspectives contained in their modeling of the effects of oil supply 

disruptions on the economy, and committed to periodic reassessments of 

the SPR’s ideal size. DOE also described an ongoing update of the EIA 

model for assessing the impacts of supply disruptions. The new model is 

more complex than the older model, but according to EIA, its estimates of 
Page 49 GAO-06-872 Strategic Petroleum Reserve

the GDP impacts of supply disruptions will remain smaller than those 

estimated by the Office of Petroleum Reserves’ model. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution of it until 21 days from 

the report date. At that time, we will send copies of this report to interested 

congressional committees, the Secretary of Energy, and other parties. We 

will also make copies available to others upon request. In addition, the 

report will be available at no charge on the GAO Web site at 

http://www.gao.gov.

If you or your staffs have any questions about this report or need additional 

information, please contact me at (202) 512-6877 or wellsj@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. GAO staff who have 

made major contributions to this report are listed in appendix IV.

Jim Wells

Director, Natural Resources and Environment 
Page 50 GAO-06-872 Strategic Petroleum Reserve

Appendix I

Scope and Methodology AAppenednxidexiIs

We addressed the following questions during our review: (1) Based on past 

experience, what factors do experts recommend be considered when filling 

and using the Strategic Petroleum Reserve (SPR)? (2) To what extent can 

the SPR protect the U.S. economy from damage during oil supply 

disruptions? (3) Under what circumstances would an SPR larger than its 

current size be warranted? 

In addressing these objectives, we conducted a comprehensive literature 

review of economic and public policy material relevant to the SPR’s fill and 

use, and to its ability to provide energy security for the U.S. economy. To 

identify articles for our literature review, we searched databases using key 

terms. We also obtained recommended reading lists of studies from several 

experts on issues related to the questions we addressed. We considered the 

methodological soundness of the articles and studies included in our 

literature review and determined that the findings of these studies were 

sufficiently reliable for our purposes. In addition, we conducted interviews 

with academics and experts, as well as industry representatives and 

officials from several offices within the Department of Energy (DOE), 

including the Energy Information Administration (EIA) and the Office of 

Petroleum Reserves. We also conducted interviews with academics and 

experts at institutes that study energy security issues. We selected these 

individuals on the basis of their expertise in energy security and SPR policy 

as represented by their presentations or publications. We present data and 

forecasts from EIA that have been deemed sufficiently reliable for our 

purposes.

Additionally, we contracted with the National Academy of Sciences1 to 

convene a group of experts to collect opinions on the impacts of past SPR 

fill and use and on recommendations for the future, as well as on the 

benefit of the SPR in reducing economic losses in the event of oil supply 

disruptions. We worked closely with the National Academies to identify 

and select 13 group members (see table 7) who could adequately respond 

to our general and specific questions about current practices for filling and 

using the SPR and about the economic benefit the SPR could provide at its 

current size and at a larger size. In keeping with National Academies’ 

policy, the group members were invited to provide their individual views, 

and the group was not designed to reach a consensus on the issues that we 

1

Four organizations comprise the National Academies: the National Academy of Sciences, 

the National Academy of Engineering, the Institute of Medicine, and the National Research 

Council.
Appendix I

Scope and Methodology

Page 51 GAO-06-872 Strategic Petroleum Reserve

asked them to discuss. The group members convened at the National 

Academies in Washington, D.C., on December 1, 2005. The views expressed 

by the group members do not necessarily represent the views of GAO or 

the National Academies. After the group of experts met, we analyzed a 

transcript of the discussion to identify principal themes and group 

members’ views. Although we were able to secure the participation of a 

balanced, highly qualified group of experts, the group was not 

representative of all potential views. Nevertheless, it provided a rich 

dialogue on current practices for filling and using the SPR and on what 

considerations are pertinent to identifying the best fill and use policies, as 

well as on how the SPR, at its current size and at a larger size, can protect 

the economy from significant losses in the event of oil supply disruptions.

Table 7: Members of the Group of Experts Compiled by GAO and the National 

Academies

Source: GAO.

Name Affiliation

Robert Hirsch (moderator) Senior Energy Program Advisor, SAIC

Joseph E. Aldy Fellow, Resources for the Future

Kyle M. Cooper Vice President, Futures/Fixed Income, Citigroup Global 

Markets, Inc.

Leonidas Drollas Deputy Executive Director and Chief Economist, Centre 

for Global Energy Studies

Robert Ebel Chairman, Energy Program, Center for Strategic and 

International Studies

Lawrence J. Goldstein President, PIRA Energy Group

David L. Goldwyn President, Goldwyn International Strategies, LLC

Les Harding Senior Manager, Trading, Valero Energy Corp.

Hillard G. Huntington Executive Director, Stanford Energy Modeling Forum, 

Stanford University

Klaus Jacoby Head, Emergency Planning and Preparations Division, 

International Energy Agency

Paul Leiby Science and Technology Policy Group, Environmental 

Sciences Division, Oak Ridge National Laboratory

John A. (Jack) Riggs Executive Director, Program on Energy, the 

Environment and the Economy, The Aspen Institute

John Shages Deputy Assistant Secretary, Petroleum Reserves, 

Department of Energy
Appendix I

Scope and Methodology

Page 52 GAO-06-872 Strategic Petroleum Reserve

To learn what factors experts recommend be considered when making 

decisions about SPR fill and use, we reviewed records and reports from 

DOE and the International Energy Agency. We also reviewed available 

literature on the political and economic implications of various ways of 

filling and using the SPR, and interviewed experts from government, 

academia, and private industry on issues of SPR fill and use. 

To estimate the potential savings of using a dollar-cost-averaging approach 

to fill the SPR, we calculated the cost of using this approach for SPR oil 

acquisitions between October 2001 and August 2005. In addition, we ran 

simulations to project potential savings from a dollar-cost-averaging 

approach going forward over 5 years. Specifically, we evaluated 12 possible 

paths that future oil prices may take. First, starting from an initial price of 

$70 per barrel, we allowed prices to increase or decrease on average by 

varying degrees—the price paths increased or decreased at average rates of 

1, 5, and 10 percent per year. Second, for each of these 6 possible price 

paths, we allowed prices to fluctuate to account for potential price 

volatility—for each of the 6 possible price paths, we allowed for a low- and 

high-price volatility case. Specifically, prices for each month were drawn 

randomly from a normal distribution, with standard deviations of $15 for 

the low volatility case and $50 for the high case. For each of these 12 

scenarios, we then simulated future prices for 60 months and compared the 

average price per barrel under dollar cost averaging versus acquiring oil at 

a steady rate. We ran 1,000 simulations for each of the 12 scenarios and 

found that in all but 10 of the resulting 12,000 simulations, dollar cost 

averaging saved money. These simulations are not intended to measure the 

magnitude of savings. To do so would require using actual projections of oil 

prices and price volatility, something that was beyond the scope of this 

report. 

We did not independently verify information about security, drawdown 

rates, or other operational factors of the SPR or other strategic reserves 

held by countries that belong to the International Energy Agency. 

To analyze the ability of the SPR to reduce economic damage caused by oil 

supply disruptions, we present the results of two DOE models used to 

estimate the reduction of harm to U.S. gross domestic product (GDP) that 

would result from releasing oil from the SPR and international reserves 

during six hypothetical oil supply disruption scenarios. Oak Ridge National 

Laboratory (ORNL) produced one of these models under contract with 

DOE’s Office of Petroleum Reserves. ORNL officials produced model 

results for us. EIA produced the second model. We produced model results 
Appendix I

Scope and Methodology

Page 53 GAO-06-872 Strategic Petroleum Reserve

using the EIA model, and then verified these results with EIA officials. (See 

app. II for a more detailed discussion of the hypothetical oil supply 

disruption scenarios and the economic modeling effort.) Additionally, we 

conducted semistructured interviews with representatives from the 

refining industry. We spoke with representatives from companies that 

comprise 76 percent of the refining capacity of the United States to learn 

about their views on SPR operations. We also reviewed studies of the 

potential for oil supply disruptions to occur and to reduce U.S. GDP. 

To learn about the circumstances under which an SPR larger than its 

current size could provide additional energy security benefits, we reviewed 

an ORNL study that analyzed the expected costs and benefits of expanding 

the SPR, U.S. stockholding obligations to the International Energy Agency, 

and estimates of future U.S. oil demand. Finally, we also reviewed studies 

and interviewed expert group members and other oil market experts about 

factors that influence future demand for oil in the United States and 

alternatives for reducing U.S. economic losses in the event of oil supply 

disruptions. 
Page 54 GAO-06-872 Strategic Petroleum Reserve

Appendix II

Economic Modeling of Oil Supply Disruptions ApendxiI

We present in this appendix the results of models that economists at ORNL 

and EIA created to simulate the effects of six hypothetical oil disruption 

scenarios. These scenarios illustrate the impacts of a variety of oil supply 

disruptions and the extent to which the SPR and international reserves 

could replace oil and protect the economy from losses. Both models make 

a number of assumptions in simulating the effects of disruptions on the 

economy, and some of these assumptions differ between models. 

Oil Supply Disruption 

Scenarios

To study the capabilities of the SPR and international reserves to replace 

oil and prevent economic damage during oil supply disruptions, we 

developed six hypothetical oil supply disruption scenarios. The six 

scenarios are as follows:

• A hurricane along the United States Gulf Coast decreases domestic oil 

production. This scenario is closely based on Hurricanes Katrina and 

Rita, which struck the U.S. Gulf Coast in August and September, 2005, 

and temporarily stopped a large percentage of the offshore crude oil 

production in the Gulf of Mexico. The disruption in production 

continued for several months as damaged offshore production 

platforms, pipelines, and onshore facilities were repaired.

• A strike occurs among oil workers in Venezuela. This scenario is based 

on the oil worker strike that occurred in Venezuela in 2002 to 2003. 

Although that strike lasted only 63 days, oil production was well below 

normal for several months and did not recover to its prestrike level.

• Iran stops exporting oil for 18 months. Although none of Iran’s 

2.7 million barrels per day of exported crude oil go directly to the United 

States, removing this oil from the market would raise prices 

everywhere, thus impacting the U.S. economy.

• Terrorists attack the Abqaiq oil-processing facility in Saudi Arabia, 

which handles more than half of Saudi Arabia’s 10.4 million barrels per 

day of oil output. This facility is the largest oil-processing plant in the 

world, removing water, gas, sulfur, and other impurities before the oil is 

exported. This scenario assumes that a terrorist attack cripples the 

facility for 1 month, and then production recovers over 7 additional 

months as the facility is repaired. Terrorists attempted to attack this 

facility in February 2006, but security forces turned back the attack. 
Appendix II

Economic Modeling of Oil Supply Disruptions

Page 55 GAO-06-872 Strategic Petroleum Reserve

• Terrorist or military action closes the Strait of Hormuz, which connects 

the Persian Gulf with the Arabian Sea. Our scenario assumes that 

military action closes the Strait completely for 1 month, removing 

17 million barrels per day of crude oil from the market. Oil supply then 

recovers over 2 months as the Strait is cleared and oil reaches the 

market through alternate routes.

• A catastrophic loss of oil production in Saudi Arabia occurs, eliminating 

exports of oil for 18 months. Oil production then recovers over the next 

6 months. Since Saudi Arabia is the world’s largest exporter of crude oil, 

this is nearly a worst-case scenario for world oil supplies.

For each scenario, table 8 shows the amount of crude oil disrupted during 

each month over a 2-year period. 
Appendix II

Economic Modeling of Oil Supply Disruptions

Page 56 GAO-06-872 Strategic Petroleum Reserve

Table 8: Amount of Crude Oil Disrupted over a 2-Year Period, by Hypothetical Scenario

Source: GAO.

We selected these scenarios to illustrate the potential benefits of strategic 

reserves in disruptions of different size and duration, not because they are 

likely to occur. These scenarios are set in today’s oil market, with global 

crude oil demand of approximately 83 million barrels per day and U.S. 

demand of approximately 21 million barrels per day. 

Barrels in millions

Oil supply disrupted per day, by hypothetical scenario

Month of disruption

Gulf Coast 

hurricane

Venezuelan 

strike

Iranian 

embargo

Saudi 

terrorism

Strait of Hormuz 

closure

Saudi 

shutdown

1st 1.5 1.8 2.7 6.0 17.0 10.0

2nd 1.0 2.2 2.7 4.0 8.0 10.0

3rd 0.8 1.4 2.7 4.0 4.0 10.0

4th 0.8 0.5 2.7 4.0 0 10.0

5th 0.5 0.4 2.7 4.0 0 10.0

6th 0.5 0.2 2.7 4.0 0 10.0

7th 0 0.2 2.7 2.0 0 10.0

8th 0 0.2 2.7 1.0 0 10.0

9th 0 0.2 2.7 0 0 10.0

10th 0 0.2 2.7 0 0 10.0

11th 0 0.2 2.7 0 0 10.0

12th 0 0.2 2.7 0 0 10.0

13th 0 0.2 2.7 0 0 10.0

14th 0 0.2 2.7 0 0 10.0

15th 0 0.2 2.7 0 0 10.0

16th 0 0.2 2.7 0 0 10.0

17th 0 0.2 2.7 0 0 10.0

18th 0 0.2 2.7 0 0 10.0

19th 0 0.2 0 0 0 8.0

20th 0 0.2 0 0 0 6.0

21st 0 0.2 0 0 0 4.0

22nd 0 0.2 0 0 0 2.0

23rd 0 0.2 0 0 0 2.0

24th 0 0.2 0 0 0 1.0
Appendix II

Economic Modeling of Oil Supply Disruptions

Page 57 GAO-06-872 Strategic Petroleum Reserve

Modeling of Economic 

Impacts

We used two DOE models to estimate the economic effects of our six 

disruption scenarios. EIA developed one model and economists at ORNL 

developed the other, under contract to DOE’s Office of Petroleum 

Reserves. Both models estimate U.S. GDP loss from oil supply disruptions 

by linking disruptions to oil price spikes and linking price spikes to GDP 

losses. We used both models to estimate the economic effects of our 

hypothetical disruptions under three conditions: that is, no reserves are 

used in response to the disruption, the SPR is used alone, and the SPR is 

used in conjunction with international reserves. 

In both models, we assumed that world excess crude oil production 

capacity and world fuel-switching capabilities, together totaling 850,000 

barrels per day, are available immediately to help offset a disruption. We 

also assumed that private inventories of crude oil are neutral during a 

disruption—holders of private inventory neither draw down their 

inventories nor hoard oil. Finally, we assumed that SPR and international 

reserves are used immediately at their maximum sustainable rate or at a 

rate large enough to replace disrupted oil supply.

EIA Model EIA’s Division of Energy Markets and Contingency Information has 

developed “rules of thumb” for estimating the oil price and U.S. 

macroeconomic impacts of oil supply disruptions, based on simulations 

from the Global Insight Macroeconomic Model of the U.S economy. The 

assumptions relating disruptions to oil price spikes are summarized in the 

“price rules of thumb” and the assumptions relating price spikes to GDP 

losses are summarized in the “economic rules of thumb.”

EIA measures the response of world oil prices to a hypothetical supply 

disruption as the projected quarterly average increase in the price of West 

Texas Intermediate oil. EIA’s oil market analysis is based on competitive 

forces producing a market price on the basis of market fundamentals and 

market psychology during an oil supply disruption. The “price rules of 

thumb” are based on net disruption sizes and the current and expected 

future oil price level before the disruption. These rules of thumb provide a 

range of oil prices around an average price, and do not try to quantify the 

size of price spikes that could occur during disruptions. EIA estimates that 

a supply disruption when the price of oil is around $40 per barrel results in 

an oil price increase of between $4 and $6 per barrel for each 1 million 

barrels per day of oil that is disrupted. However, if the price of oil is about 

$50 per barrel, EIA estimates a price increase of between $5 and $7 per 
Appendix II

Economic Modeling of Oil Supply Disruptions

Page 58 GAO-06-872 Strategic Petroleum Reserve

barrel for each 1 million barrels per day of oil that is disrupted. For a 

disruption of a given size, the higher the predisruption oil price, the bigger 

the price increase needed to balance supply and demand after the 

disruption. Additionally, EIA adds a “market psychology price premium” to 

the price calculated using the rules of thumb in situations where it believes 

market psychology will further increase the price. 

To translate oil price increases into GDP losses, EIA uses “economic rules 

of thumb,” based on simulations from the Global Insight Macroeconomic 

Model of the U.S. economy. These rules estimate that a sustained increase 

of 10 percent in the price of oil could result in a 0.05 to 0.l percent 

reduction in real U.S. GDP relative to its baseline value (the forecasted 

GDP without an oil disruption). EIA states that, for price increases greater 

than 10 percent, the GDP impacts would increase linearly with the price 

impacts, so that a doubling of the price impacts would result in a doubling 

of the GDP impacts. The EIA model’s GDP responsiveness estimates are 

derived from the Global Insight model that EIA uses for its long-run 

forecasts of energy market and overall economic activity. EIA notes that 

additional factors, such as the effect of high oil prices on the rest of the 

world’s economy, the reaction of the Federal Reserve to ameliorate the 

economic damage of high oil prices, and the change in the value of the 

dollar against foreign currencies, may also influence the economic impact 

of an oil price spike.

Office of Petroleum 

Reserves’ Model

Economists at ORNL, under contract to DOE’s Office of Petroleum 

Reserves, developed a model to estimate the costs and benefits of 

expanding the size and drawdown capability of the SPR. Economists at 

ORNL used a portion of this model to estimate the GDP impacts of our oil 

supply disruption scenarios. The model estimates the economic impacts of 

oil supply disruptions by first calculating the remaining oil shortfall after 

world excess oil production capacity has been utilized. Then the model 

assumes that world oil price increases sufficiently for world oil demand to 

contract enough to equal the now-reduced supply. On the basis of a review 

of the literature, the modelers assume a short-run price elasticity of 

demand for oil between -0.10 to -0.25. The elasticity gets larger as the
Appendix II

Economic Modeling of Oil Supply Disruptions

Page 59 GAO-06-872 Strategic Petroleum Reserve

duration of the supply shock gets larger and longer.1 The short-run oil 

demand elasticities then are used to determine the increase in the world 

price of oil. The GDP elasticity of oil price is then used to infer the losses in 

economic output that would follow a sudden, unanticipated oil price shock. 

The modelers draw on results from econometric studies of the sensitivity 

of the U.S. economy to oil price spikes to select a GDP elasticity, expressed 

in percentage terms, of -5.4 percent for a 100 percent spike in oil price. 

To estimate the benefits of expanding the size and drawdown capability of 

the SPR, the model simulates the impact of oil supply disruptions against 

DOE’s baseline paths for oil prices, world oil demands, U.S oil demands, 

and U.S. oil supplies. The primary benefit from the SPR is the GDP loss 

avoided when it is used to prevent or lessen the effects of oil price spikes. 

Their cost-benefit approach uses a simple model of the oil market and the 

U.S. economy to (1) assess the potential causes and likelihood that oil 

supply disruptions will occur, (2) account for the size of existing strategic 

oil stocks and expected degree of international cooperation on their use, 

(3) estimate the cost to the U.S. economy of oil supply disruptions and the 

incremental ability of additional SPR stocks and drawdown capability to 

reduce these costs, (4) estimate the costs of buying and storing oil in the 

SPR, and (5) determine the net benefit and efficient size of the SPR. The 

model uses a Monte Carlo simulation of the world oil market over the next 

several decades to model the likelihood of future oil supply disruptions.2

Similarities and Differences 

between the EIA Model and 

Office of Petroleum 

Reserves’ Model

In assessing the economic costs of disruptions, the Office of Petroleum 

Reserves’ model makes a number of assumptions similar to those made by 

EIA, in particular, assumptions about the responsiveness of oil price to 

supply disruptions. However, the Office of Petroleum Reserves’ model 

assumes a considerably greater degree of responsiveness of the 

1

Elasticity refers to the responsiveness of one variable to a change in another. For example, 

the price elasticity of demand for oil refers to the responsiveness of the quantity of oil 

demanded to a change in its price and the GDP elasticity of oil price refers to the 

responsiveness of GDP to a change in oil price.

2

A Monte Carlo simulation is a form of estimation that uses random numbers to measure the 

effects of uncertainty, such as the uncertainty associated with a future oil supply disruption. 

A simulation is composed of thousands of events, each event being a randomly selected 

projection of the world oil market through the year 2050. Some of these projections include 

supply disruptions, others do not. The thousands of sampled outcomes are recorded and 

averaged to produce an estimate of the average benefit from the SPR in the presence of 

uncertainty about the likelihood and duration of future supply disruptions.
Appendix II

Economic Modeling of Oil Supply Disruptions

Page 60 GAO-06-872 Strategic Petroleum Reserve

macroeconomy to oil price spikes than the EIA model. The Office of 

Petroleum Reserves’ model assumes for its base case that a sudden 

doubling in the price of oil could reduce GDP in the following year by about 

5.4 percentage points below what it otherwise would have been. This 

contrasts with the EIA model result that a sudden doubling of the price of 

oil would cause about a 0.5 to 1.0 percent reduction in the level of real GDP 

relative to its value if an oil price increase did not occur.

Some experts have suggested that the EIA model and Office of Petroleum 

Reserves’ model have assumptions that could be responsible for 

differences in their estimates of the responsiveness of GDP to disruptions. 

In the Office of Petroleum Reserves’ model, the responsiveness of GDP to 

an oil price shock incorporates a controversial assumption, that U.S. 

monetary authorities would not intervene and increase the money supply 

to accommodate the price shock. Some experts have suggested that, by 

increasing the money supply, monetary authorities could restore 

consumers’ purchasing power to its predisruption level and eliminate or 

moderate the GDP loss. Experts have also suggested deficiencies in the 

model that EIA uses for its estimates of the responsiveness of GDP to oil 

price shocks. A number of experts believe that large-scale macroeconomic 

models, such as the EIA model, underestimate the effects of oil price 

shocks on the economy. They question whether these models can 

distinguish between a price shock and a more gradual price increase. In 

contrast, the econometrically based estimates used by Office of Petroleum 

Reserves’ model and others are derived from models of oil price shocks. 
Page 61 GAO-06-872 Strategic Petroleum Reserve

Appendix III

Comments from the Department of Energy ApendxiI
Appendix III

Comments from the Department of Energy

Page 62 GAO-06-872 Strategic Petroleum Reserve
Appendix III

Comments from the Department of Energy

Page 63 GAO-06-872 Strategic Petroleum Reserve
Appendix III

Comments from the Department of Energy

Page 64 GAO-06-872 Strategic Petroleum Reserve
Appendix III

Comments from the Department of Energy

Page 65 GAO-06-872 Strategic Petroleum Reserve
Page 66 GAO-06-872 Strategic Petroleum Reserve

Appendix IV

GAO Contact and Staff Acknowledgments ApendxiIV

GAO Contact Jim Wells, (202) 512-6877

Staff 

Acknowledgments

In addition to the individual named above, Dan Haas, Assistant Director; 

Dennis Carroll; Samantha Gross; Mike Kaufman; Marietta Mayfield; Cynthia 

Norris; Alison O’Neill; Paul Pansini; Jena Sinkfield; Anne Stevens; and 

Barbara Timmerman made key contributions to this report. 

(360565)
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