U.S. GOVERNMENT PUBLISHING OFFICE

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DOE MODERNIZATION: LEGISLATION TO AUTHORIZE A PILOT PROJECT TO COMMERCIALIZE 

THE STRATEGIC PETROLEUM RESERVE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JULY 24, 2018 

Serial No. 115–156 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

GREG WALDEN, Oregon 

Chairman 

JOE BARTON, Texas 

Vice Chairman 

FRED UPTON, Michigan 

JOHN SHIMKUS, Illinois 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

SUSAN W. BROOKS, Indiana 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

CHRIS COLLINS, New York 

KEVIN CRAMER, North Dakota 

TIM WALBERG, Michigan 

MIMI WALTERS, California 

RYAN A. COSTELLO, Pennsylvania 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

JEFF DUNCAN, South Carolina 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

DORIS O. MATSUI, California 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

BEN RAY LUJA ́ N, New Mexico 

PAUL TONKO, New York 

YVETTE D. CLARKE, New York 

DAVID LOEBSACK, Iowa 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

TONY CA ́ RDENAS, California 

RAUL RUIZ, California 

SCOTT H. PETERS, California 

DEBBIE DINGELL, Michigan 

(III) 

SUBCOMMITTEE ON ENERGY

FRED UPTON, Michigan 

Chairman 

PETE OLSON, Texas 

Vice Chairman 

JOE BARTON, Texas 

JOHN SHIMKUS, Illinois 

ROBERT E. LATTA, Ohio 

GREGG HARPER, Mississippi 

DAVID B. MCKINLEY, West Virginia 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

KEVIN CRAMER, North Dakota 

TIM WALBERG, Michigan 

JEFF DUNCAN, South Carolina 

GREG WALDEN, Oregon (ex officio) 

BOBBY L. RUSH, Illinois 

Ranking Member 

JERRY MCNERNEY, California 

SCOTT H. PETERS, California 

GENE GREEN, Texas 

MICHAEL F. DOYLE, Pennsylvania 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

PETER WELCH, Vermont 

PAUL TONKO, New York 

DAVID LOEBSACK, Iowa 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

G.K. BUTTERFIELD, North Carolina 

FRANK PALLONE, JR., New Jersey (ex 

officio) 

(V) 

C O N T E N T S 

Page 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 2 

Hon. Bobby L. Rush, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 3 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 4 

Prepared statement .......................................................................................... 6 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 6 

WITNESSES

Steven Winberg, Assistant Secretary of Fossil Energy, U.S. Department of 

Energy ................................................................................................................... 8 

Prepared statement .......................................................................................... 10 

Frank Rusco, Director, National Resources and Environment, Government 

Accountability Office ............................................................................................ 33 

Prepared statement .......................................................................................... 35 

Daniel M. Evans, Project Manager, Fluor Federal Petroleum Operations ......... 50 

Prepared statement .......................................................................................... 52 

Kevin Book, Managing Director, Clearview Energy Partners, LLC .................... 61 

Prepared statement .......................................................................................... 63 

SUBMITTED MATERIAL

GAO report ............................................................................................................... 82 

Center on Global Energy Policy report 1

1 The information can be found at: https://docs.house.gov/meetings/IF/IF03/ 

20180724/108593/HHRG-115-IF03-20180724-SD013.pdf. 

(1) 

DOE MODERNIZATION: LEGISLATION TO AUTHORIZE A PILOT PROJECT TO COMMERCIALIZE THE STRATEGIC PETROLEUM RESERVE 

TUESDAY, JULY 24, 2018 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:15 a.m., in room 

2322 Rayburn House Office Building, Hon. Fred Upton (chairman 

of the subcommittee) presiding. 

Members present: Representatives Upton, Olson, Barton, Shimkus, Latta, McKinley, Kinzinger, Johnson, Bucshon, Flores, Hudson, Walberg, Duncan, Walden (ex officio), Rush, McNerney, Peters, 

Green, Doyle, Welch, Tonko, Loebsack, Kennedy, and Pallone (ex 

officio). 

Staff present: Samantha Bopp, Staff Assistant; Kelly Collins, 

Legislative Clerk, Energy/Environment; Jerry Couri, Chief Environmental Advisor; Wyatt Ellertson, Professional Staff, Energy/Environment; Margaret Tucker Fogarty, Staff Assistant; Jordan 

Haverly, Policy Coordinator, Environment; Mary Martin, Chief 

Counsel, Energy/Environment; Sarah Matthews, Press Secretary, 

Energy & Environment; Drew McDowell, Executive Assistant; 

Brandon Mooney, Deputy Chief Counsel, Energy; Brannon Rains, 

Staff Assistant; Mark Ratner, Policy Coordinator; Peter Spencer, 

Professional Staff Member, Energy; Austin Stonebraker, Press Assistant; Madeline Vey, Policy Coordinator, Digital Commerce and 

Consumer Protection; Hamlin Wade, Special Advisor, External Affairs; Everett Winnick, Director of Information Technology; Andy 

Zach, Senior Professional Staff Member, Environment; Tiffany 

Guarascio, Minority Deputy Staff Director and Chief Health Advisor; Rick Kessler, Minority Senior Advisor and Staff Director, Energy and Environment; John Marshall, Minority Policy Coordinator; Alexander Ratner, Minority Policy Analyst; Tuley Wright, 

Minority Energy and Environment Policy Advisor; and C.J. Young, 

Minority Press Secretary. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. I know there is a couple different subcommittee 

meetings today, but good morning. 

2 

Good morning. Welcome to the Energy Subcommittee for a legislative hearing on a discussion draft that authorizes DOE to conduct 

a pilot program to lease spare capacity in the Strategic Petroleum 

Reserve. I want to thank Vice Chairman Barton and Ranking 

Member Rush for partnering on this draft as we continue our work 

to modernize the Department of Energy. 

The SPRO is the world’s largest emergency stockpile of crude in 

the world. More than 40 years ago, Congress authorized the creation of the SPRO in response to the Arab oil embargo to mitigate 

the threat of an energy supply disruption. Back then, our domestic 

production was in the decline, energy costs were rising, and we 

were becoming increasingly reliant on imports. The oil embargo exposed our vulnerabilities and panic quickly spread. Some of us will 

remember those long lines at the gas pump for sure. 

So let’s go to today. The U.S. is, arguably, more energy secure 

now than ever before. We are the number one world producer of 

oil and gas and our imports have declined by about 70 percent 

since peaking in 2005. With the surge of domestic production, our 

private stocks of crude oil are at record levels, our pipelines are 

full, and our refineries are operating at near peak capacity. 

So I want to thank our witnesses on both panels for appearing 

before us today to provide their views on this legislation. I want 

to thank Vice Chair Barton and Ranking Member Rush for their 

work on this important piece of legislation. 

I look forward to working with both of them and all members of 

the subcommittee as we move this bill, hopefully, to the House 

floor in the coming months. 

And I now yield to the ranking member of the subcommittee, Mr. 

Rush, for an opening statement. 

[The prepared statement of Mr. Upton follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

Good morning, and welcome to the Energy Subcommittee for a legislative hearing 

on a discussion draft that authorizes DOE to conduct a pilot program to lease spare 

capacity in the Strategic Petroleum Reserve. I want to thank Vice Chairman Barton 

and Ranking Member Rush for partnering on this draft as we continue our work 

to modernize the Department of Energy. 

The Strategic Petroleum Reserve is the world’s largest emergency stockpile of 

crude oil in the world. More than 40 years ago, Congress authorized the creation 

of the SPR in response to the Arab Oil Embargo to mitigate the threat of an energy 

supply disruption. Back then, our domestic production was in decline, energy costs 

were rising, and we were becoming increasingly reliant on imports. The oil embargo 

exposed our vulnerabilities and panic quickly spread—some of us will remember 

those long lines at the gas pump. 

Fast forward to today—the United States is arguably more energy secure now 

than ever before. We’re the world’s number one producer of oil and gas and our imports have declined by about seventy percent since peaking in 2005. With the surge 

of domestic production, our private stocks of crude oil are at record levels, our pipelines are full, and our refineries are operating at near peak capacity. In the very 

unlikely event of another embargo, the United States wouldn’t be impacted in the 

same way. 

Even with America’s energy abundance, the Strategic Petroleum Reserve will remain an important energy security asset, which is why I have prioritized its modernization. This Committee led the charge to right-size the SPR and increase the 

funding levels to clear the maintenance backlog. Over the next 10 years, DOE will 

drawdown and sell approximately 300 million barrels of crude oil. Now, it’s up to 

Congress to decide what to do with the spare capacity. 

The Discussion Draft before us today authorizes DOE to lease some of the underutilized space that will become available over the next several years. CommerVerDate Nov 24 2008 14:11 Apr 10, 2019 Jkt 037690 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 U:\MY DOCS\HEARINGS 115\HEARINGS\115-156 CHRIS
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cializing the excess storage capacity through a leasing program is an innovative 

idea—and it could be a win-win for the federal government. At a minimum, DOE 

may be able to offset some of its maintenance costs and invest in new infrastructure. 

It’s been over 40 years since Congress created the SPR, and a lot has changed. 

As we work to modernize this valuable energy security asset, we should bear in 

mind just how far we’ve come since the energy crisis of the 1970’s. With the right 

policies in place, the United States is on track to become a net energy exporter in 

just a few short years. 

I’d like to thank our witnesses for appearing before us today to provide their 

views on the legislation. I also want to thank Vice Chairman Barton and Ranking 

Member Rush for their work on this important piece of legislation. I look forward 

to working with them to move it through Committee and the House floor in the coming months. 

Thanks, I yield back. 

OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mr. RUSH. I want to thank you, Mr. Chairman, for holding this 

important hearing this morning examining legislation to authorize 

a pilot project to commercialize SPRO. 

As you know, Mr. Chairman, subcommittee staff from the minority and the majority side worked together on this bipartisan bill 

and I am pleased to co-sponsor this legislation with my good friend 

and colleague, Mr. Barton of Texas. 

Mr. Chairman, since the inception of the SPRO, which was, as 

you indicated, established as a result of the oil shortages of the 

1970. The energy portfolio of the United States has changed dramatically. In fact, the U.S. is expected to go from a heavy importer 

of foreign oil to become the global leader in oil exports by as early 

as next year, according to the IEA. 

As a result of these shifting dynamics, Mr. Chairman, it is important for policy makers including members of this subcommittee 

to examine important questions including if there is still a need for 

the SPRO. If so, how large should it be and how should it be completed? 

It is my hope, Mr. Chairman, that the pilot program outlined in 

this bill will help inform our decision regarding the feasibility of 

leasing all or part of the SPRO to the private sector or to foreign 

governments, even those that do not pose a national security risk. 

As we will discuss today, congressionally-mandated sales of 

SPRO oil has provided an opportunity to potentially lease the subsequent unused space to private companies and/or foreign governments as a way to maximize taxpayers’ return on investment. 

Mr. Chairman, I am also pleased that we have with us today representatives from both the Department of Energy and the GAO, 

among other witnesses, as both agencies have issued reports to 

help guide our decision making on matters regarding the SPRO. 

Unfortunately, Mr. Chairman, there appears to be some discretion between the two agencies over the final recommendations that 

GAO made in its May report entitled ‘‘Strategic Petroleum Reserve: 

DOE Needs to Strengthen Its Approach to Planning the Future of 

the Emergency Stockpile.’’ 

First, Mr. Chairman, DOE appears to concur with the GAO’s recommendation to supplement its 2016 review by conducting additional analysis regarding the objective and purpose of the SPRO, 

4 

taking into account additional factors such as market projections 

and private sector response. 

DOE also agreed with the GAO’s recommendation to periodically 

reexamine the size of the SPRO with analysis looking at the cost 

and benefits of the SPRO for a variety of different sizes. 

DOE also appears to concur with the GAO’s findings as the agency considers options for the long-term continuation of the SPRO 

after the impact of congressionally-mandated sales of SPRO oil are 

taken into account. 

Mr. UPTON. That’s not my wife either. 

[Laughter.] 

Mr. RUSH. Maybe it’s my new wife. 

Mr. UPTON. Your new wife. Yes, sir. 

[Laughter.] 

Mr. UPTON. Better answer it. 

Mr. RUSH. Yes. 

Mr. UPTON. You want to keep being married another 60 years. 

Mr. RUSH. All right, Mr. Chairman. 

Hold on, dear. 

[Laughter.] 

Based on the testimony, it appears that some of these recommendations will be included as a part of GAO’s small post-sale 

configuration study expected to be completed in October of this 

year. 

Mr. Chairman, the largest area of disagreement appears to be 

over GAO’s recommendation that DOE—Department of Energy— 

conduct a cost benefit analysis of establishing regional product reserves around the country at areas that have been identified as 

vulnerable to fuel supply disruption. 

Mr. Chairman, I hope that we can get to the bottom of this and 

I look forward to the testimony provided by our witnesses today. 

And finally, I want to tell our witnesses that we appreciate them 

appearing before us today. 

Thank you, Mr. Chairman. I yield back. 

Mr. UPTON. The gentleman yields back. 

The chair will recognize the chairman of the full committee from 

the good state of Oregon, Mr. Walden, for an opening statement. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. Thank you, Mr. Chairman. 

Over the course of the past year, the Energy and Commerce 

Committee has been hard at work identifying what’s necessary to 

modernize the Department of Energy’s national and energy security functions. 

The urgency of our focus has been driven by domestic and international challenges that will be confronting the nation in the decades ahead. These challenges, which range from maintaining our 

nuclear security to protecting the reliable supply and delivery of 

energy, require a Department of Energy that has appropriate organization, management focus, and authorities to succeed in its missions. 

In recent months, the committee has moved legislation that will 

establish enduring leadership within the DOE for addressing all 

5 

energy emergencies, including cybersecurity threats. It has moved 

legislation that will ensure there is sufficient coordination for secure and reliable delivery of fuels we rely upon for our energy 

needs, including bulk electric power. 

And just over the past few weeks, we moved legislation that will 

strengthen DOE’s support for next-generation nuclear energy. 

We’ve also moved reforms that streamline DOE’s cumbersome regulatory approval process for foreign nuclear commerce, which has 

inhibited American businesses from competing effectively in global 

nuclear energy markets. 

So with today’s draft legislation that Vice Chairman Barton and 

Ranking Member Rush have put together offers a similar forwardlooking path—this one, toward ensuring the Nation’s Strategic Petroleum Reserve, managed by DOE, will be more capable of responding to oil supply emergencies for decades to come. 

Congress, under this committee’s leadership, established the 

SPRO in the wake of the 1973–1974 Arab oil embargo. That incident and the gasoline shortages and price spikes of ensuing years 

really underscored the growing vulnerability of the United States 

to international oil supply shocks, especially as reliance on imported oil was rapidly increasing. 

Well, times have changed, of course, and dramatically. The resurgence in American oil and gas production over the past decade has 

placed the United States into a dominant role when it comes to 

global oil and gas supplies and has begun to shift how we should 

view our SPRO assets. 

While the role of the SPRO may be shifting, it remains important 

for energy security. It will continue to help us meet our treaty-level 

obligations to international partners in the event of major supply 

disruptions. It will also help maintain our international energy diplomacy, inhibiting adversaries from attempting to use oil as an 

economic weapon, which ultimately benefits our own and our allies’ 

energy security. 

Yet, we know that SPRO facilities require considerable upgrades 

to be responsive when called upon, and as Congress has mandated 

sales of some 290 million barrels, there is risk that without serious 

reforms much of the reserves’ capacity to serve as a strategic stockpile will degrade further as those stocks decline. 

So against this backdrop arrives the draft legislation, which offers an innovative way to accelerate reforms to the SPRO by leasing underutilized space created as the reserve is drawn down over 

the next decade. 

A successful leasing program would attract investment into improving facilities’ operations that would be responsive to commercial needs. This in turn would enable more responsive use of Federal oil stocks during those emergencies and by preserving the existing capacity of the reserve’s caverns, the pilot program also ensures this asset will remain available for DOE’s security missions 

well into the future. 

So I appreciate the testimony of those who are testifying today 

and we will continue to work on this legislation. I don’t know if 

anybody else wants the balance of my time. 

But if not, I will yield back. 

[The prepared statement of Mr. Walden follows:] 

6 

PREPARED STATEMENT OF HON. GREG WALDEN

Over the course of the past year, the Energy and Commerce Committee has been 

hard at work identifying what is necessary to modernize the Department of Energy’s 

national and energy security functions. 

The urgency of our focus has been driven by domestic and international challenges that will be confronting the nation in the decades ahead. These challengeswhich range from maintaining our nuclear security to protecting the reliable supply 

and delivery of energy-require a DOE that has the appropriate organization, management focus, and authorities to succeed in its missions. 

In recent months, the committee has moved legislation that will establish enduring leadership within the DOE for addressing all energy emergencies, including cybersecurity threats. It has moved legislation that will ensure there is sufficient coordination for secure and reliable delivery of the fuels we rely upon for our energy 

needs, including bulk electric power. 

And just over the past few weeks, we moved legislation that will strengthen 

DOE’s support for next generation nuclear energy. We’ve also moved reforms that 

streamline DOE’s cumbersome regulatory approval process for foreign nuclear commerce, which has inhibited American businesses from competing effectively in global 

nuclear markets. 

Today’s draft legislation that Vice Chairman Barton and Ranking Member Rush 

have put together offers a similar forward-looking path—this one toward ensuring 

the Nation’s Strategic Petroleum Reserve, managed by DOE, will be more capable 

of responding to oil supply emergencies for decades to come. Congress, under this 

committee’s leadership, established the SPR in the wake of 1973–1974 Arab oil embargo. That incident and the gasoline shortages and price spikes of ensuing years 

underscored the growing vulnerability of the United States to international oil supply shocks, especially as reliance on imported oil was rapidly increasing. 

Times have changed, of course—and dramatically. The resurgence in American oil 

and gas production over the past decade has placed the United States into a dominant role when it comes to global oil and gas supplies—and has begun to shift how 

we should view our SPR assets. 

While the role of the SPR may be shifting, it remains important for energy security. It will continue to help us meet our treaty-level obligations to international 

partners in the event of major supply disruptions. It will also help maintain our 

international energy diplomacy-inhibiting adversaries from attempting to use oil as 

an economic weapon, which ultimately benefits our own and our allies’ energy security. 

Yet we know that SPR facilities require considerable upgrades to be responsive 

when called upon. And as Congress has mandated sales of some 290 million barrels, 

there is risk that without serious reforms much of the reserves’ capacity to serve 

as a strategic stockpile will degrade further as its stocks decline. 

Against this backdrop, this draft legislation offers an innovative way to accelerate 

reforms to the SPR, by leasing underutilized space created as the reserve is drawn 

down over the next decade. 

A successful leasing program would attract investment into improving facility operations to be responsive to commercial needs. This in turn would enable more responsive use of federal oil stocks during emergencies. By preserving the existing capacity of the reserve’s caverns, the pilot program also ensures this asset will remain 

available for DOE’s security missions well into the future. 

I look forward to the expert testimony from DOE and others this morning, and 

to continue work on the legislative details going forward. 

Mr. UPTON. The gentleman yields back. 

The chair would recognize the ranking member of the full committee, Mr. Pallone, for an opening statement. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Mr. Chairman. 

Today we will be discussing bipartisan draft legislation on the future of the Strategic Petroleum Reserve. In December 2016, then 

Chairman Upton and I wrote the Government Accountability Office 

7 

requesting that GAO review the Strategic Petroleum Reserve as it 

is currently configured. 

We asked whether there might be more cost-effective options for 

protecting against supply shocks and for meeting our international 

obligations. 

Most other countries have used contracts with private companies 

to address these matters. So it’s fair to ask whether there might 

be more efficient and effective ways for us to address our energy 

security needs in this area. 

There were a number of reasons why I thought this request of 

GAO was particularly important in 2016. First, former Energy Secretary Moniz had laid out one vision for modernization of the SPR 

in the Quadrennial Energy Review that the Obama administration 

released in 2015. As part of that vision, Secretary Moniz suggested 

the establishment of more regional refined product reserves, like 

the Northeast home heating oil and gasoline supply reserves. 

Second, at the end of 2015, Congress lifted the 40-year-old ban 

on crude oil exports and this was done at a time when we were seeing a radical alteration of the transportation fuels landscape. Supply was increasing, demand was decreasing, and we were seeing a 

rise in electric vehicles. 

Third, beginning in 2015, Congress had turned to the SPR repeatedly as an offset for deficits, highways, and other items. In 

fact, it has been used far more in recent years for those purposes 

than for energy security. And recently, the Trump administration 

has even been sending signals that it’s seriously considering releasing oil from the reserve for the express purpose of lowering gas 

prices, in my opinion to help Republicans heading into the midterm 

elections. When you get to the point where an administration is 

publicly discussing using the SPR for blatantly political purposes, 

then it is certainly a good time to discuss the future of the reserve. 

And this discussion is also timely now since we are already requiring the sale of so much oil for nonenergy reasons, which will free 

up a great deal of physical space in the reserve. 

We need to consider ways to ensure taxpayers continue to receive 

value for the salt dome storage caverns and associated facilities 

that comprise the crude reserve if they are not being used to store 

oil. 

The draft legislation that Vice Chairman Barton and Ranking 

Member Rush are championing is an important first step in realizing that goal. The draft bill would facilitate the leasing of unused 

storage space in the reserve while attempting to ensure that government and taxpayers benefit from those leases, and that’s important no matter what the future has in store. 

If we elect to keep the SPR in its current form, the Energy Department will need to repair and upgrade facilities to keep them 

useful and if we elect to create regional reserves either in addition 

to or in place of the SPR, we will still need to fund those regional 

reserves, and this bill will help bring in the revenue we need to do 

that. 

There are still questions that need to be answered about this proposal. I want to make sure that the taxpayers see meaningful return on the investment that we made in the SPR and I want to 

ensure that the government isn’t left holding the bag for environVerDate Nov 24 2008 14:11 Apr 10, 2019 Jkt 037690 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 U:\MY DOCS\HEARINGS 115\HEARINGS\115-156 CHRIS
8 

mental liability costs while private industry gets all the benefits of 

the leasing arrangement. 

So as long as we can get assurances on these two key points, I 

think moving forward with this pilot project makes a lot of sense. 

And unless someone else wants the time, I’ll yield back, Mr. 

Chairman. 

Mr. UPTON. The gentleman yields back. Thank you. 

We are joined, again, by two panels. We will start with Steven 

Winberg, Assistant Secretary of Fossil Energy from the Department of Energy. We welcome you here. 

We appreciate you submitting your testimony in advance and if 

you wouldn’t mind taking no more than 5 minutes to summarize 

that, at which point we will go into questions, that would be terrific. 

The time is yours. Thank you. 

STATEMENT OF STEVEN WINBERG, ASSISTANT SECRETARY OF 

FOSSIL ENERGY, U.S. DEPARTMENT OF ENERGY 

Mr. WINBERG. Thank you, Chairman Upton, Ranking Member 

Rush, and distinguished members of this committee. It’s my pleasure to appear before you to discuss the Department of Energy’s 

Strategic Petroleum Reserve and the related use of underutilized 

SPRO facilities resulting from congressionally-legislated crude oil 

sales. 

The mission of the SPRO, as has been discussed, is to protect the 

United States’ economy from severe petroleum supply interruptions 

and to carry out U.S. obligations under the international energy 

program. 

As a member of the International Energy Agency, the United 

States has two primary objectives. First, as a net importer, the 

United States must maintain crude oil and/or refined product inventories whether held by industry or government equal to at least 

90 days of net petroleum imports. As of June 30th of this year, the 

United States held about twice that amount. 

Second, the United States must be able to contribute a proportionate share of an IEA collective action response based on its 

share of IEA oil consumption, which is currently at 41.4 percent. 

The U.S. government relies on use of SPRO to meet this requirement, although commercial stocks may also contribute, albeit voluntarily. 

In the event of an international oil supply disruption large 

enough for the President to authorize the release of the SPRO, U.S. 

crude oil production alone would not be able to ramp up quickly 

enough to make up for the lost barrels in a crisis. The SPRO can 

be ready to deliver crude oil within 13 days of a presidential finding while domestic production would take months to substantially 

expand. 

Turning to the proposed legislation, it is expected that the SPRO 

will have approximately 300 million barrels of unused storage capacity by the end of fiscal year 2027 or, roughly, 45 percent of the 

current design capacity. To that end, DOE is currently conducting 

the SPRO post-sale configuration study that will recommend the 

configuration of the SPRO post-2027. This study should be completed within the next 6 months and understanding the best conVerDate Nov 24 2008 14:11 Apr 10, 2019 Jkt 037690 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 U:\MY DOCS\HEARINGS 115\HEARINGS\115-156 CHRIS
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figuration for the SPRO will guide us as we continue to sell barrels 

over the next several years. 

It will also guide us in identifying the SPRO storage caverns or 

related facilities likely to become underutilized or operationally inefficient, therefore, informing possible decisions concerning site decommissioning. Further, determining the optimum configuration 

for the SPRO to meet domestic needs will be critical in developing 

and executing this proposed pilot program. 

The department is supportive of maximizing the value of this 

taxpayer-funded asset and there are a number of issues that need 

to be considered related to the configuration of the SPRO post2027. Therefore, we believe it is premature to comment on the 

operational feasibility of commercially leasing underutilized storage. But I can discuss with you some of the challenges. Further, 

it is important for both Congress and the department to consider 

the impact of using government facilities to compete with commercially available petroleum storage capacity. 

Finally, we need to review the logistical and infrastructure challenges associated with the likely commercial requirement for increased inflow and outflow activities. Accommodating this requirement may require large up-front capital expenditures to enable 

commercial leasing. 

I would also like to take this opportunity to discuss the recently 

released GAO report titled ‘‘Strategic Petroleum Reserve.’’ I would 

like to focus on the one recommendation the department did not 

concur with. Specifically, we did not concur with the recommendation to conduct or complete studies on regional refined product reserves. 

It’s important to understand that while hurricanes and other 

natural disasters may create severe short-term logistical constraints for gasoline supplies that therefore impact gasoline prices, 

these constraints and price increases are quickly overcome when a 

hurricane passes. 

This was evidenced by Hurricane Irma in 2017. Even if more 

gasoline was available in Florida during Hurricane Irma, there 

would not have been enough trucks or other transportation infrastructure to get the supplies to the retail gasoline stations where 

they were needed due to, first, increased evacuation traffic and 

then, later, flooded roads. 

So given the cost of above-ground gasoline storage, it would be 

inappropriate to use taxpayer funds to conduct any additional studies on the use of federally-owned storage of refined petroleum products. 

While there is certainly more information about the SPRO that 

I could discuss, I will refer the committee to my written testimony 

submitted to the record. 

Mr. Chairman and members of the committee, this completes my 

prepared statement and I am happy to answer any questions. 

Thank you. 

[The prepared statement of Mr. Winberg follows:] 

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15 

Mr. UPTON. Well, thank you very much for coming up this morning. I have a couple of questions. 

My first couple relate to the GAO study that I know that you’re 

familiar with. It was published in May, 2 months ago. On Page 27, 

it talks about the DOE could close at least one SPRO site based 

on the analysis by CBO of projected excess storage capacity. 

For example, if DOE were to close the smallest SPRO site— 

Bayou Choctaw—the agency could also explore selling the connected pipeline and marine terminal, which is currently being 

leased to a private company. 

The DOE could consider leasing excess storage capacity to other 

countries so that they could store oil at SPRO. DOE has not entered into any such leases with other countries. It has not considered such leases because, according to DOE, the SPRO has historically lacked capacity to store additional oil. 

DOE has not proposed any of these options or explored the revenue the agency could generate by selling or leasing these assets. 

According to DOE officials, the agency would examine the feasibility of such options in the ongoing SPRO pool sale configuration 

study. 

Does that sound like a potential that DOE would support? 

Mr. WINBERG. Yes. Yes, we would. The first requirement we have 

under SPRO is to make sure that we are meeting our domestic requirements as well as our IEA requirements. 

And so, based on the math and reducing the SPRO by some 300 

million barrels, I think it’s quite possible that we may end up deciding we can close one of the sites. Which site? We don’t know yet, 

and that’s the purpose of the SPRO post-sale configuration study. 

Completing that study they then will inform us on which caverns 

we need to keep open, which facilities we need to keep open, so 

that we can meet those requirements. 

Not all caverns are alike, and so various of our caverns can discharge oil at faster rates. And so we need to do that study so that 

we clearly understand what our options are and then also, sir, our 

options with respect to using these facilities in a commercial nature. 

Mr. UPTON. Now, as you know, we have the author of the EPCA 

bill—Mr. Barton—down at the end of the dais here. 

Officials said that under EPCA—the Energy Policy and Conservation Act—it gave DOE authority to lease underutilized storage to other countries but not to the private sector. 

DOE doesn’t currently have the authority to pursue that, according to the agency officials. What is the department’s view on making that change to allow the DOE the authority to sell to the private sector as well? Are they supportive of that? Would they—— 

Mr. WINBERG. Yes. Yes, we are supportive. But if I might, there 

are some technical challenges with doing that. So let me start off 

with other IEA member companies that also have a reserve requirement. That would be generally for long-term storage. We 

wouldn’t expect to be moving that product in and out of the caverns. In a commercial situation, that may not be the case and the 

commercial suppliers of oil use the storage and then discharge and 

then want to inject and discharge. 

16 

So there is a cycling mechanism, and the challenge with this particular geography or geology is that these were soft caverns and the 

way we discharge oil out of these caverns is we inject freshwater 

and that starts to erode the walls of the cavern in the lower part 

of the cavern. And so if you do that numerous times, you may affect the integrity of the salt cavern. 

So what we would need to do to go to a commercial operation 

where we are going to inject and discharge on a very regular basis 

we would have to go with what we call a brine drive system, meaning we would use saturated brine water and we’d have to store that 

and then inject that down into the caverns so that we weren’t dissolving the walls of the cavern, and we have not yet come up with 

a cost for doing that. 

But we know that it is not going to be inexpensive and that’s 

part of the post-sale configuration studies to begin to look at those 

costs. 

Mr. UPTON. Great. Thank you. My time has expired. 

Mr. Rush. 

Mr. RUSH. Assistant Secretary Winberg, will the DOE’s SPRO 

post-sale configuration study, which will be released in October, examine issues that would help to determine a future optimal size of 

the SPRO. 

Will that study make recommendations regarding opportunity to 

release SPRO storage space to the private sector or to other countries that are now a part of the IEA’s collective action? And if not, 

when can we expect information from DOE on those specific topics 

of interest? 

Mr. WINBERG. The post-sale configuration study, sir, will indeed 

address the optimal size for the SPRO to meet U.S. needs and also 

our IEA requirements. 

It will help inform us on what caverns we might be able to use 

for leasing purposes. As I mentioned earlier, if we are going to 

lease those caverns to other IEA member countries, it’s considerably easier in terms of the mechanics of utilizing that storage. 

The post-configuration study will not be able to give us complete 

guidance on what we might be able to do in terms of leasing to the 

commercial sector. That’s going to take some more work beyond the 

configuration study. 

And what I would propose we could and should do for the commercial market is to send out a request for information—an RFI— 

and we’d be looking for two, maybe three, basic bits of information: 

Number one, does the commercial marketplace value this asset; 

number two, in what manner would they like to use the asset, 

meaning would they want to inject oil and then extract oil on a 

very frequent basis because then that will help inform us on what 

upgrades we need to make; and then number three, how does the 

private sector view the Federal Government stepping into oil storage leasing business, which has been the domain of the private sector for many, many years. 

And so those are the three pieces of information that we would 

want to glean from this RFI. With that information, I think that 

would help inform us on what type of a leasing program we would 

want to develop, whether we would want to have the entity leasing 

the facility to make the investment necessary so that they can inVerDate Nov 24 2008 14:11 Apr 10, 2019 Jkt 037690 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 U:\MY DOCS\HEARINGS 115\HEARINGS\115-156 CHRIS
17 

ject and extract or whether we make that investment, which would 

take appropriations, and then factor that into the cost of the lease. 

So a lot of moving parts there. 

Mr. RUSH. All right. I am going to move on to another area. 

Can you briefly discuss the disagreement between GAO and DOE 

regarding the recommendation that the department conduct a costbenefit analysis for establishing regional product reserves in areas 

around the country that may be vulnerable to fuel supply disruptions. 

Why does DOE disagree with this recommendation and is this 

disagreement only due to funding issues? 

Mr. WINBERG. It’s in part due to the cost but it’s in part due to 

the viability of refined petroleum reserves—gasoline storage. 

So let me start with the logistics, and I talked about this in my 

testimony a little bit. Having regional or even state gasoline storage reserves above ground doesn’t necessarily solve the problem because you need to get that stored gasoline to the retail outlets— 

the gasoline stations. 

The problem is when you’re in an evacuation situation along the 

coast—Florida, I think, is probably a good example of what happened during the Hurricane Irma—you couldn’t get the gasoline 

from the storage to the retail outlets because the roads were being 

used for evacuation. 

Right after the hurricane passed through then the roads were 

flooded and so having that storage wouldn’t have done Florida 

much good at all—perhaps none at all. 

And so we’d be incurring quite a cost in order to maintain regional or state gas reserves around the country. We spend about 

somewhere between $10 and $30 million per year on the Northeast 

gasoline supply reserve. 

It currently has about a million barrels of gasoline. And so multiply that by whatever number a regional refined petroleum facilities we might contemplate. 

The costs get pretty expensive pretty quickly and we may not be 

able to use it because of the logistics of getting it to the retail stations. 

Mr. UPTON. Thank you. The gentleman yields back. 

Mr. Barton. 

Mr. BARTON. Thank you, Mr. Chairman and Ranking Member 

Rush for scheduling this hearing. I’d like to make a few comments 

and then I have a few questions. 

First, I want to thank Congressman Rush for working with me 

as one of the two lead bipartisan sponsors. Legislation, I think, always is better if it is bipartisan and certainly we, on the majority 

side, want to make every effort to make this bipartisan. 

I was very heartened by the opening comments of Mr. Rush and 

Mr. Pallone. I think we have got a chance to help the country if 

this draft becomes, in fact, a bill and is passed. It doesn’t change 

the basic mission statement. It doesn’t change the authorized level 

of the Strategic Petroleum Reserve. It doesn’t change the presidential authority. What it does do is add to the mission statement. 

It gives the secretary of energy the authority so long as it doesn’t 

impact the basic existing mission statement the ability to lease and 

18 

utilize underutilized capacity of the existing SPR to the private sector for storage and, hopefully, utilization of crude oil. 

I think that’s an important point, that we are not trying to 

change the basic statement that became law in the 1970s. We are 

just trying to adopt the SPR to the modern situation. 

A couple of questions for our friend from DOE. What is the authorized capacity currently of the SPR in terms of millions of barrels? 

Mr. WINBERG. The design capacity is 712 million barrels. In 2018 

right now we have 660 million barrels and in 2027 we will be down 

to 405. 

Mr. BARTON. What did Congress authorize the capacity to go up 

to? I thought we were about 900 million barrels. Is that not true? 

Well, I can find out. I just thought you might know. 

Mr. WINBERG. I’ll get back to you on that. 

Mr. BARTON. OK. Whatever the authorized capacity is, if I understand you correctly, the existing physical capacity is a little over 

700 million barrels. Is that correct? 

Mr. WINBERG. Yes, sir. 

Mr. BARTON. And of that, how much oil is actually stored right 

now? 

Mr. WINBERG. We have 660 million barrels stored right now. 

Mr. BARTON. OK. So we are not quite at 100 percent of existing 

physical capacity? 

Mr. WINBERG. That’s correct. 

Mr. BARTON. OK. 

If this draft legislation becomes law, whatever the authorized capacity is—and let’s assume that it is 900 million because I think 

that’s right—under this pilot program would it authorize the secretary of energy if it meets all the other requirements under the 

draft legislation to actually add capacity to the SPR so long as it 

doesn’t go above the authorized level? 

Mr. WINBERG. In order to add capacity above the 712, it would 

take some additional capital investment in the facility to get—— 

Mr. BARTON. But there is nothing in the law that would prevent 

going above what’s physically available today. Is that not correct? 

Mr. WINBERG. I believe that’s correct. 

Mr. BARTON. OK. I have one more question. I think I’ll yield 

back. 

One final comment—we don’t claim—Mr. Rush and I—that this 

draft is perfect. If we go through the hearing and there are things 

that we need to change, I think I speak for everybody on the majority side that we are very open. 

But I also think I speak for the majority and the minority that 

we hope that this is something that can move reasonably expeditiously and that means actually end up in a bill the President signs 

in this Congress. 

And with that, Mr. Chairman, thank you for your leadership and 

Mr. Rush’s and Mr. Pallone’s, and I yield back. 

Mr. UPTON. The chair would just say that I am delighted that 

the two of you are working on this. It’s something that needs to be 

done and we look forward to getting this to the President’s desk before the year is out, if we can. 

Mr. Pallone is recognized for an opening statement. 

19 

Mr. PALLONE. Thank you, Mr. Chairman. 

Mr. Secretary, the idea of establishing regional refined product 

reserves came out of the first Quadrennial Energy Review and was 

strongly supported by former Secretary Moniz. 

And now GAO is also saying we need to look at regional reserves, 

particularly in the Southeast and the West and I, too, think that 

regional refined product reserves needs to be a part of any SPR 

modernization effort. 

Now, you can correct me if I am wrong. But you mentioned, I believe, that the Trump administration seems hostile to the concept. 

In fact, President Trump had proposed doing away with the Northeast gasoline supply reserve, which had been created administratively by President Obama in response to the dangerous shortages 

that occurred in the wake of Superstorm Sandy, including in my 

area of New Jersey. And, frankly, I think this administration’s attempt to undo the Northeast reserve is reckless and that’s why I 

introduced legislation to establish that reserve in statute. 

But it seems like everybody but the Trump administration sees 

the benefit in establishing regional reserves and particularly one in 

the Southeast, where states like Florida, Georgia, South and North 

Carolina are extremely supply constrained, and those states are 

really vulnerable in the face of an extreme weather event. Yet, this 

administration and you, I think, said don’t want to take any action 

on that. 

So can I just ask you, Mr. Assistant Secretary, you said that the 

price of gasoline I think—you can correct me—goes back to normal 

soon after a storm like Sandy or Irma. 

What is that based on? That wasn’t true in New Jersey after 

Sandy. Did I misunderstand you? I thought that’s what you said, 

as one of the reasons why it wasn’t necessary to have these regional reserves. 

Mr. WINBERG. The first point, I wouldn’t characterize the administration’s position as hostile against the gas reserves. 

What I talked about in my testimony is, A, the cost of these gasoline reserves, and I used—— 

Mr. PALLONE. Yes. You said they would cost the government too 

much and—my understanding is you said that you were not supportive of it or the administration wasn’t because the price of gasoline goes back quickly after a storm like Sandy—I think you said 

Irma. 

And then you also said that the regional reserves would cost the 

government too much. I am just asking you what those two things 

are based upon because I am wondering—wouldn’t the same argument be used against the existing SPR? Why are you saying—I 

don’t believe it’s true that the price goes up quickly right after and 

I don’t believe that this is going to cost the government too much— 

certainly, less than it costs to maintain the SPR. 

I am just challenging those two statements. That’s all. 

Mr. WINBERG. I can address the pricing issue with respect to 

Hurricane Irma. The prices came back down to relatively normal 

levels. 

I can’t speak to every gasoline station around Florida. But as the 

product moved back into the state and retail stations were opening 

back up again, there was competition and prices reflected that. 

20 

I think that the bigger issue is that if we set up reserves and 

we have these fairly sizeable storage areas and we can’t get the 

gasoline to the retail outlets because of congested roads due to 

evacuation and then flooded roads, then it is an expense that’s not 

really serving the public good. 

Mr. PALLONE. But what I was arguing—see, look, I understand 

what you’re saying in all these cases. But I just would like to know 

what that’s based on. 

In other words, my experience in Sandy which, admittedly, is 

only one hurricane, is that the price—it does take a while before 

the price goes back to normal and that I don’t know why it would 

cost more to have these regional reserves significantly more than 

it does to maintain the SPR. 

I am not saying we shouldn’t have an SPR but I think the costs 

of the regional ones would actually be less. And it seems like 

everybody’s suggesting that this is a good idea. 

There is going to be some cost to the government, but I’d just like 

to know—if you get back to me, tell me, what’s the evidence that 

the price goes back quickly? 

Why are you saying it’s going to cost so much and now you’re 

saying that they can’t bring it to the gas stations. That’s not my 

experience. 

So I just want you to get back to us and—either now or get back 

to us and explain what this is based on because it seems to be contrary to everything I’ve heard. 

Mr. WINBERG. We will be happy to get back to you with some 

specific cost numbers on utilization. 

Mr. PALLONE. All right. I’d appreciate it. 

Thank you, Mr. Chairman. 

Mr. UPTON. Mr. Olson. 

Mr. OLSON. I thank the chair and welcome, Mr. Winberg, and 

please give your boss, Secretary Rick Perry, my best. It’s not very 

good, but it’s my best. 

Mr. WINBERG. I will do so. 

Mr. OLSON. He will know where that comes from. 

The SPR is important back home in Texas-22 in southeast Texas. 

You mentioned the status of your modernization program. Could 

you please talk about the most important steps DOE can take in 

this next year to continue to improve the readiness of the SPR? 

Mr. WINBERG. Yes, sir, I can. Thank you. 

One of the steps that I mentioned already is the post-sale configuration study and then the second one is we are developing the 

Life Extension program. 

We are in the process of pulling that together and the Life Extension program is going to allow us to continue to meet our needs 

under IEA, number one. 

And then, number two, the Life Extension program will focus on 

those assets that we are going to continue to need post-2027. That’s 

the primary role of the Life Extension program. 

Mr. OLSON. The second question, sir—as you know, Texas oil production is booming. The Permian Basin itself is projected in a few 

years to produce more oil than every country in the world except 

for Saudi Arabia. 

21 

One oil plain in Texas takes over all the world except for one 

country—Saudi Arabia. A lot of that crude has to go to export—go 

to the Gulf Coast ports—goes to either Corpus Christi, Houston, 

Port Arthur, Beaumont—all those ports—Brownsville—goes there 

for refining and export. 

If we pass this discussion draft before us, do you think the oil 

industry will view the SPR sites on the Texas Gulf Coast as a good 

holding site for their oil and are their needs looking more shorter 

term than what the SPR is designed for? 

Mr. WINBERG. The answer to your first question, we are not yet 

sure how the commercial market is going to view this government 

asset—the SPRO and our ability to potentially store oil for the 

commercial sector. 

That’s part of the RFI—the request for information that we are 

going to send out so that we can better understand what the commercial industry needs and wants and whether the SPRO will fulfill that requirement. 

So as we get that information I’ll be happy to meet with the committee or meet with you individually—— 

Mr. OLSON. Thank you. 

Mr. WINBERG. And give you the results of the study. 

Mr. OLSON. Thank you. 

My final question—as we had these SPR drawdowns over and 

over and over—June of 2011, 30 million barrels of oil; August of 

2012, 1 million barrels of oil; November of 2015, 58 million barrels; 

December 2015, 66 million barrels; January 2017, 8 million barrels—over and over. 

I am curious to hear how about the state of the SPR is with all 

these draw downs. Specifically, we have a lot of light crude here 

at home. 

Are you happy about the balance between light crude and heavy 

crude in the SPR and the balance between sweet and sour oil? I 

know there is lots of people concerned especially about heavier 

crude with a supply disruption because of this wave of sweet crude 

and light crude. Any concerns about the SPR’s makeup with those 

issues, sir? 

Mr. WINBERG. Well, we are going to—I don’t have any particular 

concerns about them. But that is part of the post-sale configuration 

study to evaluate sweet crude versus sour crude and what percentage we should have of both of those, given the changing dynamics 

of oil production here in the United States. But I don’t have any 

particular concerns about them right now. 

Mr. OLSON. My time is about to expire. I yield back. Thank you. 

Mr. UPTON. Mr. McNerney. 

Mr. MCNERNEY. Well, I thank the chairman for holding the hearing and I thank Mr. Barton for your work on it. I thank the witnesses for your thoughtful answers so far. 

Similar to the Northeastern gasoline supply reserve, what do you 

think about establishing a reserve in the West for hurricane preparedness and other sorts of emergencies that we have out there, 

as opposed to hurricanes, which we won’t have? Earthquakes. 

Mr. WINBERG. I think the same issues that we have—our concerns about our ability to develop a surface reserve and then get 

22 

that product in that surface reserve to the market where it’s needed or—— 

Mr. MCNERNEY. Well, you don’t have a lot of warning for earthquakes so you don’t have an evacuation problem. 

Mr. WINBERG. Well—— 

Mr. MCNERNEY. You have some roads disrupted but, I think it’s 

a better case to be made in the West where we could have those 

different sorts of emergencies. 

Mr. WINBERG. That’s true. But if we have an immediate earthquake situation, there is some road damage—— 

Mr. MCNERNEY. Right. 

Mr. WINBERG [continuing]. That means that the gasoline can still 

move in through the normal infrastructure and transportation 

mechanisms that it would. There may be some that would be cut 

off, depending on where the earthquake—— 

Mr. MCNERNEY. Right. 

Mr. WINBERG [continuing]. Happened and the effect of it and how 

many roads or rails might be damaged. But, generally, there are 

multiple routes into an urban area or a suburban area where there 

is—— 

Mr. MCNERNEY. So we have a pretty good case to be made for 

establishing the product reserves in the West? 

Mr. WINBERG. I am sorry. Say that again. 

Mr. MCNERNEY. We have a pretty good case to be made then for 

establishing those reserves in the West? 

Mr. WINBERG. Well, I think if you had limited damage to road 

or railroad infrastructure then you’d have to look at the cost of establishing that reserve and maintaining it and whether it would 

provide a lot of value in this example of an earthquake situation. 

Mr. MCNERNEY. OK. Changing the subject a little bit, what 

about the challenges with respect to the infrastructure of the existing SPRO facilities? 

My understanding is that the extraction network infrastructure 

was aging and not in very good shape. We have the degradation 

of the caverns when you put in that water to push out the oil and 

so on. 

Can you talk a little bit more about that existing infrastructure? 

Mr. WINBERG. Sure, and I think there are two parts to the infrastructure. One is the subsurface and then the other is the surface. 

And on our Life Extension program, that we are involved in right 

now, mostly that is surface infrastructure. So we are talking about 

pipes, pumps, and motors and that type of infrastructure. And so 

we have got a program in place to upgrade that because, as was 

mentioned earlier, the SPRO has celebrated its 40-year anniversary last year. 

The subsurface infrastructure, while we have had a number of 

withdrawals, the caverns are generally good for about five withdrawals and then refills before you start to see a lot of degradation. 

And so part of the assessment that we are looking at in the configuration study is the stability of the caverns, how much erosion— 

well, it’s not erosion. It’s really—— 

Mr. MCNERNEY. Well, five cycles doesn’t sound like a lot if we 

are going to be leasing out space. 

23 

Mr. WINBERG. Well, those are the cycles given—that’s what the 

caverns were designed for. If we leased it out under commercial operation, we might see considerably more than that because people 

store oil and they use it as a hedge. 

The price goes up, they are going to want to withdraw, and then 

they are going to want to reinfect. So it could happen many, many 

times, which is our concern about the integrity of the caverns. 

Mr. MCNERNEY. What happens to the water when you inject 

water to pressurize release? What happens to that excess water? 

Does it just get absorbed into the landscape? 

Mr. WINBERG. The water stays down in the cavern and if we refill it then we would extract the water. 

Mr. MCNERNEY. So it’s—— 

Mr. WINBERG. Then we have to treat the water. 

Mr. MCNERNEY. Is it better to be at 100 percent capacity or is 

it better to be 90 percent capacity or some lower value? 

Mr. WINBERG. Operationally, it’s probably always better to be 

somewhere in the 90 to 100 percent. But there is a cost associated 

with being at that capacity level. You’re storing oil in a lot of facilities. 

Mr. MCNERNEY. All right. I thank the chairman. I yield back. 

Mr. UPTON. The gentleman yields back. 

And before we move to Mr. Shimkus, Mr. Barton will have a 

brief announcement here. 

Mr. BARTON. I have a point of personal privilege. In the back of 

the room, two of my granddaughters and my two daughters and 

their significant others are watching the hearing and, in typical 

millennial fashion, they are sitting on the minority side of the 

room. 

[Laughter.] 

If they would stand up and let us acknowledge their presence. 

[Applause.] 

Mr. UPTON. Maybe we will let Mrs. Rush give them a call as 

well. 

[Laughter.] 

Mr. Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman. 

Mr. McNerney’s just leaving but I wanted to follow up on some 

of his comments because they had raised maintenance as an issue 

and this was going to be my third question. But I am going to bring 

it up just in the timely manner that he addressed it. 

The GAO reported that the SPRO had experienced at least five 

major equipment failures since 2013 including a major pipeline 

failure that shut down the Big Hill site for 5 years. 

Could leasing underlie SPRO capacity help offset the cost of operations and maintenance? 

Mr. WINBERG. Yes, and under two different scenarios. One, we 

might make the upgrades and then roll that in to the price of the 

lease but that would require appropriations. 

Another option, of course, is to have the entity leasing the space 

to make those upgrades. 

Mr. SHIMKUS. Yes. Based on my experience with the appropriation committees, I wouldn’t encourage the first course of action. I 

24 

would think that maybe in the leasing agreement of upgrades that 

would be a more straightforward process. But that’s me. 

It was also talked about a little bit earlier in the question and 

answers about spare caverns and I think being able to, in essence, 

lease those out and there was some interest in that. 

Did I understand that question and answer process? Another 

member mentioned about excess space in other caverns and the 

ability to lease that out to private entities. 

Mr. WINBERG. Yes. Congressman, we have not yet tested the 

market, if you will, on commercial interest in leasing the space. 

That would be the subject of the request for information that we 

will be sending out. 

Mr. SHIMKUS. Let me also talk about there has been some debate 

about the refined product reserves that are established and I think 

there is a cost to doing this, right? A financial cost of setting these 

things up. 

Mr. WINBERG. Yes. 

Mr. SHIMKUS. Do you know what it is for the East coast refined 

product? 

Mr. WINBERG. Yes. We spend between $10 and $30 million a year 

for, roughly, a million barrels of gasoline. 

Mr. SHIMKUS. That’s per year? 

Mr. WINBERG. Yes, sir. 

Mr. SHIMKUS. So I think it’s credible for us to have the debate 

of a cost benefit analysis. If we are spending $25 million a year for 

$1 million of refined product versus the timeliness of transportation and the access, I think that’s where the debate is. Everybody 

would like to have a refined reserve available next door for disruption. 

In the Midwest, we have tornadoes and things go down and power goes off. But the question is, is $25 million for 1 million— 

I don’t think that makes financial sense. 

I wanted to raise that. The last thing I want to address is U.S. 

will become a net energy exporter by 2022. That’s the expectation. 

Do you agree with that? 

Mr. WINBERG. Yes, sir. I do. 

Mr. SHIMKUS. Do you think there is a need for a strategic petroleum reserve? I was a big supporter of this years ago when we 

were worried about our enemies around the world shutting off the 

sea lanes because we were importing our crude oil. 

But if we are a net exporter does that even lend to the question 

of whether we need a SPRO? 

Mr. WINBERG. I think it’s difficult to forecast what kind of geopolitical challenges we might have—— 

Mr. SHIMKUS. Well, if we listen to Olson, Texas is going to supply 

the whole world. So I—— 

Mr. WINBERG. But there is also the hurricanes and other—— 

Mr. SHIMKUS. And I would think that more speaks to pipelines 

and diversification of a refinery basis and I think that’s occurring 

as we speak right now, too, with North Dakota and some other 

places where we are having that occurring. 

So those are just questions I pose. It’s great to have you here. 

We live in some exciting times. Whoever thought that we’d be exporting crude oil and exporting liquefied natural gas, and we all 

25 

know the benefits for that just for our balance and our income or 

the trade balance but also for our allies who, in some places around 

the world, are being held hostage by foreign powers who really 

don’t like us that much. 

So I appreciate it. Send my regards to the department and with 

that, Mr. Chairman, I yield back. 

Mr. UPTON. Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. Thank you for being 

here. 

You have a couple Texans on the committee, both Republican 

and one Democrat. But I have a district in east Harris County and 

so the salt domes that are created are there in Chambers County 

all the way through southeast Texas. 

This Congress and previous Congresses have chosen to sell oil 

from the SPRO since 2015. The cumulative sale of these barrels— 

250 million barrels—could occur about 2027. Is that correct? 

Mr. WINBERG. Yes, sir. 

Mr. GREEN. OK. And leave us with the expected inventory of 410 

million barrels? 

Mr. WINBERG. Four hundred and five. 

Mr. GREEN. Four hundred and five. OK. I know we talked about 

it one time. Over the years the SPRO had as much as 725 million 

barrels. Is that correct? 

Mr. WINBERG. Yes. Well, I think the capacity is 712 million barrels. 

Mr. GREEN. OK. Although the authorization or the intent was to 

have a billion barrels? 

Mr. WINBERG. Yes, I believe that’s correct. 

Mr. GREEN. Back when it was created. With what’s happening 

today in the energy market I can’t imagine us—are we buying 

crude oil into the SPRO now? 

Mr. WINBERG. No, we are not. 

Mr. GREEN. OK. And because as a Texan, you want to buy it at $30 and sell it for $70 and so I would hope we would not be buying 

$70 a barrel oil. 

One of the concerns I have is that during the Hurricane Harvey 

that was last year, Hurricane Ike that was 2008, even Katrina, because part of the SPRO goes into southwest Louisiana, has the 

storage facilities been damaged because of these hurricanes? 

Mr. WINBERG. I think there was some surface damage but that 

damage has been repaired and the SPRO is fully capable of meeting its withdrawal requirements. 

Mr. GREEN. OK. 

This crude oil is selling from SPRO on the open market, do you 

have any idea who’s buying it? Because I have five refineries in 

east Harris County that typically uses the heavier crude still, although they are retooling now because of the lighter sweet coming. 

Is it typically local refineries that are buying that or are they 

other countries or anything else that you know of—anyone who 

sells oil from the SPRO? 

Mr. WINBERG. We do know who’s buying the crude and I don’t 

have the specifics here with me but I am happy to get that information to your office with respect to whether it was domestic or 

international purchases. 

26 

Mr. GREEN. At one time, I think people would be concerned about 

someone from another country that’s not an ally buying our crude 

oil. 

But since we are exporting crude oil now from everywhere I can 

imagine on the Gulf Coast in Texas and Louisiana, that’s probably 

not a big issue. 

Does U.S. or the DOE SPRO post-sale configuration study—has 

it been completed? 

Mr. WINBERG. No, sir. It’s underway right now. We expect we 

will complete it this autumn. 

Mr. GREEN. OK. The SPRO is a lot of different sites in the salt 

dome because some of that salt dome underneath southeast Texas 

and Louisiana may have to be qualified or—if we wanted to get to 

a billion barrels, how could we do that? Is it engineeringly possible? 

Mr. WINBERG. Yes. Yes, we could develop more storage capacity. 

If we ended up selling into the commercial market and we needed 

to develop the brine drive system so that we could plug the caverns 

and then reinject oil, we would need some additional caverns for 

the brine storage system. 

Mr. GREEN. We are currently required to maintain a 90-day supply of crude oil and, currently, we have a supply of about 170 days. 

Is that correct? 

Mr. WINBERG. Yes, sir. I think that’s correct. 

Mr. GREEN. In DOE’s opinion, are the current level of reserves 

adequate for future potential disruptions? 

Mr. WINBERG. Yes, sir. 

Mr. GREEN. OK. And, again, the market has changed so much 

because, literally, just down the road we are seeing a lot of crude 

oil produced. Although, again, it’s typically lighter sweet than compared to the heavier crude. 

Mr. Chairman, I appreciate you having this hearing on the oversight. This is kind of in the neighborhood for those of us in southeast Texas. So we have a big interest in it. 

Thank you for being here. 

Mr. WINBERG. Thank you. 

Mr. UPTON. Mr. McKinley. 

Mr. MCKINLEY. Thank you, Mr. Chairman, and thank you for the 

sponsors of this legislation to consider that. 

Mr. Winberg, some of your testimony has just raised more questions for me as a result. The one was your testimony—you talked 

about the annual cost for this—the gasoline reserve we have in the 

Northeast at about $25 to $30 million a year. 

But I remember a few years ago we were having that discussion 

about this because it was done not by legislation but through the 

administration, that as one of the discussions we have to replenish 

that—gasoline does not have a very long shelf life. 

So is it physically emptied and restored? How is the mixture so 

that we know the age of that gasoline there? 

Mr. WINBERG. We do roll the gasoline, Congressman. I don’t 

know specifically how many turns we do. But I can find out for you. 

Mr. MCKINLEY. I am just curious because if crude is selling for 

$70 a barrel but you’re selling refined product at only $30 a barrel, 

something’s wrong with the math here. You must not be emptying 

it entirely and using it. 

27 

So we can have more of a conversation. I am just curious to see 

how that’s functioning there. Also, you talked about the five—perhaps you can cycle about five uses or draw down about five times 

out of the salt dome. 

But if we go to this process—this is what I am having a little 

concern with—by leasing it out to other entities and then you indicated that perhaps they might want to draw down more often than 

five. 

Do you see a possibility that you will have them posting bonds 

or some kind of verifications that they pay for the repairs to the 

salt dome if that—other security so that someone with an outside 

interest could cause us to lose the integrity of our salt storage? 

Mr. WINBERG. We believe we have a technical solution for the 

problem and that technical solution would be what we are calling 

the brine drive system. 

So rather than injecting fresh water into the salt cavern to lift 

the oil, we would inject a saturated brine solution. 

Mr. MCKINLEY. I’d like to know a little bit more about that. I 

heard you talk about some additional brine that you had put back 

into that. That was interesting. 

How do you verify—because we got the problem with the ethane 

storage hub up in the Appalachian area—how do you verify the 

thickness of the walls of the salt dome in an existing while it’s in 

operation. 

How are you doing that so that you could make a determination 

maybe 5 years it could reach its life? How do you verify that? 

Mr. WINBERG. That’s a great—— 

Mr. MCKINLEY. The extent of their degradation. 

Mr. WINBERG. That’s a great question and, Congressman, I don’t 

know the answer. But I will get back to you and let you know specifically what testing mechanisms we use to determine—— 

Mr. MCKINLEY. Just one engineer to another engineer. I am just 

curious how you’re going to do that. 

And the last is more about security. I’ve never really actually 

seen a map that showed where our salt domes are located until 

today. I didn’t want to know where they were. 

But if I know now, hostile actors can know where those salt 

domes are, and if they are that important to our national security 

why would we ever put it on a map where those things are? 

Mr. WINBERG. Well, these are pretty large facilities and so people 

know where they are. They are very secure—— 

Mr. MCKINLEY. My point, again—how secure are they? At the 

Greenbriar we used to have a bunker there for congressmen to go 

hide until someone revealed where it was and then we had to do 

away with that. 

Now we are revealing our strategic reserve is—600 million barrels of gas or crude oil. The bad actors know exactly where that is. 

So if we had to abandon the Greenbriar what are we doing here? 

Mr. WINBERG. Well—— 

Mr. MCKINLEY. How secure is it? 

Mr. WINBERG. Yes. We have an ongoing security program and so 

we are updating it, both physical security as well as cybersecurity. 

You know, we are opening up a new office in DOE, the CESER, 

which is going to address the cyber issues. 

28 

The physical security issues that—— 

Mr. MCKINLEY. It’s not the cyber. I am talking about something 

a bad actor—I don’t know that we have an Iron Dome outside these 

things. So I am just curious how we are going to protect them. 

Mr. WINBERG. Well, they are fenced in. We have guards, guns, 

and gates. 

Mr. MCKINLEY. I yield back. Thank you. 

Mr. OLSON [presiding]. The gentleman yields back. 

The chair notes for the record that the Greenbriar is doing just 

fine because this week the Houston Texans started their practice 

for the football season at the Greenbriar. 

The chair now calls upon Dr. Bucshon for five minutes. 

Mr. BUCSHON. Thank you, Mr. Chairman. Mr. Winberg, we spend more than $200 million per year on 

SPRO management and operations, yet most of the equipment is 

beyond its serviceable life and there is a growing backlog of deferred maintenance. 

For example, GAO reported that the SPRO has experienced at 

least five major equipment failures since 2013, including a major 

pipeline failure that shut down the Big Hill site for 5 weeks. 

You’re talking about changing to a brine-related way to extract 

oil. It seems like we need to catch up on this maintenance first. 

What’s been the reason why there is a backlog of deferred maintenance and all the equipment is beyond its serviceable life and 

what can we do about it? 

Mr. WINBERG. I think the backlog is because we didn’t have appropriations sufficient to keep the facility in optimal operating condition. We now have our—— 

Mr. BUCSHON. OK. I am just going to interrupt you there for a 

second because I think that’s the answer we get from every Federal 

agency any time we ask this question. 

But were there requested appropriations that didn’t get appropriated? Were there no appropriations or, there is more to it than 

that, I would imagine. 

Mr. BARTON. Would the gentleman yield? 

Mr. BUCSHON. I will yield. 

Mr. BARTON. I don’t want to speak for the Department of Energy, 

but the draft legislation allows, without going through the appropriation process, funds generated by using this facility for private 

purposes to be used for maintenance of the facility. So we have 

tried to solve that problem in the legislation before us. 

Mr. BUCSHON. Thank you, Mr. Barton, because that’s going to be 

one of my next questions. 

So it sounds like we have probably had an appropriations issue 

over the years. I get that, and it seems like we need to address 

that. 

So the question, and is a follow-up to what Mr. Barton just said, 

could leasing underutilized space, capacity, help offset the cost of 

operations and maintenance? 

Mr. WINBERG. Yes, I think it could. Again, we need to query the 

market and find out what value they place on this storage and 

what they are willing to pay for it. 

Mr. BUCSHON. Yes. So potentially this draft legislation could help 

us solve what appears to be probably a long-standing issue with 

29 

our maintenance and serviceable life of our equipment being at the 

end of its serviceable life if we find more money and put that into 

operation and maintenance. 

Also, most of the time it sits idle, could some of the spare caverns—and I think you went over this and the answer is yes—be 

commercialized in such a way to improve its overall operational 

readiness? 

Mr. WINBERG. Absolutely. Yes, sir. 

Mr. BUCSHON. And you described some of that—I was interested 

in the fact that on a commercial basis you’d have to have more 

going in and out all the time, right? Could you isolate that to the 

commercial space versus the noncommercial space? 

So you’re not talking about the entire reserve being accessed all 

the time. Were you talking about a way to cordon off, so to speak, 

what we could utilize and in that way the caverns of the whole reserve wouldn’t be at risk. 

Mr. WINBERG. That’s correct. We would utilize the brine drive 

system in those caverns where we were discharging and refilling on 

a frequent basis for commercial purposes. 

Also, I spoke earlier about leasing some of the space to other 

countries that are members of the IEA activity and in that case 

then those countries would not be withdrawing and injecting on a 

routine basis, and by having that capacity our overall costs likely 

would go down because we would have more oil stored so you’d 

spread the cost out over—— 

Mr. BUCSHON. Right. So we would do that on a build-out basis 

or they would pay for it or we’d build out what they need or they’d 

pay for that? 

Mr. WINBERG. Well, I think we would utilize the excess capacity 

we have and if there was a big enough market I think we could 

look at building out additional. But we are going to have 300 million barrels of capacity when we finish the draw down in 2027. 

Mr. BUCSHON. Understood. 

Thank you, Mr. Chairman. I yield back. 

Mr. OLSON. Thank you. 

Mr. Duncan, 5 minutes for questions, sir. 

Mr. DUNCAN. Thank you, Mr. Chairman. 

There is no doubt that demand for oil is much greater now than 

when the SPR was originally developed, and I wonder is the SPR 

big enough to have an impact in the case of a real crisis in the 21st 

century. Is it big enough? 

Mr. WINBERG. I think it probably is big enough. 

Mr. DUNCAN. Is it storing enough? 

Mr. WINBERG. I think it is storing enough right now. As we move 

into 2027, we are going to be very close to meeting our IEA requirements. In fact, we—— 

Mr. DUNCAN. Have you all looked at the demand as it applies in 

the 21st century here and 2018, right, or—— 

Mr. WINBERG. Yes, we have. But a balancing factor for that, of 

course, is that we have much more domestic production and that 

domestic production, while it takes several months to come online, 

it’s much quicker than it was before the unconventional oil plays 

became commercial in the United States. 

30 

So we are down to 4 or 5 or 6 months to get wells online as opposed to—— 

Mr. DUNCAN. Well, just let me ask you this. In your opinion, has 

SPR been used effectively over the past four decades to respond to 

oil price volatility? 

Mr. WINBERG. I believe it has, yes. 

Mr. DUNCAN. Has been used effectively? OK. 

Has it been appropriately used as a tool to balance supply and 

demand? 

Mr. WINBERG. That’s not its purpose to balance—— 

Mr. DUNCAN. I remember the oil shortage in the 1970s and since 

then we really haven’t had a true oil shortage. We have had price 

volatility, right. 

So given the change in landscape, the fact that the United States 

is now a net exporter, do you see the SPR being able to balance 

the supply and demand or even necessary to balance the supply 

and demand when we have an abundant supply? 

Mr. WINBERG. Well, the purpose of the SPRO was never to balance supply and demand but, rather, its purpose was to be there 

in the event that there was more of a crisis situation rather than 

short-term supply and demand imbalances. 

And so that was its purpose. That still is its purpose, and I think 

where we are right now, even with the draw downs, given the fact 

that we have much more domestic production and that production 

can come on much quicker, I think that we have sufficient reserves 

and sufficient capacity with the SPRO. 

However, getting to an earlier question, we do need to upgrade 

it and maintain mostly the surface facilities but also subsurface facilities to make sure that we can meet the—— 

Mr. DUNCAN. Let me ask your opinion about—Congress has sold 

off some of the SPR in order to cover deficits and when we have 

had some of these crises since I’ve been in Congress—8 years—it 

also seems like we always sell it for a lot less than we paid for it, 

and that’s kind of opposite of buy low sell high, right? 

That’s the first thing. Who manages what price point we purchase or replenish? If you’ve got a high-value asset that you paid 

less for, do you all play the market in that regard and sell it at 

a higher price and buy it again at a lower price to help the American taxpayer? 

Mr. WINBERG. When we have a release we do it under an auction 

mechanism. So we get the highest price that the market’s willing 

to pay. 

Under some releases, where we have a test sale, for example, 

then whoever buys that oil has to replenish that oil plus an additional amount of oil. 

So in that manner, we are paying for the cost of extracting oil 

from the facility. But the SPRO and the operation of the SPRO 

does not play the market, per se. We do it through an auction 

mechanism. 

Mr. DUNCAN. Mr. Chairman, 30 seconds I’ve got left. 

Since I’ve been in Congress, we have used the SPR as an opportunity to offset spending with cut-go or whatever, and that’s wrong. 

This is a strategic petroleum reserve to help us in the time of a 

31 

crisis and oil shortage or restriction of the flow of oil by OPEC like 

we saw in the late 1970s. 

And I am always going to argue that this Congress and this government should not use this as a pay for. It should be used as it’s 

designed. 

But we also ought to manage it—if you’ve got a bulk asset that 

you’ve got a high basis on sell it—buy it low and help the American 

taxpayer. 

With that, I yield back. 

Mr. OLSON. Thank you. 

Mr. Tonko, are you ready, sir? Are you ready? Five minutes for 

questions. 

Mr. TONKO. Thank you, Mr. Chair. 

Mr. Winberg, can you provide us with an update of DOE’s current modernization plan and how great is the need to invest in the 

infrastructure in order to keep it operating effectively? 

Mr. WINBERG. Yes. To answer the second part of your question, 

I think the need is pretty great. This facility, as we have talked 

about, is over 40 years old. The last major upgrade was about 25 

years ago. So we have piping, pumps, and valves that need to be 

replaced on the surface. 

So the need is pretty great. We have got a Life Extension program and we are developing that program so that, A, we can best 

handle the legislatively mandated sales, and then, B, the Life Extension program is being designed so that we can upgrade our systems to allow the SPRO to operate post-2027 for an additional 25 

years. 

Having said that, the Life Extension program on the way it’s 

been designed has enough flexibility so that if we decide we are 

going to lease space to other countries or commercial leases, we 

have got enough flexibility in the program so that we can adjust 

it so that we are not using taxpayer dollars to upgrade systems 

that perhaps someone leasing would pay for. 

Mr. TONKO. Thank you. 

And do you believe there is private sector demand for SPRO capacity? 

Mr. WINBERG. That’s a great question, and we don’t know the answer to that yet. What we are planning to do is send out a request 

for information, an RFI, out into the marketplace and what we 

want to find out is, A, is there a need for government-owned storage in the commercial market; B, how would they utilize that storage space if we leased it to them; and then, C, are there concerns 

or issues with the government leasing space in a market that has 

mostly been done by commercial entities. 

Mr. TONKO. So and how would it compare to existing storage options—for example, a tank storage or—— 

Mr. WINBERG. Right. We don’t yet know the answer to that question either. That will be informed by the RFI. Once we know how 

private industry might want to utilize this storage, then we can put 

a cost, because there will be some capital needed in order to facilitate commercial storage activities. 

Mr. TONKO. And do you believe there is an opportunity to use the 

revenues raised by commercial leases to invest in modernization to 

benefit the public’s use of SPRO? 

32 

Mr. WINBERG. I think there might be. But, again, we are a little 

bit early in the process to know that right now. 

But that’s certainly the hope, and I think if there wasn’t value 

to the taxpayer I would question whether or not we want to enter 

into this type of arrangement. 

Mr. TONKO. OK. And SPRO is able to draw down and deliver 

crude oil within 13 days? 

Mr. WINBERG. Yes, sir. 

Mr. TONKO. Are you confident that space can be leased without 

slowing down the Federal Government’s ability to utilize SPRO? 

Mr. WINBERG. That would be one of the key issues or key elements of any leasing program that we entered into with commercial clients but also with other countries, if we chose to go that 

route. 

The American taxpayers bought and paid for this thing. They 

have maintained it for the last 40 years. So our responsibility is 

to the U.S. taxpayers to make sure that, A, we are meeting our domestic oil requirements and, B, that we are meeting our international requirements as well. 

Mr. TONKO. And I appreciate that. 

In the Northeast, we are particularly vulnerable to supply disruptions, which can be caused by natural disasters such as a hurricane like Superstorm Sandy. 

The Northeast gasoline supply reserve was created to mitigate 

those risks and, thankfully, it hasn’t been needed yet. But that 

doesn’t mean it won’t be needed in the future. 

So I would really caution the administration against trying to 

dissolve this reserve. I think, again, for our region of the country 

it’s of great concern. 

And with that, I thank the chair and yield back. 

Mr. OLSON. Thank you. 

And seeing no further witnesses, members seeking to ask questions, I’d like to thank you, Mr. Winberg, for coming today. 

All members should know they have 5 days to submit questions 

for the—10 days—another panel. OK. I’ll back off. 

Thank you, Mr. Winberg. Before you leave, as Vice Chairman 

Barton will confirm with your boss, you have to say gig ’em over 

and over. Thumbs up. Gig ’em, Aggies. 

Mr. WINBERG. Thank you. 

Mr. OLSON. Uh-oh. Is your mic? You sure? One more time. 

Thank you, Mr. Winberg. 

Mr. WINBERG. Thank you. 

Mr. OLSON. Second panel, please come up. 

It looks like we are ready so let’s kick off the second panel. 

Our witnesses for the second panel today include Mr. Frank 

Rusco, Director of Natural Resources and Environment at the 

GAO; Mr. Daniel Evans, Project Manager for Fluor Federal Petroleum Operations; and Mr. Kevin Book, Managing Director for 

ClearView Energy. 

We are so thankful for you all being here today. We will begin 

this panel with Mr. Frank Rusco. You are recognized for 5 minutes 

to give an opening statement. 

33 

STATEMENTS OF FRANK RUSCO, DIRECTOR, NATIONAL RESOURCES AND ENVIRONMENT, GOVERNMENT ACCOUNTABILITY OFFICE; DANIEL M. EVANS, PROJECT MANAGER, 

FLUOR FEDERAL PETROLEUM OPERATIONS; KEVIN BOOK, 

MANAGING DIRECTOR, CLEARVIEW ENERGY PARTNERS, LLC 

STATEMENT OF FRANK RUSCO 

Mr. RUSCO. Thank you, Mr. Chairman, Ranking Member, and 

members of the subcommittee. 

I am pleased to be here today to discuss our recent report on 

DOE’s management of the SPR. The SPR is an important energy 

security asset capable of mitigating negative effects of global oil 

supply disruptions in concert with other IEA member countries. In 

several collective actions of IEA members, the SPR has been effective at adding oil supply during actual or expected supply disruptions. 

To date, however, the SPR has most often been used in response 

to domestic supply disruptions caused by extreme weather. In such 

events, the SPR has been less effective because SPR infrastructure 

has not been able to deliver reserves when, where, and in the form 

they are needed. 

In particular, when severe weather has battered Gulf Coast 

states, damaging refineries or electricity grids needed to run pipelines, SPR oil reserves in the Gulf Coast have not been effective in 

mitigating what have generally been shortages in finished petroleum products such as gas line and diesel fuel. 

Most IEA member countries hold significant parts of their strategic reserves as petroleum products. DOE has studied such product reserves and the conclusions of its studies point to net benefits 

in some regions. Yet, DOE has disagreed with our recommendation 

to complete these studies and advise Congress of its findings. 

In addition, we found that DOE’s most recent strategic analysis 

of the SPR, which was mandated by Congress, was deficient in several key ways. These deficiencies denied Congress better information to make decisions about the size, disposition, and configuration 

of the SPR. 

For example, DOE did not do adequate risk-based scenario analyses of when the SPR may be called upon to deliver oil or petroleum products and, as a result, DOE cannot advise Congress on 

even a credible range of sizes, composition, or disposition of reserves that would best enhance energy security across a range of 

potential future events. 

Further, in part, because of the way in which the SPR has been 

used over the years and in part just because needed maintenance 

has been deferred for many years, the SPR storage and delivery infrastructure is in serious disrepair. 

DOE’s current plan is to rebuild the existing SPR infrastructure 

in its historical configuration and capacity. If this is done and, 

given planned future sales of SPR oil, the SPR will have excess 

storage capacity in the future. However, DOE made its plan to rebuild and repair SPR infrastructure without adequately studying 

alternatives, including selling or leasing such excess capacity. 

The discussion draft that is the focus of this hearing goes a long 

way toward requiring DOE to rectify some of the deficiencies in its 

34 

strategic study and its SPR modernization plan. Specifically, the 

discussion draft requires DOE to take actions to evaluate and test 

the market for leasing its excess capacity by, one, authorizing the 

leasing of storage and related facilities to private sector and foreign 

entities; two, directing revenue earned from such leases to the general fund and to cover costs associated with leasing; and three, requiring a pilot program to lease 200 million barrels of excess capacity. 

To make fiscally prudent decisions about how to implement such 

a pilot, DOE will have to conduct additional analyses. For example, 

DOE’s decision to use fresh water to displace oil during releases 

has caused the SPR’s salt caverns to deteriorate over time with 

use. 

Fresh water absorbs salt, which increases the size and alters the 

shape of caverns and damages their integrity. Alternatively, there 

are salt cavern facilities operated by the private sector that use 

brine to displace that oil during release, which does not have these 

effects. 

Brine ponds add operation and maintenance costs but increase 

the life of caverns. Ideally, GAO should evaluate this and many 

other factors we have identified before finalizing its modernization 

plans to ensure the SPR is run in an effective and fiscally prudent 

manner. 

Thank you. This ends my oral remarks. I’ll be happy to answer 

questions. 

[The prepared statement of Mr. Rusco follows:] 

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Mr. OLSON. Thank you, Mr. Rusco. 

Mr. Evans, 5 minutes for an opening statement, sir. 

Microphone, please. Hit the right button here. 

Mr. EVANS. I am here. There we go. Start again. 

STATEMENT OF DANIEL EVANS 

Mr. EVANS. Good morning, Vice Chairman Olson, Ranking Member Rush, and members of the Subcommittee on Energy. 

I am the Project Manager for Fluor Federal Petroleum Operations, Dan Evans. We are the maintenance and operation contractor for the Department of Energy at the Strategic Petroleum 

Reserve since 2004. 

Fluor’s partnerships with DOE date back to the Manhattan 

Project. Today, in addition to the SPR, we are currently active in 

roles with DOE facilities that are part of the Environmental Management and National Nuclear Security Administration missions. 

The congressionally-mandated sales have changed the day-to-day 

operations of the SPR dramatically. The sites have gone from a 4.4 

million barrel per day draw down and readiness posture to maintaining draw down readiness while at the same time conducting intermediate variable rate deliveries from the reserves. 

Working with DOE, Fluor has met this challenge. One example 

is the response to the impacts to Hurricane Harvey. We were able 

to maintain mission draw down readiness throughout the event 

and deliver approximately 5 million barrels of crude oil to refineries in need. 

I would like to note that to support this need, certain employees 

volunteered to leave their own homes at peril, their whole families, 

and endure the hurricane at the Texas sites. They provided dayto-day monitored conditions and real time updates on the readiness 

for us to fill the Nation’s mission. The dedication of SPR employees 

to the mission is American exceptionalism at its finest. 

The sales have and continue to put a significant level of stress 

on aging SPR infrastructure. In some cases, we have postponed 

planned maintenance and diverted funding to address emergency 

repairs. 

As we continue the draw down over the next 9 years, Congress 

should not lose sight of the importance of the SPR’s annual maintenance funding to be able to address the needs of the sites and 

make necessary repairs to execute the current contemplated draw 

down schedule. 

Next, I would like to address the ideas raised by the subcommittee’s discussion draft. Fluor, of course, stands ready to support the 

leasing and operation of underutilized cavern capacity. 

We anticipate in the particular draft legislation the committee 

has provided the authorization without further appropriation to 

use a portion of leased revenue cost related to storage and removal 

incurred by the SPR as a result of releases. 

Commercially-leased petroleum storage currently presently operates under one of two models: segregated or co-mingled. In segregated storage, the product accepted for storage is the same product that is ultimately delivered. Under the co-mingled model, a limited range of products are accepted for storage. 

51 

When a withdrawal is made, a product of agreed to specification 

is then provided to the owner of the equivalent product that was 

accepted into storage. 

Either model presents challenges for leasing at SPR facilities 

while maintaining government inventories. Presently, the government practices intensive inventory management—segregating 

crude oil by two specifications and tracking the volumes down to 

the very barrel not only across caverns but also with piping, pipelines, and crude oil storage tanks. 

If the SPR designates specific caverns to be leased for storage 

under the segregated model, the cavern is nonetheless integrated 

into the site infrastructure. 

The operation of a storage cavern requires routine ability to convey crude oil, water, and salt brine in and out of the cavern for 

purpose of preventative and corrective maintenance. 

The cycling of fluids in and out of leased caverns with equipment 

in common with the SPR storage caverns will, inevitably, lead to 

co-mingling of government and commercial assets which will, in 

our opinion, require additional capital investments. The co-mingled 

model shares the same challenges of the segregated model and also 

adds additional complexities in terms of product quality matters 

and tracking thereof. 

In conclusion, two policy issues require resolution prior to implementing a lease storage concept. The first, it’s a target inventory 

of the SPR. 

Congress should also carefully consider the overall leasing concept to be adopted. We strongly recommend that should Congress 

move forward with a leasing regime, it allows sufficient time to 

make this determination and to develop and physically implement 

the necessary SPR enhancements. 

Mr. Vice Chairman, thank you again for the opportunity to appear here today. I stand by to answer any questions that you might 

have. 

[The prepared statement of Mr. Evans follows:] 

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Mr. OLSON. Thank you, Mr. Evans. 

Mr. Book, 5 minutes for an opening statement, sir. 

STATEMENT OF KEVIN BOOK 

Mr. BOOK. Thank you. 

Good morning, Vice Chairman Olson, Ranking Member Rush, 

Vice Chairman Barton, distinguished members of this committee. 

My name is Kevin Book. I lead the research team at ClearView 

Energy Partners, an independent firm that analyzes macro energy 

issues for institutional investors and corporate strategists. 

Thank you for inviting me to contribute to your discussion regarding modernization of the SPR. I would like to begin by offering 

my admiration for the foresight the U.S. Congress showed in creating the SPR. 

In my view it remains one of the greatest energy security 

achievements in modern history. It still matters, too. Even with 

U.S. crude production averaging 11 million barrels per day during 

the week ending July 13, that surge is good news. But those barrels already have customers. 

As a government-controlled stockpile, the SPR can provide emergency supply that comes from outside the market. That said, ensuring against worldwide economic fallout and sheltering U.S. consumers may require a robust and well-functioning reserve capable 

of delivering its full design capability. 

Today’s discussion reflects that Congress has passed six major 

laws in the last 4 years that mandate, roughly, 300 million barrels 

of oil sales from the SPR. Those sales could leave the SPR with approximately 400 million barrels at the start of fiscal 2028. It, therefore, seems prudent to ask whether and how the resulting surplus 

storage capacity might be put to productive use. 

Today’s legislative draft would expand storage leasing currently 

available to foreign governments so that private commercial entities could lease SPR space too. In my opinion, a pilot leasing program of this sort could potentially benefit U.S. producers and refiners in need of additional storage. 

If that program also helped to preserve or expand SPR capabilities at the same time, it could enhance petroleum supply insurance 

for U.S. consumers, too. 

My testimony offers several additional considerations. From a 

feasibility perspective, DOE might wish to evaluate the costs of restoring, rehabilitating, or improving spare capacity to support the 

requirements of commercial lessees. Those requirements can differ 

in many cases from current long-term strategic storage requirements. 

DOE might also wish to evaluate availability of takeaway capacity from leased storage sites, especially in the absence of incremental SPR marine distribution capacity. Storage with faster deliverability can command a higher market price also. From a competitiveness perspective, it may be useful for DOE to evaluate the market impact of introducing up to 2 million barrels of crude storage 

into the Gulf Coast, also known as PAD 3. 

In March 2018, the Energy Information Administration, or EIA, 

counted 341.2 million barrels of working storage capacity at refineries, tank farms, and underground facilities in PAD 3. The agency 

62 

assessed that about 49 percent of that capacity was in use of that 

time. That was a big change from 2 years earlier. Storage volumes 

grew by 29.7 million barrels since the EIA’s March 2016 report and 

did not report the agency-assessed PAD’s restorage capacity at a 

much higher 68 percent capacity utilization. 

It could be undesirable if additional low-cost government-run 

SPR storage were to crowd out existing privately operated facilities. Likewise, salt cavern storage tends to be significantly cheaper 

than thank storage and so-called floating storage in leased tankers. 

But draw down constraints and take-away bottlenecks could limit 

commercial demand compared to tank farms and ships. 

Finally, from a strategic perspective, capacity leasing should 

probably also reflect the vision Congress and the department have 

for the reserve. For example, today’s draft would allocate net balances to the general fund. It might be worth considering whether 

proceeds could also pay for expanded modernization. 

To this point, the U.S. has dramatically reduced its net petroleum imports. But U.S. refiners still import gross volumes of about 

6.3 million barrels per day. When they do, they pay global prices 

that reflect global supply demand balances. Today’s oil prices remain high, relative to historical norms. 

Partly, this is because global oil production is itself running at 

relatively high capacity utilization. Crude prices are also high because global inventories have thinned out. 

Currently, OPEC producers are drawing on spare capacity to offset losses from collapsing Venezuelan production. They soon could 

lean even harder on spare production capacity to replace Iranian 

crude oil barrels. 

That, by the way, set off my Siri. I apologize. I am not sure why. 

And what happens when the production system is stressed and 

inventories are lean and a big supply disruption occurs somewhere 

in the world? 

In that situation, without strategic reserves, the oil market must 

balance and painfully so on the backs of consumers. Preventing 

that result, in short, is the nature of the insurance the SPR provides. 

Mr. Chairman, this concludes my prepared testimony. I will be 

happy to answer any questions at the appropriate time. 

[The prepared statement of Mr. Book follows:] 

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Mr. OLSON. Thank you, Mr. Book, and thank you, all our witnesses. 

I will now move into the Q and A portion of the hearing. I will 

begin the questioning. I recognize myself for 5 minutes. 

First of all, again, welcome to our three experts. A special welcome to Mr. Evans. Fluor Enterprise—big tall building, one street 

light up from my official office area—Sugarland, Texas. So welcome, welcome, welcome, dear friend. 

My first question is for you, Mr. Book. As a point on the first 

panel, Texas oil production is booming. I won’t brag, but right now 

we are moving a lot of light crude to the coast about as fast as we 

possibly can. 

If the SPR were open to lease by the industry, do you think, first 

of all, number one, there would be interest? Number two, would 

there be value as a holding location for more oil or would the benefits be in the uncertainties going forward with leasing this great 

asset we have, the SPR? 

Mr. BOOK. Congressman, I think bragging is appropriate and you 

should be proud. That crude is going to keep going to coast, as you 

say, and exported to global markets that can use it for value. 

I think Secretary Winberg was wise to suggest that an inquiry 

of commercial interest would be a good place to start. One of the 

issues that you have right now is that you do have storage building 

at export and transit sites in the Gulf Coast and its building quite 

rapidly. 

The SPR could serve a different purpose for long-term storage 

today. But as the other witnesses have mentioned, it would require 

adaptation to be potentially useful for the kinds of commercial applications that different kinds of customers might use. 

But definitely there’s going to need to be more storage if you in 

Texas keep producing more crude. 

Mr. OLSON. Count on it, guaranteed. 

Second question is for you, Mr. Rusco. As you know, the DOE 

has taken some steps in modernizing the SPR. However, much 

work still remains and at the moment the SPR seems to lack a 

clear end goal. 

Can you talk about the most important steps DOE has taken— 

what you think the best pathway forward to them to get this thing 

up and running to modernize? 

Mr. RUSCO. I am encouraged that the Assistant Secretary was 

talking about testing the market and going out and trying to figure 

out what the market is and also that is cognizant of the differences 

in a way that different entities might use excess capacity. 

So it’s our cost of storing fuel—oil in the ground is much lower 

than most IEA members’ costs and there are members that would 

like to store oil in our reserves. So that may be ultimately the best 

way. But you got to test the market to know. I am encouraged 

about that. 

What I am concerned about is DOE has not done a good job of 

periodically assessing how the market has changed, how energy security issues have changed, and doing complex risk-based analysis 

involving scenarios of possible use. That’s what they need to do. 

Mr. OLSON. Thank you. Mr. Winberg is right over your left shoulder. So message accepted and sent. Thank you so much. 

72 

Final questions for you, Mr. Evans, of Fluor. The SPR sites are 

made for long-term storage. But we certainly have a lot of maintenance issues. 

Fluor has been maintained as this asset for over almost two decades, as you said. Can you please tell me about the most common 

cause of maintenance issues and whether the DOE or the private 

sector can be better suited to fix these problems as quickly as possible? 

Mr. EVANS. So the most common maintenance issues that we 

face today are with regards to the equipment that was not placed 

during Life Extension One. That was the ’91 to ’95 timeframe. 

We have a lot of piping valves, actuators, and those kinds of 

pieces of equipment that are 40 years old. We did have a rupture 

in a low-pressure fresh water system at the Big Hill that was a 

dramatic one and that’s our second significant rupture there. 

We find more and more common leaks and we are able to deal 

with them very quickly. But Life Extension Two, and if it’s smartly 

coupled with a concept to commercialize could replace and deal 

with, those highest level of common kinds of maintenance risks. 

We also have a very old degasification plant that’s on its last legs 

at the West Hackberry Louisiana site. Part of LE2 then is to recycle that and come in with a new much more modular modern design that will be more efficient to make sure that we can deliver 

crude oil even during difficult hot months—the end of the pipeline 

system. 

Mr. OLSON. Thank you, Mr. Evans. 

My time has expired. 

Now the chair calls on the ranking member of the subcommittee, 

Mr. Rush, for 5 minutes. 

Mr. RUSH. I want to thank you, Mr. Chairman. 

I want to ask each witness if you would give me feedback on this 

draft legislation. 

Do you feel that there is a need for the draft or do you find it 

helpful or are you concerned about any of the unintentional consequences? And I would like to just ask each one of you if you 

would respond to the question, and beginning with you, Mr. Rusco. 

Mr. RUSCO. I think that the draft legislation addresses an important issue that DOE had not been thinking about when they 

planned their modernization and that is that there is going to be 

excess capacity. 

And it makes good sense to try to use that capacity in a way that 

can help pay for the modernization and pay for the routine operations and maintenance so that we don’t end up 10, 20 years later 

with a bunch of deferred maintenance and depreciated usefulness 

of the assets. 

Mr. EVANS. Mr. Rush, we at Fluor are here to implement these 

at the pleasure of the Congress and the department. We certainly 

would be responsive in the near term to integrating immediate 

team needs to, as I mentioned earlier, go the market to understand 

what market demands are, to perform engineering and operations 

analysis studies that would take a look at what we needed to do 

to operate under market conditions. 

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vestment that Congress is making in the SPR, and then do all the 

environmental studies necessary as well to make sure that that operates as integrate smart hole. 

I do think that, with the addition of things like brine caverns 

that were mentioned earlier by Secretary Winberg, those would be 

very beneficial for overall operation in the long run for the SPR for 

the government as well as for commercial customers. 

Mr. RUSH. Mr. Book. 

Mr. BOOK. Congressman Rush, I think it’s a good idea to make 

best use of what you have, particularly if you have a way of making money for the taxpayer using an asset owned by the taxpayer. 

That’s always a good idea. 

You asked about unintended consequences and I think that Secretary Winberg has already suggested that he wants to take a look 

at the implications of this. Part of understanding the role of government is understanding the way in which government actions 

can impact private investment. 

It’s always a bad idea to lean too heavy with the government on 

something that where private industries put capital to work. And 

so if I had any concern it would be that there would be a risk potentially of commercially undercutting existing investments. 

But until one looks at it, there’s no reason to not proceed with 

looking into it. 

Mr. RUSH. I want to thank each and every one of you. 

Mr. Rusco, in your testimony you state that if DOE is authorized 

to lease unused small storage capacity to the private sector, as this 

bill would do, this leasing capacity could generate revenue that 

could help offset the costs of modernization. 

Are you confident that DOE will indeed look at this issue and, 

if not, what are some of the missing opportunities of not examining 

this particular topic or subject? 

Mr. RUSCO. I am confident that DOE will pay attention to what 

you all do and my concerns are sort of where the bill doesn’t specify 

what to do and DOE has not been very proactive in evaluating the 

strategic purpose and future on an ongoing basis of the strategic 

petroleum reserve and, hence, we got to a point where we, clearly, 

according to a lot of folks in Congress had more oil than we ought 

to have. 

There’s going to be a lot of drawdowns. But that was done without a really quality strategic look at the pros and cons of that from 

DOE. 

Mr. RUSH. Well, thank you, Mr. Chairman. I yield back. 

Mr. OLSON. Thank you. 

The chair now calls upon the one man who knows more about 

this topic than any single human being in Congress, vice chairman 

of the full committee, Chairman Joe Barton. 

Five minutes, sir. 

Mr. BARTON. Well, I am not sure that’s true, Mr. Chairman. But 

if it is true that still doesn’t say much. 

So well, but it does point out a fact is that there really hasn’t 

been a strategic look at the SPR in a long time and the last three 

or four Congresses, as our oil production has ramped up in the 

United States, especially since the repeal of the crude oil export 

74 

ban and our ability to lessen our imports, the Congress is using 

this as a piggy bank and it’s not being evaluated. 

Let’s take oil out of the SPR. This committee—we did it the last 

Congress—21st Century Cures. We needed some money, we’ve got 

jurisdiction over the SPR so we just said we are going to sell some 

oil and use it. The Budget Committee is using it. The omnibus is 

and the appropriation process is. 

Long story short, under current law, even though it says only the 

President can make a decision to use the reserve and he has to declare that it’s a national emergency, Congress says not withstanding any other law we are going to sell oil for this or that or 

bacon fat. 

And so this draft bill before us says we don’t want to change the 

basic mission statement but we want to add a mission statement. 

Under current law, you can’t use the SPR for storage for private 

purposes. It’s illegal. 

And so we decided let’s see if maybe the private sector wants to 

use it. Now, Mr. Book’s concerns, we don’t want the private sector 

to be crowded out on storage capacity. I think that’s valid. But it’s 

not mandatory. If we don’t sell another barrel of oil other than 

what we’ve already authorized, we are going to have over 100 million barrels of existing capacity that could be utilized—maybe 

two—we were authorized up to a billion barrels. But we don’t have 

the current physical capacity but about a little over 700 million. 

Let’s see if the private sector might want to use that, and this 

problem of being able to maintain the reserve because it has to be 

appropriated—we’ve got to ask the appropriators to appropriate 

it—and some years they do, some years they don’t. 

We changed that. We give the specific authority to the secretary. 

All the money goes into the general fund. But we allow money from 

rentals fees, so to be used to maintain and improve the reserve 

without appropriate—and go through the appropriation process. 

That puts control in this committee in the Energy and Commerce. 

So we are trying to fix that problem. I guess I will ask Mr. Book, 

given the existing market dynamic, would the private sector decide 

to utilize the reserve to store their own crude oil? What’s your bet 

on that? 

Mr. BOOK. Well, if you ask an analyst to take a bet you’re probably going to get an analyst answer. It could be right or wrong and 

I will come up with a new one for you when it’s wrong. 

But the private sector breaks down into different sets of customers. So you do have folks who are trading oil, and when the future price of oil is higher than the current price of oil, there’s an 

incentive to store. 

They’re going to want to move oil out of their storage pretty 

quickly when the market turns around, as it sometimes does. And 

then you have the government customers that we mentioned and 

other potential long-term storage customers or longer-term storage 

customers and we have different needs. 

And I think until you ask and see what’s on offer out there, it’s 

hard to know. Right now, what you have are mid-stream companies 

that are building out storage as they’re developing transit capabilities, leasing that storage, and coming up with innovative new 

ways. 

75 

Mr. BARTON. But they’re having to pay capital costs to build and 

operate it. 

Mr. BOOK. Well, that’s right. They do have—— 

Mr. BARTON. And under this case, you have existing capacity 

that it’s a lease or a rental—I am not sure how we would do it. 

But there’s no upfront cost, except a commitment—probably a time 

certain commitment. 

Mr. BOOK. Yes. The costs of salt cavern storage are generally 

cheaper than tank storage and certainly cheaper than leasing a 

ship to store it and then floating storage when things get tight. 

So it could be very competitive. 

Mr. BARTON. Well, what we are trying to do—Mr. Rush and I— 

we have an asset that’s underutilized. We are going to have excess 

capacity. 

Why not have a new mission statement that allows the private 

sector but doesn’t mandate the private sector? Maybe it’ll work. 

Maybe it won’t. 

But we are not going to be any worse off than we are and we 

will probably be better off if the private sector makes a decision to 

utilize it because it’s going to give some funding that’s at the discretion of the secretary of energy to improve the facility and I think 

it’s worth a shot. 

But there may be other ideas. Anyway, my time has expired. 

Mr. OLSON. Thank you. The chair now calls upon the gentleman 

from California, Mr. McNerney, for 5 minutes, sir. 

Mr. MCNERNEY. Well, thank you, Mr. Chairman. 

I appreciate Mr. Barton’s remarks about this. But I have a question. Sort of a philosophical question. Is leasing capacity to foreign 

governments or private entities is that going to degrade the capacity—the long-term capacity of the caverns? 

Mr. Evans. 

Mr. EVANS. I am not an expert in the interests of foreign governments. I think that if appropriately handled that the caverns themselves can remain integral, if we use brine drive to be able to handle those issues and do multiple small drawdowns that we could 

continue to operate those in the interests of the government, should 

we wish to terminate agreements with either commercial or foreign 

countries. 

Mr. MCNERNEY. Well, Mr. Rusco, do you believe that the current 

proposed legislation will give us enough information to provide that 

guidance to the operating SPRO effectively and not degrading its 

capability? 

Mr. RUSCO. I think that the implementation of this legislation by 

DOE matters a lot. They would have to implement this in a way 

where there are controls. 

So, for example, if they were to lease this to other IEA members, 

lease the access capacity to store long-term oil, which I want to say 

we have the cheapest storage of anybody in the world and we know 

of at least two countries that have actually contacted DOE about 

leasing space like this. 

If you did that, then you’re really enhancing global energy security because you have larger storage of crude oil in exactly the 

same place that it would be if we owned it all. 

76 

Now, if the private sector owns it, then we have smaller capacity 

here. Other countries have to have their storage capacity somewhere else. 

Mr. MCNERNEY. So my question is does the proposed legislation 

give us and you and the operators the capability to operate it in 

a way that would be beneficial rather than detrimental to the longterm capacity? Or does it need to be enhanced or improved? 

Mr. RUSCO. I think that what I have read, which is just the discussion draft, that there—you could implement this in a way that 

would give you flexibility to say OK, we want more—if we want 

more of that capacity for our own storage, then when a contract is 

terminated you could take it back and use it as U.S. storage. So 

I believe it would have that flexibility. 

Mr. MCNERNEY. OK. Thank you. 

Again, Mr. Rusco, do you think there’s a good enough case for 

product reserve capacity in the western part of the country—on the 

West coast where we have earthquakes? 

Mr. RUSCO. We looked at studies that were done by DOE and 

those studies came to the conclusion that in the case of the Southeast and the West Coast there were net positive benefits to these 

things. 

DOE chose not to release those reports. They say they’re not 

complete. They’ve chosen not to complete those reports. But everything that is in those reports indicates that there are net positive 

benefits to that. 

Mr. MCNERNEY. Thank you. 

Mr. Evans, you talked a little bit about co-mingling and the inevitability of co-mingling, and refineries are specialized in terms of 

the kind of oil they take. 

How is the co-mingling going to impact the refineries’ ability to 

produce gasoline and other products? 

Mr. EVANS. It’s a great question. Each particular demand would 

be somewhat different, Congressman. 

But, however, if we were to lease to a, say, a shell or a commercial entity, the crude oil that would be stored there in their own 

cavern, if you would, you would think that it would make sense for 

them to store the material that they would utilize most effectively 

in terms of a turnaround of a refinery without product. 

So I think the market handles that piece. We’d have to be very 

careful about co-mingling the crude oil with the government oil, 

and those are practices that are commonly done—this is not an impossibility. 

But we are, for example, very sensitive to a high gas content oil 

in our reserves. We believe that’s very detrimental to the overall 

safety and quality of the reserves. 

So we have to manage that extremely carefully. We think our 

current regime is a good one in terms of being able to respond to 

refinery needs on an instant basis and if we were able to add, similarly, to that mix within the right blend level, that that ought to 

be utilized well as well. 

Mr. MCNERNEY. Thank you. 

Mr. Chairman, I yield back. 

Mr. OLSON. Thank you. 

Mr. Doyle, 5 minutes for questions, sir. 

77 

Mr. DOYLE. And I thank you to the witnesses today. 

Let me just ask all the witnesses—it’s been noted I think in Mr. 

Rusco’s testimony that the U.S. will become a net exporter in the 

late 2020s but then become a net importer again in 2040, 2050s. 

So in your opinion, how should the U.S. be prepared for this 

long-term outlook for the SPRO? 

Mr. RUSCO. Our most recent report is not the first time we’ve 

recommended to DOE that they do periodic strategic studies of conditions and report to Congress about what they see coming down 

the pike. 

So if we see a situation where our net imports are going to be 

increasing over the next few decades at some point, DOE should be 

up here talking to you all and saying we need to rethink our capacity. 

Similarly, if they think that risks have either reduced or increased of global supply disruptions or if there’s big changes to demand or supply in any other way, all of that stuff needs to be modeled on a regular basis so that they can give you really quality information so you can make good decisions. 

Mr. DOYLE. Do you agree with that, Mr. Evans? 

Mr. EVANS. I do. I think the market volatility is very significant 

right now. I am not an expert in global markets. But reading the 

newspaper leads me to believe that there are a number of scenarios 

that could be invoked over time and, certainly, a value in having 

reserves. 

Mr. DOYLE. Mr. Book. 

Mr. BOOK. I think humility would be the minimum requirement 

for anyone looking at the global oil market, given how much things 

have changed over the last 10 years. 

Mr. DOYLE. Yes. Thank you. Mr. Rusco, you mentioned that $2 billion from the sale of crude 

oil from the SPRO is authorized for the modernization program. 

Has this been implemented, in your opinion, effectively so far 

and do you have a status update on the use of these funds? 

Mr. RUSCO. I don’t. I don’t have an up to date status. I know that there have been some sales. I think it’s $700 million. But I don’t 

think most of that money or much of that money has actually been 

spent. 

I think that DOE is doing some further analysis before they actually spend that money. But I can’t give you much more of an answer. I could give you something for the record. 

Mr. DOYLE. OK. Thank you. 

Mr. Evans, how safe is the current infrastructure and how is 

your company prioritizing and planning for long-term safety? 

Mr. EVANS. So we are very safety conscious. You will note our 

last 3 years on the SPR are the safest years that we have seen in 

the 40-year operation. It’s one of Fluor’s core values. 

We are very sensitive to the infrastructure and the quality of the 

infrastructure. We run routine programs and investigations that 

will allow us to take a look at the quality, for example, of the piping and those kinds of things. 

In the short term, it’s manageable with, for example, the 

degasification unit it’s on its last legs. We are not going to extend 

that unit. It simply is not feasible and impossible to do that. 

78 

When we invest in Life Extension Two, we’ll specifically look at 

those old and perhaps more risky components that need to be removed and to see how we can possibly configure those to be in a 

more safe and operating environment in the future. 

For example, old pipelines that are 40 years old that are underground that are not possible to send a ‘‘smart’’ pig through perhaps 

we want to reroute those and have a different method to be able 

to track the quality of what we’ve done. 

So those are all a part of the department’s plans in moving forward. 

Mr. DOYLE. So tell me, what type of financial investment does 

Congress as well as the DOE need to make to update and secure 

the SPRO’s infrastructure? 

Mr. EVANS. Well, I think the current, roughly, $1.4 billion is a 

terrific start in getting the infrastructure where it needs to go. It 

certainly attacks the high-profile things that we’ve got in our infrastructure. 

However, it will not replace all of the issues. We’ll need to have 

a continual authorization and appropriation for major maintenance 

projects as they come around because by no means are we able to 

use the current funding to replace everything that we know that 

will be coming along in the next 5 to 10 years. 

Mr. DOYLE. Do you have any idea what that number looks like, 

down the road? 

Mr. EVANS. I am sorry. I do not, sir. We can take a look at that 

and get back to you. 

Mr. DOYLE. OK. 

Thank you, Mr. Chairman. Thank you. 

Mr. OLSON. Thank you, Mr. Doyle. 

Mr. Tonko, 5 minutes for questions, sir. 

Mr. TONKO. Thank you, Mr. Chair, and welcome, gentlemen. 

Mr. Rusco, as we have heard this morning, there have been a 

number of legislative requirements to sell SPRO oil in recent years. 

Do you believe that the frequent changes to SPRO’s long-term 

size target have impacted DOE’s ability to develop and maintain a 

modernization plan? 

Mr. RUSCO. Well, I think that DOE’s modernization plan was 

made largely without consideration for those sales and now they’re 

adjusting to those sales and doing further analyses. 

So I think the modernization plan will also be affected by any 

legislation that comes out of this Congress about leasing excess capacity. But even if Congress does not mandate that they look into 

leasing excess capacity, DOE should do something with its excess 

capacity. They should either tell you that they need to shrink capacity or sell some, for example. 

But they need to do something because just leaving that excess 

capacity there is just throwing money away. 

Mr. TONKO. Thank you. 

And Mr. Evans, depending on how the leases are structured, 

might they result in additional stress on aging SPRO infrastructure, requiring greater investments in modernization and improvements that then might otherwise be required? 

Mr. EVANS. It is certainly hopeful that—with decisions made on 

a timely basis to go forward from Congress that we’ll be able to inVerDate Nov 24 2008 14:11 Apr 10, 2019 Jkt 037690 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 U:\MY DOCS\HEARINGS 115\HEARINGS\115-156 CHRIS
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tegrate many of the needs for commercialization within the current 

LE2 environment since there are significant upgrades to pipelines 

and those kinds of things. 

Certainly, we are not currently intending to build brine drive 

caverns. That’s an additional cost that we would incur. There may 

be other costs associated as well with piping interlinking and 

valving and control room modifications. Right now, we are not 

aware of those. 

However, I would venture that in the long term those would also 

benefit the longevity and utilization of the reserve. 

Mr. TONKO. Thank you very much. 

And this question, I guess, could go to any of the three of you. 

It’s my understanding that the proposed pilot program would allow 

DOE to recover additional costs from the leases. 

How much of the proposed pilot program’s revenue should be 

dedicated to investing in the SPRO modernization? 

Mr. EVANS. I don’t have a number figure. That’s probably better 

answered to you when we have some more detailed engineering 

studies and can get back to you on that topic. 

Mr. TONKO. Anyone else? Mr. Book, anything? 

Mr. BOOK. I am just an analyst, sir. 

[Laughter.] 

Mr. TONKO. Mr. Rusco, currently, is DOE able to enter into an 

agreement with a foreign nation to store oil at the SPRO without 

a change to the statute? 

Mr. RUSCO. We believe that’s correct, yes. 

Mr. TONKO. Thank you. 

And Mr. Book, I noticed in your testimony that there are other 

nations that meet their IEA requirements by holding oil abroad. 

Are there any reasons why entering into a contract with a foreign 

government may be preferable? 

Mr. BOOK. Well, the long-term nature of government strategic reserves comports with the existing infrastructure capabilities of the 

SPRO today. 

So the customer of first resort would be the customer that requires the least incremental maintenance. For that reason, it might 

make sense. 

Mr. TONKO. Yes. And do you believe that there would be demand 

from the private sector to lease this space? 

Mr. BOOK. Well, it depends an awful lot on what a market test 

shows—that there is going to be demand for more storage for crude 

oil in PAD 3 because there’s going to be more crude oil production 

that will need to be stored. 

Mr. TONKO. OK. Anyone else have ideas on that? 

Mr. RUSCO. I am sure there’s going to be private interest in this 

capacity. It’s the cheapest way to store oil. 

Now, you have to make changes in the way that you put it in, 

take it out. You have to use the brine drive to do that. But it’s still 

going to be cheaper. 

Mr. TONKO. Right. 

Mr. Evans, did you want to comment on that? 

Mr. EVANS. We would also agree with Mr. Book that it would be 

simplest, most efficacious and, perhaps, quickest to be able to lease 

80 

*The information has been retained in committee files and can be found at: https:// 

docs.house.gov/meetings/IF/IF03/20180724/108593/HHRG-115-IF03-20180724-SD013.pdf. 

whole caverns to foreign governments as an instantaneous benefit 

to them and to the U.S. government as well. 

Mr. TONKO. Thank you. Thank you, gentlemen, and thank you, 

Mr. Chair. 

I yield back. 

Mr. OLSON. Thank you, and the chair now calls upon the ranking 

member, Mr. Rush, for one additional question. 

Mr. RUSH. Mr. Tonko opened up some thoughts and I just want 

to ask—we’ve been talking a lot this morning about private interests and I don’t think we’ve been hearing enough thought and consideration to foreign governments. 

Are any of you aware of any interests by foreign governments in 

leasing the underutilized storage space here in the U.S. and if you 

want to—what’s the potential for—— 

Mr. RUSCO. We spoke with representatives from Australia and 

New Zealand, both of whom have an interest in leasing oil and 

space in the SPRO, and they have actually spoken with DOE about 

this in the past. 

Mr. RUSH. Just those two nations? 

Mr. RUSCO. Yes, but I—— 

Mr. RUSH. Do you see any potential for other similarly situated 

foreign governments? 

Mr. RUSCO. I would be surprised if there are no other governments that are interested because of the differential cost. A lot of 

countries are storing oil and product in tanks and if you can store 

oil in a salt dome it’s much cheaper, and so I would assume that 

there would be additional interest. 

Mr. RUSH. Thank you, Mr. Chairman. I yield back. 

Mr. OLSON. Thank you, and seeing no further members wishing 

to ask questions, I would like to thank our witnesses for coming 

today, and before you leave, Mr. Evans, one special tie we have together, we have the Fluor tie but I just found out my dad was a 

Fighting Siwash. Knox College played football there ’56 through 

’60. 

Mr. EVANS. Are you kidding me? That is absolutely amazing, Mr. 

Olson. 

Mr. OLSON. No prairie fire. Siwash, Siwash, Siwash. 

Mr. EVANS. When I was at Knox, which is a terrific institution, 

we were the Fighting Siwash and I’ve never, fortunately, given that 

up. That’s so amazing. 

Mr. OLSON. Mr. Rush knows that’s in Galesburg, Illinois—Knox 

College. 

Mr. EVANS. Galesburg. Grew up in Illinois and went to school 

there and my family has lived there since the 1850s. So Knox is 

a terrific institution. Thank you for that. 

Mr. OLSON. Yes, sir. Yes, sir. 

And before we conclude, I ask unanimous consent to submit the 

following documents to the record: a report by GAO and a report 

from the Center on Global Energy Policy *. 

[The information appears at the conclusion of the hearing.] 

81 

And pursuant to committee rules, I remind members that they 

have 10 business days to submit additional questions for the record 

and I ask that the witnesses submit their responses within 10 business days upon receipt. 

Without objection, this subcommittee is adjourned. 

Go Siwash. 

[Whereupon, at 12:35 p.m., the committee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

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