Strategic Petroleum Reserve

Annual Report for Calendar Year 1998

U.S. Department of Energy 

Assistant Secretary for Fossil Energy

Office of Strategic Petroleum Reserve

Washington, D.C. 20585

http://www.fe.doe.gov/spr/spr.html

http://www.spr.doe.gov

 Printed with soy ink on recycled paper
TABLE OF CONTENTS 

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Statement of U.S. Policy on the Strategic Petroleum Reserve ......................1

Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Facilities Life Extensions ....................................................1

Weeks Island Decommissioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Crude Oil Inventory .......................................................1

Commercialization of Distribution Facilities ...................................1

Foreign Trade Zone Designation for Big Hill ...................................2

Regional Petroleum Reserve Report ..........................................2

PROGRAM MISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Strategic Petroleum Reserve Plan and Amendments .............................5

Statement of Policy on the Strategic Petroleum Reserve ..........................6

PROGRAM MANAGEMENT .....................................................9

Program Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Program Contract Support ..................................................9

Major Management Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Program Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

STORAGE PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Storage Program Description and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Facilities Life Extension Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Storage Facilities Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Weeks Island Decommissioning Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Crude Oil Acquisition, Sales and Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Crude Oil Inventory Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

EMERGENCY RESPONSE CAPABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Drawdown and Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Competitive Sales Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Drawdown Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Drawdown Readiness Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Distribution Plan and Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Distribution Assessment 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Emergency Response Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

COMMERCIALIZATION ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Department Policy and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Commercial Leases of Distribution Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Foreign Oil Storage Capabilities and Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

West Hackberry Commercial Storage Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
BUDGET AND FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Appropriations through Fiscal Year 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Strategic Petroleum Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

SPR Petroleum Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Commercialization Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

OTHER ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Regional Petroleum Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Organizational Improvement Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Environment, Safety, and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Emergency Management Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Real Estate Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

APPENDIX A Strategic Petroleum Reserve Site Information . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Bryan Mound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

West Hackberry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Big Hill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Bayou Choctaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

LIST OF FIGURES

Figure 1. Storage Sites and Distribution System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Figure 2. 1998 Life Extension Program Cost Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Figure 3. Cumulative Oil Fill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Figure 4. Maximum Drawdown Capability Over Time . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Figure 5. Pipeline and Marine Distribution Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . 28

Figure 6. Days of Import Protection (1977 -1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Figure 7. U.S. Net Crude and Product Imports (1977-1998) . . . . . . . . . . . . . . . . . . . . . 30

Figure 8. Cumulative Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

LIST OF TABLES

Table 1. Storage and Drawdown Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Table 2. Year-End Inventories and Oil Fill History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Table 3. Crude Oil Receipts Through 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Table 4. Strategic Petroleum Reserve Crude Oil Inventory . . . . . . . . . . . . . . . . . . . . . . 20

Table 5. Crude Oil Streams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Table 6. Drawdown and Distribution Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

 Table 7. Annual Appropriations for Storage Facilities Operations and Management

 Petroleum Acquisition and Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Table 8. Summary of Commercialization Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Strategic Petroleum Reserve Annual Report 1998

1

EXECUTIVE SUMMARY

STATEMENT OF POLICY ON THE STRATEGIC

PETROLEUM RESERVE

 

On May 13, 1998, the Department of Energy

published a Statement of Policy on the Strategic

Petroleum Reserve which reaffirmed its

commitment to maintain a Government-owned and

controlled Strategic Petroleum Reserve of crude

oil. This document can be found, in its entirety, on

Page 6. 

LEGISLATION 

On June 1, 1998, Public Law 105-177 was enacted.

It extended the Energy Policy and Conservation

Act and the authorities of the Strategic Petroleum

Reserve until September 30, 1999.

The Omnibus Consolidated and Emergency

Supplemental Appropriations Act, 1999 (Public

Law 105-277) was enacted on October 21, 1998,

and includes $160.1 million for the Strategic

Petroleum Reserve.

FACILITIES LIFE EXTENSION 

The Strategic Petroleum Reserve continued

engineering and construction activities to upgrade

and/or replace most major systems in order to

extend the useful life of the facilities and

drawdown systems to the year 2025. Major

milestones were achieved on schedule, and new

drawdown systems were completed and tested at

Bryan Mound and West Hackberry. The total

estimated cost of the Life Extension Program was

reduced by about $23 million in 1998, as a result

of value engineering efforts. Since 1994, the Life

Extension Program’s cost has been reduced from

$370 million to $328 million. 

WEEKS ISLAND DECOMMISSIONING

The Department completed filling the lower

storage chamber of the mine with brine, and over

2 million barrels of oil were recovered through

skimming. The upper chamber will be filled with

brine during 1999, and decommissioning activities

are expected to be completed by December 1999.

CRUDE OIL INVENTORY

There were no oil acquisition activities during the

calendar year 1998. As of December 31, 1998, the

crude oil inventory was 561,108,127 barrels.

During late 1998 and early January 1999, the

Department exchanged 11 million barrels of Maya

crude with P.M.I. Norteamerico S.A. de C.V. of

Houston, Texas, for higher value light sour crude

oil.

COMMERCIALIZATION OF DISTRIBUTION

FACILITIES 

The Strategic Petroleum Reserve’s

commercialization program generated a total of

$883,535 in lease revenues for the U.S. Treasury.

In December 1998, the Department finalized two

additional commercialization agreements for the

lease of two Bryan Mound pipelines. A short-term

(6-month) lease was signed with Seaway Pipeline

Company on December 11, 1998, and a long-term

(10+ year) lease was signed with Exxon Pipeline

Company on January 14, 1999. 
Strategic Petroleum Reserve Annual Report 1998

2

FOREIGN TRADE ZONE DESIGNATION FOR 

BIG HILL

On September 22, 1998, the Big Hill site was

activated as a foreign trade zone subzone. This

status enables potential customers to store oil at the

site without having to pay customs fees and certain

taxes.

REGIONAL PETROLEUM RESERVE REPORT 

In June 1998, the Department submitted a report to

the Congress on the costs/benefits of establishing

a heating oil component to the Strategic Petroleum

Reserve for the Northeast, in response to concerns

from consumers and members of Congress about

high prices for heating oil and historically low

levels of inventories.

The report did not contain any conclusions, but the

analysis formed the basis for the Department’s

conclusion in the Statement of Policy that a crude

oil reserve, located in the Gulf Coast region, is the

most cost-effective way to protect the Nation

during a severe oil supply interruption.
Strategic Petroleum Reserve Annual Report 1998

3

PROGRAM MISSION

INTRODUCTION 

The Strategic Petroleum Reserve was established

in 1975 as an emergency response to the 1973

Arab oil embargo. It is authorized by the Energy

Policy and Conservation Act (EPCA), and by the

comprehensive energy plans of all Administrations

since 1975, in recognition of the long-term

dependence of the United States on imported crude

oil and petroleum products. Section 165 of EPCA

requires the Secretary of Energy to submit an

Annual Report to the President and the Congress.

On May 13, 1998, the Department published a

Statement of Administration Policy which

reaffirmed its commitment to maintain a

Government-owned and controlled, centrally

located Strategic Petroleum Reserve of crude oil.

The Reserve is to be used solely for responding to

the types of severe oil supply interruptions

presently contemplated in EPCA.

Over the past twenty years, the Reserve has grown

as large as 592 million barrels - a peak reached in

1994. From 1994 to 1996, nearly 28 million

barrels were sold to raise revenues for the U.S.

Treasury. As of December 31, 1998, the crude oil

inventory was 561,108,127 barrels which equated

to 60 days of net oil imports during 1998. The

United States now relies on a combination of both

the Reserve and private stocks to meet its oil

storage obligations to the International Energy

Agency.

LEGISLATIVE HISTORY

The Strategic Petroleum Reserve was authorized

on December 22, 1975, when Congress enacted the

EPCA (Public Law 94-163), to reduce the impact

of a severe energy supply interruption, and to carry

out the obligations of the United States under the

International Energy Program.

EPCA was amended by Title VIII of the Energy

Security Act (Public Law 96-294), enacted on

June 30, 1980. This Act established a minimum

average daily fill rate of 100,000 barrels and 

precluded the sale of Naval Petroleum Reserve

Numbered 1 (Elk Hills, California) crude oil

except to fill the Strategic Petroleum Reserve,

unless the Reserve was being filled at the

minimum rate or had an inventory of 500 million

barrels.

The Energy Policy and Conservation Amendments

Act of 1985 (Public Law 99-58), enacted on July 2,

1985, extended the provisions of Title I, Part B, of

the EPCA relating to the Strategic Petroleum

Reserve until June 30, 1989, and directed the

Secretary of Energy to conduct a sale or exchange

of 1.1 million barrels of crude oil to test the

drawdown and distribution capabilities of the

Strategic Petroleum Reserve.

The Omnibus Budget Reconciliation Act of 1986

(Public Law 99-509), enacted on October 21, 1986,

amended EPCA to require that the Strategic

Petroleum Reserve be filled to 750 million barrels,

and increased the minimum rate under the Naval

Petroleum Reserve limitation to 75,000 barrels a

day. 
Strategic Petroleum Reserve Annual Report 1998

4

Public Law 101-46, an Act to extend Title I of

EPCA, enacted on June 30, 1989, extended

Strategic Petroleum Reserve authorities contained

in EPCA until April 1, 1990. The Act also

required the Secretary to submit a report to

Congress by February 1, 1990, on alternative

means of financing oil acquisition for the Strategic

Petroleum Reserve. Short term extensions of the

Strategic Petroleum Reserve authorities contained

in EPCA were enacted on March 31, 1990 (Public

Law 101-262), and August 10, 1990 (Public Law

101-360).

On September 15, 1990, the President signed the

Energy Policy and Conservation Act Amendments

of 1990 (Public Law 101-383) extending

authorities until September 30, 1994. This

legislation also contained provisions to amend

drawdown authorities, require a Strategic

Petroleum Reserve Plan Amendment for

completion of storage capacity for one billion

barrels, authorize drawdown and distribution tests,

and provide for a refined petroleum product

reserve test program.

On October 24, 1992, the President signed the

Energy Policy Act of 1992 (Public Law 102-486).

The bill included provisions to (1) add new

conditions for drawdown in emergency situations

involving a supply reduction of significant scope

and duration, coupled with a severe price increase

likely to cause a major adverse impact on the

nation’s economy, (2) enlarge the Reserve to one

billion barrels, (3) permit the Secretary to make

payment in advance for delivery of petroleum

product either owned or not owned by the United

States for storage in the Strategic Petroleum

Reserve or non-Strategic Petroleum Reserve

facilities, (4) give the President discretionary

authority to acquire domestic stripper well oil at

competitive prices to fill the Reserve, and (5)

amend the eligibility criteria for a Regional

Petroleum Reserve.

On October 22, 1994, the President signed into law

the Energy Policy and Conservation Act

Amendments Act of 1994 (Public Law 103-406)

which extended authorities to June 30, 1996.

The Balanced Budget Downpayment Act (Public

Law 104-99) was enacted on January 26, 1996, and

required the sale of up to $100 million of Weeks

Island oil to fund decommissioning activities.

The Omnibus Consolidated Rescissions and

Appropriations Act of 1996 (Public Law 104-134)

was enacted on April 26, 1996, and required the

sale of $227 million of Weeks Island oil for deficit

reduction.

The Omnibus Consolidated Appropriations Act

(Public Law 104-208) was enacted on September

30, 1996, and appropriated $220 million for the

Strategic Petroleum Reserve in fiscal year 1997 to

be financed through the sale of Reserve oil.

The Strategic Petroleum Reserve authorities

expired on June 30, 1996. On October 14, 1996,

Public Law 104-306 extended the Strategic

Petroleum Reserve authorities until September 30,

1997. After the expiration of Strategic Petroleum

Reserve authorities on September 30, 1997, these

authorities were not reauthorized until June 1998.

The Balanced Budget Act of 1997 (Public Law

105-33), enacted August 5, 1997, added a new

section 168 to EPCA, authorizing the leasing of

underutilized Strategic Petroleum Reserve

facilities for the storage of oil owned by a foreign

government or its representatives. 

The Department of the Interior and Related

Agencies Appropriations,1998 (Public Law

105-83) was enacted on November 14, 1997, and
Strategic Petroleum Reserve Annual Report 1998

5

appropriated $207.5 million for the Strategic

Petroleum Reserve in fiscal year 1998 to be

financed through the sale of Reserve oil.

The 1998 Supplemental Appropriations and

Rescissions Act (Public Law 105-174) was enacted

on May 1, 1998 and included a provision which

prohibited the sale of Strategic Petroleum Reserve

oil, contingent upon a Presidential determination

that a sale would “be imprudent in light of current

market conditions” and a designation of the $207.5

million in foregone revenue as an emergency

requirement under the Balanced Budget Act of

1985. The President made the requisite

determination and declaration on May 8, 1998.

On June 1, 1998, the President signed Public Law

105-177 to extend certain EPCA programs. The

Act extended authorities for the Strategic

Petroleum Reserve and participation in the

International Energy Program through September

30, 1999, and expanded the antitrust protection for

U.S. companies participating in International

Energy Agency activities. The Act also authorized

the drawdown and distribution of the Strategic

Petroleum Reserve only for the purposes described

in the Act and required that the Secretary of Energy

request funds for acquisition, transportation and

injection of petroleum products for storage in the

Reserve or provide a written explanation if no

request for funds is made.

The Omnibus Consolidated and Emergency

Supplemental Appropriations Act, 1999(Public

Law 105-277) was enacted on October 21, 1998,

and includes $160.1 million for the Strategic

Petroleum Reserve.

On November 13, 1998, the President signed

Public Law 105-388, an Act to extend energy

conservation programs under the Energy Policy

and Conservation Act and the Energy Conservation

and Production Act, and for other purposes. The

Act provides that, during a drawdown of the

Strategic Petroleum Reserve, the State of Hawaii

may submit a binding offer for Strategic Petroleum

Reserve oil and be entitled to purchase the oil at a

price equal to the weighted average price of the

successful competitive bids for oil in the category.

Additionally, tankers destined for Hawaii would

receive priority scheduling during a Strategic

Petroleum Reserve drawdown. 

STRATEGIC PETROLEUM RESERVE PLAN AND

AMENDMENTS

The Energy Policy and Conservation Act, section

154, required the preparation of a Strategic

Petroleum Reserve Plan to address the

development and implementation of the Strategic

Petroleum Reserve. A Plan was submitted to the

Congress on February 16, 1977, and became

effective on April 18, 1977. The Plan has been

amended five times, the last on February 11, 1999.

Strategic Petroleum Reserve Plan, Amendment No.

1, accelerated the planned schedule for filling the

Reserve. Amendment No. 2 to the Strategic

Petroleum Reserve Plan authorized an increase in

the Strategic Petroleum Reserve size from 500

million barrels to one billion barrels. The

Amendment described Department of Energy plans

to store 750 million barrels of petroleum in

underground storage facilities.

On October 31, 1979, the Department of Energy

submitted Amendment No. 3, a Distribution Plan

for the Strategic Petroleum Reserve, to the

Congress. The Distribution Plan described the

methods for drawdown and distribution of

petroleum from the five existing Strategic

Petroleum Reserve storage sites.

On December 1, 1982, the President transmitted

Amendment No. 4, a new Drawdown Plan, to the

Congress for the use of the Strategic Petroleum
Strategic Petroleum Reserve Annual Report 1998

6

Reserve. This Plan, required under the Energy

Emergency Preparedness Act of 1982, went into

effect immediately and provides procedures for the

drawdown, sale, and distribution of petroleum

from the Strategic Petroleum Reserve. The

Drawdown Plan replaces the Distribution Plan

established by Amendment 3.

Finally, Amendment No. 5 provides specifically

for the Strategic Petroleum Reserve to acquire

“crude oil which the United States is entitled to

receive in- kind as royalties from production on

Federal lands” under subsection 160(a)(2) of

EPCA. Plan Amendment No. 5 was transmitted by

the Secretary to Congress on February 11, 1999,

and becomes effective on April 12, 1999.

STATEMENT OF POLICY ON THE STRATEGIC

PETROLEUM RESERVE

On May 13, 1998, the Department of Energy

issued the “United States Statement of Policy on

the Strategic Petroleum Reserve” which reads as

follows:

Introduction

In recognition of the continuing threat posed to its

national security by a disruption in the flow of

domestic or international petroleum supplies, the

United States reaffirms its commitment to maintain

a Government-owned and controlled, centrally

located Strategic Petroleum Reserve (SPR, or

Reserve) of crude oil. This Reserve should be used

solely for responding to the types of severe oil

supply interruptions presently contemplated in the

Energy Policy and Conservation Act (EPCA). The

United States also reaffirms its policy for

responding to severe oil supply disruptions: to rely

on market forces to allocate supply and to

supplement supply through an early drawdown of

the SPR in large volumes and in coordination with

our allies in the International Energy Agency

(IEA).

Background

On April 30, 1997, the Department of Energy

published a Federal Register notice soliciting

public comment examining the need for,

appropriate use of, and operation of the SPR. This

policy statement is the result of the Department’s

internal review and evaluation of the information

submitted in response to the Federal Register

notice. This policy is consistent with the FY 1998

budget, the FY 1998 budget agreement, and the

Administration’s FY 1999 budget request, and it

reaffirms the Department’s February 1994,

“United States Policy for Responding to Oil

Supply Disruptions.”

Discussion

Commitment to a Government-Owned,

Government-Controlled Crude Oil Stockpile

The national, economic, and energy security

interests of the United States remain vulnerable to

the damaging effects of oil supply disruptions.

U.S. policy recognizes the best and perhaps only

effective way to dampen the price rise and mitigate

the economic damage resulting from a severe oil

supply disruption -- damage that has contributed

to three economic recessions in the past 25 years --

is to introduce additional supplies into the market.

While committed to the principles of the free

market, we also have a keen appreciation that this

is a role only the Federal Government can play if

we are to protect our nation’s security in the event

of such disruptions. 

The Administration is committed to the

maintenance of an effective Government-owned

and Government-controlled oil stockpile, with

mechanisms in place to release those stocks on

short notice. We would also note that the benefits

of the Reserve are shared by all citizens.

Therefore, the Reserve is properly a function of the

Government and the costs should not be borne by
Strategic Petroleum Reserve Annual Report 1998

7

industry or any narrow set of consumers. The

Strategic Petroleum Reserve is a cornerstone of

U.S. energy security policy. Accordingly, the

Administration will work with Congress to ensure

that sufficient inventory levels are maintained to

provide the required degree of security.

Use of the Reserve

During a severe oil supply disruption the U.S. will

ordinarily supplement supply by the early

drawdown of the Reserve in large volumes, in

coordination with our IEA allies and will rely on

market forces to distribute supply. It is essential

this policy be understood by our allies, the world

market, and by potential adversaries. If threatened

by a severe oil supply interruption, we are

prepared to use the Reserve and will do so as a

matter of course, not by exception. The Reserve is

an essential component of our national security

strategy, and its effective deployment is guaranteed

by having it Government-owned and controlled.

Commitment to International Cooperation on

Energy Security

We acknowledge the interdependence of our

energy security with that of other major oil

consuming nations and recognize that the benefits

of any individual action taken in times of oil

shortage by the United States will be enhanced

considerably by coordination with our allies and

trading partners. The United States is one of the

founding members of the IEA. The Agreement on

an International Energy Program, the charter of

the IEA, commits its members to maintain the

equivalent of 90 days of net oil imports as

emergency reserves and to take cooperative action

in the event of an oil supply interruption. We

reaffirm our active commitment to work with the

other 23 member nations of the IEA to achieve our

common energy security goals. 

 Coverage of the Strategic Petroleum Reserve

The inventory of crude oil stored in the Reserve

peaked, in terms of days of net import coverage, in

1985 at 118 days. Coverage has since diminished

as imports have increased and SPR inventory has

been sold for non-emergency purposes, leaving the

inventory in the Reserve in 1997 equal to 67 days

of import protection. U.S. reliance on imported

oil, currently nearing 50% continues to rise and is

expected to near 60% by the year 2010. At current

inventory levels, the days of import protection

provided by the Reserve will fall to 46 days by

2005.

The Changing World Oil Market

The world oil market has changed substantially in

the last decade. The development of robust futures

and options markets have made it possible for oil

refiners, sellers and consumers to substitute

financial instruments for dedicated sources of

supply and to protect against the risks of price

fluctuation. Oil has become a global commodity,

and price changes are reflected through the world

instantly. These developments have resulted in

efficiencies and a general reduction of private

sector companies’ operating inventories.

In addition, sources of world oil supply are more

diverse than a decade ago, with significant growth

in production coming from sources outside the

Organization of Petroleum Exporting Countries

and especially from the North Sea and Latin

America. Meanwhile, the demand for oil continues

to increase worldwide, resulting in increased

global competition for oil supplies.

The Administration believes that periodic reviews

of the size of the SPR are a necessary part of an

effective energy security policy. The last formal

analysis of SPR size options was performed in

1990. Due to the changes in the world oil market
Strategic Petroleum Reserve Annual Report 1998

8

occurring since that time, the Administration

believes that an updated study of the size of the

Reserve should be completed prior to 2000, to

provide current analysis in determining the

appropriate size of the Reserve.

 

Drawdown and Distribution during an Emergency

Drawdown

During an emergency drawdown, the Department

of Energy will sell oil competitively from the

Reserve to the highest offerors according to the

terms and conditions of its established sales plan

and Standard Sales Provisions. It continues to be

this Administration’s belief that the most

economically and operationally efficient way to

distribute oil from the Reserve is to allow buyers to

exercise their individual preferences. A

fundamental precept of our policy is reliance on

market forces to distribute supply. 

The ability to mitigate the economic damage

severe oil supply interruptions can inflict on the

economy will be influenced by both the size of the

Reserve and the Reserve’s ability to deliver oil into

the marketplace. The planned drawdown and

distribution capability of the Reserve’s current

sites is 4.2 million barrels per day, equal to about

40 percent of projected imports in the year 2000.

Alternative Uses of the SPR Facilities

It is the policy of the Administration to encourage

further commercialization of SPR surface facilities

and the storage of strategic oil owned by other

nations in SPR caverns consistent with the

Balanced Budget Act of 1997, where this use does

not interfere with the drawdown ability of the

Reserve during a severe oil supply interruption

and U.S. oil acquisition goals, and the fees

generated by such use cover the full cost of the use

by those entities. The Department of Energy has

been able to generate substantial savings for

taxpayers by selling and leasing surface facilities

excess to SPR needs or otherwise underutilized.

Similarly, the underutilized storage caverns of the

Reserve are assets that could raise revenue and

encourage other oil importing nations to build

reserves, including those wishing to fulfill their

IEA commitment. We emphasize that oil stored in

the SPR, regardless of ownership, is an

enhancement to world energy security.

Regional Petroleum Product Reserves

A Government-owned and controlled crude oil

reserve, located in the Gulf Coast region, is the

most cost-effective way to ensure continued oil

product supplies to the Nation during a severe oil

supply interruption. Accordingly, product reserves

are not required to ensure prompt and effective

responses to supply interruptions because domestic

refining capacity is adequate to supply petroleum

products during a supply emergency. 
Strategic Petroleum Reserve Annual Report 1998

9

PROGRAM MANAGEMENT

PROGRAM ORGANIZATION

The Assistant Secretary for Fossil Energy in

Washington D.C., has overall programmatic

responsibility for achieving the goals and

objectives of the Strategic Petroleum Reserve

Program. This responsibility has been delegated to

Richard D. Furiga, Deputy Assistant Secretary for

the Strategic Petroleum Reserve, and is exercised

through the Strategic Petroleum Reserve

headquarters office in Washington, D.C. and the

Project Management Office, located in New

Orleans, Louisiana.

The Project Management Office is under the

direction of William C. Gibson, Jr., the Project

Manager, and is responsible for project

management and implementation activities

associated with the design, development,

operation and maintenance of the Strategic

Petroleum Reserve. To execute its responsibilities,

the Project Management Office employs a

management and operating contractor,

DynMcDermott Petroleum Operations Company,

to provide the operations, maintenance, and

ancillary services associated with the operation of

the Reserve’s oil storage and distribution facilities.

PROGRAM CONTRACT SUPPORT

The Strategic Petroleum Reserve’s major

contractors are:

< DynMcDermott Petroleum Operations

Company (Management and Operating

Contractor)

< Walk, Haydel & Associations (ArchitectEngineering Services)

< Critique, Inc. (Management/Technical

Support Services)

Other prime contractors are:

< Entergy and Houston Lighting and Power

Company for electrical power

< Seaway Pipeline Company, Equilon

Pipeline Corp., Sun Pipe Line Company,

and Union Oil Co. of California for

terminalling and distribution services

< D.L. Meacham and L.S. Womack, for

construction

< Fisher-Rosemount Systems for control

systems

< SERNA and Company for auditing

services

MAJOR MANAGEMENT INITIATIVES

The Project Management Office is engaged in

several major information technology efforts,

specifically the mainframe migration of systems to

a client/server environment, and the corresponding

development of a Service Enterprise Resource

Planning (SERP) system, as well as an electronic

document management system. Through strategic

process reengineering, and investment in hardware

and software, major business processes are being

designed for efficiency and integration. These

include: material management, project systems,

plant maintenance, financial management, and

contractor human resources (payroll).

Implementation of SERP will occur in 1999, and

these service enterprise resource planning and

document management tools will enable the

management and operating contractor to cost
Strategic Petroleum Reserve Annual Report 1998

10

effectively manage resources in the performance of

the business processes that support the core

mission.

PROGRAM AWARDS

The Strategic Petroleum Reserve and

DynMcDermott Petroleum Operations Company,

its management and operating contractor, won

several awards during this period. These awards

were in the following categories: 

Quality

< The Project Management Office won the

Department of Energy’s Quality

Accomplishment Award in the 1998

Energy Quality Award competition. This

award is two levels higher than the award

won in 1997.

< For a second year in a row,

DynMcDermott Petroleum Operations

Company won the Department’s

Champion Award in the 1998 competition.

Environment, Safety, and Health

< The Reserve won the Department of

Energy’s Pollution Prevention Award for a

program to recover tank bottoms during

tank cleaning, and to convert them into a

liquid with a quality suitable for being

returned to oil storage caverns.

< The Reserve won the Louisiana

Governor’s Environmental Leadership

Award for its program to educate and

involve on-site construction and service

subcontractors in waste minimization and

recycling activities.
Strategic Petroleum Reserve Annual Report 1998

11

Gulf of Mexico

Texas City

Seaway Pipeline

Texas

Houston Houston

Bryan Bryan

Mound Mound

Seaway Term. Seaway Term. Seaway Term.

Freeport Freeport Freeport

Mobil Pipeline

Seaway System

Seaway Seaway

Terminal Terminal Terminal

Beaumont Beaumont Beaumont

Port Arthur Port Arthur Port Arthur

Big Hill Big Hill Big Hill

Sunoco & Unocal Sunoco & Unocal Sunoco & Unocal

Terminals Terminals

West West

Hackberry Hackberry

Texoma System

Louisiana Louisiana

Lake Charles Lake Charles Bayou Bayou

Choctaw

Baton Baton

Rouge Rouge

Sugarland Sugarland

St. James St. James

Terminal Terminal Terminal

Capline System

SPR Storage Facilities

Marine Terminal

Refining Center

Crude Oil Pipeline

Capline Pipeline

Mississippi Mississippi

New

Orleans Orleans

Loop Loop

Texas Louisiana Louisiana

SPR2592.ppt

FIGURE 1

STORAGE SITES AND DISTRIBUTION SYSTEM

STORAGE PROGRAM

STORAGE PROGRAM DESCRIPTION AND

OBJECTIVES

The Strategic Petroleum Reserve developed six

underground storage facilities between 1976 and

1991. The Sulphur Mines site was

decommissioned in 1992 for cost savings, and the

Weeks Island site is being decommissioned due to

geotechnical problems. The remaining four sites

are Bryan Mound and Big Hill in Texas, and West

Hackberry and Bayou Choctaw in Louisiana.

The storage sites are organized into three

distribution systems - Seaway, Texoma and

Capline. Within each of these systems, the

storage facilities have access to Gulf Coast refining

centers, interstate crude oil pipelines, and one or

more marine terminals for distribution (Figure 1).
Strategic Petroleum Reserve Annual Report 1998

12

As a result of the decommissioning of Weeks

Island, the Reserve has lost 70 million barrels of

capacity, reducing its overall storage capacity to

680 million barrels. However, during 1998, the

Department reassessed the capacities of the

remaining storage sites and estimates they are

currently capable of storing 700 million barrels. 

This increase in capacity is a result of fresh water

leaching of the caverns during the drawdown of oil

in previous years, such as the Desert Storm

drawdown activities, oil sales in 1995, 1996 and

1997, oil degassing movements and various site

drawdown tests. As reported last year, the

Department has minimized the loss of the Weeks

Island drawdown capability by increasing the

capabilities of the remaining sites under the current

Life Extension Program. Table 1 summarizes the

current changes in storage and drawdown

capabilities of the storage facilities.

TABLE 1

STORAGE AND DRAWDOWN OBJECTIVES

PREVIOUS CONFIGURATION* CURRENT CONFIGURATION

Storage

Facility

Storage

Capacity

(MMB)

Crude Mix

Sweet/Sour

(MMB)

Drawdown

Capability

(MB/D)

Storage

Capacity

(MMB)

Crude Mix

Sweet/Sour

(MMB)

Drawdown

Capability**

(MB/D)

Bryan

Mound

226 66/160 1,250 232 75/157 1,500

West

Hackberry

219 113/106 1,250 222 114/108 1,300

Big Hill 160 69/91 930 170 72/98 1,100

(9/00)

Bayou

Choctaw

75 24/51 480 76 24/52 515

(1/99)

Weeks

Island*

70 0/70 590 - - -

Total 750 272/478

36%/64%

4,500 700 285/415

40%/60%

4,415

 * Prior To Weeks Island Decommissioning

** Drawdown Capabilities To Be Achieved By (Month/Year)

 Data as of December 31, 1998 
Strategic Petroleum Reserve Annual Report 1998

13

FACILITIES LIFE EXTENSION PROGRAM

To ensure continued mission readiness through the

year 2025, a Life Extension Program was

implemented in 1994 to upgrade or replace most

major systems by the year 2000, and streamline

the facilities to reduce operating and maintenance

costs. Revamped systems also incorporate the

latest technologies to achieve higher reliability and

availability.

Construction continues at all storage sites as the

Life Extension Program enters its final stage of

implementation. It remains on schedule for

completion by the year 2000. Major milestones

were achieved on schedule this year at Bryan

Mound and West Hackberry when new drawdown

systems were completed and tested. 

During 1998, over $25 million in contracts were

awarded for equipment procurement and site

construction, including contracts to purchase

valves, wellheads, electrical equipment and

security equipment. Contracts were also awarded

to begin integrated systems testing. 

As of December 31, 1998, Bryan Mound and West

Hackberry had approximately 95 percent of their

projects in progress or completed, based on

contract obligations made. Bayou Choctaw and

Big Hill had approximately 93 percent and 84

percent, respectively, of their projects in progress

or completed. 

The total estimated cost of the program is $328

million, down by about $42 million from its

original estimate of $370 million. Cost reductions

have been effected by the deletion of projects

planned for the Weeks Island site (to be

decommissioned) and St. James Terminal (leased

to Equilon Pipeline Corp.), and comprehensive

value engineering efforts program-wide. Since

1994, the Department has obligated approximately

$300 million toward the Life Extension Program.

Figure 2 shows the history of the Life Extension

Program, including total estimated cost, annual

budgets, and total obligations from 1994 to date.
14

FIGURE 2

1998 LIFE EXTENSION PROGRAM COST STATUS

 1994 1995 1996 1997 1998 1999 2000

PROJECT BUDGET

400 TOTAL ESTIMATED COST

300

200

100

170

255

295

314

370 361

351

4 7 9

33

36

47 50

90

95

106

43

OBLIGATIONS

98 108

162

170

189 190

243

262

279

282

294

320

328 328

328

MILLION DOLLARS
Strategic Petroleum Reserve Annual Report 1998

15

STORAGE FACILITIES STATUS

BRYAN MOUND

The Bryan Mound storage facility, located in

Brazoria County, is approximately three miles

southwest of Freeport, Texas. The site has twenty

storage caverns, a combined storage capacity of

232 million barrels, and an inventory of 215

million barrels. The site is available for both fill

and drawdown operations.

Under the Life Extension Program, the following

projects were completed in August 1998:

< Construction of the new drawdown system,

including installation of new water intake

pumps, water injection pumps and header

piping.

< Upgrades to the site’s electrical system and

replacement of the existing brine pond.

Construction to upgrade the site’s crude oil refill

and metering systems is underway and is about 40

percent complete.

In August 1998, a contract was awarded to replace

the slop oil system and close the existing brine

pond. This work is about 25 percent complete. 

WEST HACKBERRY

The West Hackberry storage facility is located in

Cameron Parish, approximately 22 miles

southwest of Lake Charles, Louisiana. The site

has twenty-two storage caverns, a combined

storage capacity of 222 million barrels and an

inventory of 193 million barrels. It is available for

both fill and drawdown operations.

Under the Life Extension Program, the following

projects were completed in September 1998:

< Construction of the new drawdown system,

including new water intake pumps, water

injection pumps and site header piping.

< Upgrades to the electrical system and

replacement of the flush water system. 

The replacement of the brine handling systems and

brine ponds is about 95 percent complete.

In September 1998, contracts were awarded to

upgrade the crude oil refill and metering systems,

and close the existing brine pond.

BAYOU CHOCTAW

The Bayou Choctaw storage facility is located in

Iberville Parish, approximately 12 miles southwest

of Baton Rouge, Louisiana. The site has six

storage caverns, a combined storage capacity of 76

million barrels and an inventory of 68 million

barrels. The site is currently available for both fill

and drawdown operations. 

Under the Life Extension Program, construction

that was initiated in 1997 to upgrade most of the

major systems at Bayou Choctaw, including

instrumentation and controls, piping

reconfiguration, electrical system, valves and new

water intake pumps, is approximately 70 percent

complete.

BIG HILL

The Big Hill storage facility is located in Jefferson

County, 20 miles southwest of Beaumont, Texas.

The site has fourteen storage caverns, a combined

storage capacity of 170 million barrels, and an

inventory of 82 million barrels. The site is

currently available for both fill and drawdown

operations. 

Under the Life Extension Program, construction

that was initiated in 1997 to upgrade most of the

major systems at Big Hill including
Strategic Petroleum Reserve Annual Report 1998

16

instrumentation and controls, piping configuration,

electrical system, valves and oil pumps, is

approximately 60 percent complete. 

WEEKS ISLAND DECOMMISSIONING STATUS 

The Weeks Island facility is located in Iberia

Parish, approximately 95 miles southwest of New

Orleans, Louisiana. This site, a conventional salt

mine, was acquired in 1977 and converted to an oil

storage facility with a capacity of over 70 million

barrels. 

In December, 1994, the Secretary of Energy

announced the decommissioning of Weeks Island

due to geotechnical problems which posed a high

risk of environmental damage and oil loss.

Decommissioning the site has involved removing

the stored oil, filling the mine with brine to

maintain stability, and skimming the remaining oil

from the surface of the brine, in phases, as it is

injected into the mine. The process began with

most of the site’s approximately 72 million barrel

inventory being sold or transferred to other sites

during 1995 and 1996. During 1998,

approximately 54.7 million barrels of brine were

injected into the mine, filling the lower level of the

two-level mine. The multi-phase oil skimming

operation that began in 1997 has thus far

recovered over 2 million barrels of oil.

During 1999, the upper level of the mine will be

filled with brine and final oil skimming will be

undertaken. It is anticipated that some inventory

may not be recoverable due to oil entrapment in the

large volume of crushed salt residing on the mine

floor and in traps in the roof. 

Decommissioning activities continue with a

projected completion date of December, 1999.

The service shaft, monitoring wells and the vent

hole will be plugged, as required by the State of

Louisiana. The surface facilities will be salvaged,

removed, abandoned in place, or transferred to the

General Services Administration for sale.

The Morton Salt Company owns the surrounding

property and continues to mine salt. Formal

mediation talks regarding the decommissioning

plans were successfully completed in 1998. The

Department has agreed to assist Morton with the

cost of mitigating risk in their operating shafts and

safeguarding future mining operations.

CRUDE OIL ACQUISITION, SALES, AND

EXCHANGES

1998 OIL SALE

The Department of the Interior and Related

Agencies Appropriations Act, 1998, required the

Department of Energy to sell $207.5 million worth

of crude oil to offset that year’s funding for the

Reserve’s activities. The Department developed

plans to conduct a competitive sale in 1998, but

Congress rescinded the sale requirement in the

Emergency Supplemental Appropriations Act,

enacted on May 1, 1998. 

MAYA CRUDE OIL EXCHANGE

During 1998, the Department conducted an

exchange of the 11 million barrels of Maya crude

oil stored at the Bryan Mound site for 8.5 million

barrels of other higher value crude oil.

The Maya crude oil was acquired from Mexico in

the early 1980s, as part of a purchase agreement

between the Department and Petroleos Mexicanos,

Mexico’s national oil company. Since that time,

the Maya has been segregated in a single cavern at

Bryan Mound because its lower API gravity and

greater sulfur content made it significantly

different from the other inventory. This had the

effect of reducing the site’s operational flexibility,
Strategic Petroleum Reserve Annual Report 1998

17

efficiency, and drawdown capability during an

energy emergency. 

On August 13, 1998, the Reserve solicited offers to

deliver crude oil which would meet the Reserve’s

quality specifications, in exchange for the Maya.

On August 27, 1998, the Reserve received offers

from seven companies, and on August 28, an

exchange contract was awarded to P.M.I.

Norteamerico S.A. de C.V. of Houston, Texas.

Subsequently, P.M.I. delivered a total of 8.5

million barrels of light sour Olmeca and Isthmus

crude oils to Bryan Mound from October 1998

through early January 1999. In return, the Reserve

transferred title of Maya ownership to P.M.I.;

however, the Maya will remain in the custody of

the Reserve until October 1999.

This exchange decreases the Reserve’s total

inventory by about 2.5 million barrels, but because

of the higher quality of the oil received in the

exchange, it does not decrease the value of the

inventory. Additionally, it benefits the Reserve by

increasing the quantity of Bryan Mound’s light

sour crude oil stream and improves the site’s

storage and drawdown capabilities.

CRUDE OIL INVENTORY STATUS

There were no oil acquisition activities during the

calendar year 1998. As of December 31, 1998, the

Reserve's crude oil inventory was 561,108,127

barrels. This fill level does not include the

privately-owned Maya crude oil stored at the Bryan

Mound site resulting from the exchange explained

above. 

The current mix of the Reserve’s crude oil is 64

percent high sulfur (sour) and 36 percent low

sulfur (sweet). 

Table 2 illustrates year-end inventories and average

daily fill rates from 1977 through 1998 (by fiscal

and calendar year); Table 3 illustrates crude oil

receipts by country of origin since 1977; Table 4

provides information on the location of this

inventory by storage site; and Figure 3 illustrates

the Reserve's cumulative oil fill.
Strategic Petroleum Reserve Annual Report 1998

18

TABLE 2

YEAR-END INVENTORIES AND OIL FILL HISTORY

FISCAL YEAR CALENDAR YEAR

Year-End

Inventory

(MMB)

Average Daily

Fill Rate*

(MB/D)

Year-End

Inventory

(MMB)

Average Daily

Fill Rate*

(MB/D)

1977 1.1 3 7.2 20

1978 49.1 131 68.5 168

1979 91.2 115 91.7 64

1980 92.8 4 107.8 44

1981 199.2 292 230.3 336

1982 277.9 215 293.8 174

1983 361.0 228 379.1 234

1984 431.1 191 450.5 195

1985 489.3 159 493.3 119

1986 506.4 47 511.6 51

1987 533.9 75 540.6 80

1988 554.7 57 559.5 52

1989 577.1 62 579.9 56

1990 589.6 34 585.7 27

1991 568.5 (58) 568.5 (47)

1992 571.4 8 574.7 17

1993 585.7 39 587.1 34

1994 591.7 16 591.7 13

1995 591.7 ** 591.6 **

1996 573.6 (49) 565.8 (70)

1997 563.4 (28) 563.4 (7)

1998 563.4 ** 561.1 ***

 * Fill rates adjusted for oil sales.

 ** Fill suspended during this period

*** Decrease due to Maya exchange

 Data as of December 31, 1998
Strategic Petroleum Reserve Annual Report 1998

19

TABLE 3

CRUDE OIL RECEIPTS THROUGH 1998

(MILLION BARRELS)

Source Country 1998 Cumulative Percent of Total

Mexico* 8.5 254.2 41.7

United Kingdom 147.3 24.1

United States 48.1 7.9

Saudi Arabia 27.1 4.4

Libya 23.7 3.9

Iran 20.0 3.3

United Arab Emirates 18.4 3.0

Nigeria 15.1 2.5

Norway 11.9 2.0

Oman 9.0 1.5

Egypt 8.9 1.5

Ecuador 6.2 1.0

Algeria 6.2 1.0

Cameroon 3.4 0.6

Iraq 3.4 0.6

Gabon 2.4 0.4

Qatar 2.3 0.4

Angola 1.0 0.2

Venezuela 0.9 0.1

Peru 0.4 0.1

Argentina 0.4 0.1

TOTAL RECEIPTS** 8.5 610.3 100.0

 * Cumulative receipts from Mexico adjusted to reflect exchange of Maya crude oil.

 ** Cumulative total receipts unadjusted for sales and operational gains and losses. 

 

 Data as of December 31, 1998
Strategic Petroleum Reserve Annual Report 1998

20

TABLE 4

STRATEGIC PETROLEUM RESERVE

CRUDE OIL INVENTORY

Storage Site

Inventory (Millions of Barrels) Cubic

Meters

Sweet* Sour** Total (Millions)

Bryan Mound***

Brazoria County, Texas

62.2 152.7 214.9 34.2

Big Hill

Jefferson County, Texas

18.8 63.1 81.9 13.0

West Hackberry

Cameron Parish, Louisiana

103.9 89.4 193.3 30.7

Weeks Island****

Iberia Parish, Louisiana

0 1.5 1.5 0.2

Bayou Choctaw

Iberville Parish, Louisiana

17.3 50.4 67.7 10.8

Subtotal 

Underground Inventory

202.2 357.1 559.3 88.9

Tanks and Pipelines 0.1 1.7 1.8 0.3

Total

Inventory

202.3 358.8 561.1 89.2

* Sulfur content not exceeding 0.5 percent

** Sulfur content greater than 0.5 percent

*** The site additionally holds 10.3 million barrels of privately-owned Maya crude oil.

**** Site being decommissioned

Data as of December 31, 1998
21

0

100200300400500600700

Million Barrels

Low Sulfur

High Sulfur

Low Sulfur 3.3 31.5 35.3 49.6 93.7 105.5 134.2 170.7 192.3 192 192.1 192.1 192.2 193.8 179.6 185.8 198.1 202.7 202.High Sulfur 3.9 37 56.4 58.2 136.6 188.3 244.9 279.8 301 319.6 348.5 367.4 387.7 391.9 388.9 388.9 389 389 389 

’77 ’78 ’79 ’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 

Data as of December 31, 1998

FIGURE 3

CUMULATIVE OIL FILL

7.2

68.5

91.7

107.8

230.3

293.8

379.1

450.5

493.3

511.6

540.6

559.5

579.9 585.7

568.5 574.7

587.1 591.7 591
Strategic Petroleum Reserve Annual Report 1998

22

EMERGENCY RESPONSE CAPABILITIES

DRAWDOWN AND DISTRIBUTION PLAN

The current method for distributing crude oil is

described in the "Strategic Petroleum Reserve

Drawdown (Distribution) Plan," Amendment

Number 4 to the Strategic Petroleum Reserve Plan.

The principal method for distributing oil is by price

competitive sale. The sale is open to the largest

possible universe of eligible buyers to ensure

economically and operationally efficient

distribution.

The Plan also provides for the Secretary of Energy

to direct, in any calendar month, the distribution

of up to 10 percent of the volume of oil sold in that

calendar month. The price for such oil will be the

average price of oil sold at the contemporaneous

competitive sale, or at the most recent competitive

sale if no contemporaneous competitive sale is

held.

COMPETITIVE SALES PROCEDURES 

The Department’s Standard Sales Provisions*

govern the competitive sales process. The first

step in the process is the issuance of a Notice of

Sale which identifies the volume, characteristics,

and location of the petroleum for sale, delivery

dates, and procedures for submitting offers.

Measures required for assuring performance and

financial responsibility are also described in the

Notice of Sale. 

__________

* Department of Energy, 10 CFR Part 625, Price

Competitive Sale of Strategic Petroleum Reserve

Petroleum; Standard Sales Provisions. The most

recent edition of the Standard Sales Provisions was

published in the Federal Register on October 8,

1998 (63 FR 54196).

Over the course of a drawdown, several Notices of

Sale may be issued, each covering a sales period

of one to two months. Offerors may have only

seven days from the date of a Notice of Sale is

issued until offers are due, and thirty days or less

until purchasers must begin accepting delivery of

the oil. A less compressed schedule may become

more feasible in subsequent sales periods.

Because of the possible short initial lead time, the

Department maintains a list of prospective

offerors who will receive all Notices of Sale and

intends to make maximum use of electronic

communication to effect Notice of Sale

distribution.

The next step in the sales process is for prospective

purchasers to submit offers, as specified in the

Notice of Sale. Offerors must accept

unconditionally all terms and conditions in the

Notice of Sale, submit an offer guarantee of 5

percent of the maximum potential contract amount

or $10 million, whichever is less, and offer at least

the minimum price, if any is specified in the Notice

of Sale. The offer evaluation process is structured

so that the offerors bidding the highest prices

determine the transportation methods, up to the

limits of the distribution system. Specific delivery

arrangements are negotiated later in the process. 

All "apparently successful offerors" are required,

within five business days of being notified, to

provide a Letter of Credit equal to 100 percent of

the contract amount as a guarantee of performance

and payment of amounts due under the contract.

Upon timely receipt of the financial guarantees,

and a final determination by the Contracting

Officer that offers were responsive and offerors

responsible, Notices of Award are issued.

Deliveries to the purchasers may then begin,
Strategic Petroleum Reserve Annual Report 1998

23

consistent with their arrangements for commercial

pipeline or marine vessel transportation. Such

deliveries may begin as soon as the 16th day of the

sales process, to the extent that the purchasers have

submitted their financial guarantees and can

arrange timely transportation.

DRAWDOWN CAPABILITIES 

The crude oil acquired for the Strategic Petroleum

Reserve has been commingled in storage at the

storage sites, creating various distinct crude oil

streams to be made available for sale during a

drawdown. Table 5 identifies these streams,

delivery modes and locations, as of December 31,

1998.

The Reserve is capable of being drawn down at an

initial sustainable rate of 4.05 million barrels per

day for a period of 90 days. After the initial

90-day period, the drawdown rate will decrease

gradually as site inventories are depleted and the

declining number of caverns containing crude oil

becomes a constraint. Figure 4 illustrates the endof-1998 physical drawdown capability which

provides for a distribution of 368 million barrels in

90 days, and 550 million barrels in 180 days. 

The 1998 initial sustainable drawdown rate of 4.05

million barrels per day is higher than the 1997 rate

of 3.7 million barrels per day due to the installation

of heat exchangers at Big Hill, completion of raw

water intake structure work at West Hackberry,

and completion of related Life Extension activities

at Bryan Mound and West Hackberry. The

completion of Life Extension Program activities at

all sites will ultimately stabilize the initial

sustainable drawdown capability for the current

total inventory at 4.1 million barrels per day.
Strategic Petroleum Reserve Annual Report 1998

24

TABLE 5

 CRUDE OIL STREAMS

Crude Oil Stream Delivery Mode and Location

SEAWAY GROUP:

Bryan Mound Sweet Pipeline or tankship at Seaway Terminal, Freeport,Texas; or 

Seaway Terminal, Texas City, Texas Bryan Mound Sour

TEXOMA GROUP:

West Hackberry Sweet Pipeline, tankship or barge at Sunoco Terminal, Nederland Texas; 

Pipeline at Equilon-22"/DOE connection, Lake Charles, Louisiana West Hackberry Sour

Big Hill Sweet Pipeline, tankship or barge at Sunoco Terminal, Nederland, Texas; 

Pipeline or tankship at Unocal Terminal, Nederland, Texas; 

Big Hill Sour Pipeline at Equilon-20"/DOE connection, Winnie, Texas

CAPLINE GROUP:

Bayou Choctaw Sweet Pipeline at Capline or LOCAP Terminals, St. James, Louisiana;

Tankship at Sugarland St. James Terminal, St. James, Louisiana Bayou Choctaw Sour

Data as of December 31, 1998
25

3.0

2.3

0.8

0.25

0

4.05

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0 30 60 90 120 150 180 210 240 270

Days

Million Barrels per Day

As of December 31, 1998

FIGURE 4

MAXIMUM DRAWDOWN CAPABILITY OVER TIME
Strategic Petroleum Reserve Annual Report 1998

26

DRAWDOWN READINESS ACTIVITIES

The Strategic Petroleum Reserve continues to

ensure its readiness for drawing down and selling

crude oil. Drawdown readiness assurance activities

during 1998 included:

< Conducting periodic assessments, including

some by external sources, of the readiness

and availability of all functions, facilities,

including commercial distribution

terminals, and systems associated with a

drawdown.

< Demonstrating the West Hackberry site’s

improved drawdown system capability

through a physical oil movement.

< Performing a series of exercises to validate

the internal processes and procedures, both

at the Headquarters and field level, for

conducting a drawdown, sale, and delivery

of Strategic Petroleum Reserve oil.

< Analyzing and updating the drawdown and

distribution capabilities to reflect

improvements resulting from completed

life extension activities.

< Completing a comprehensive flowchart of

the various activities performed during the

drawdown and sale process which provides

a basis for training, future exercises, and

possible process re-engineering.

< Publishing in the Federal Register on

October 8, 1998, a revision to the

Department’s Standard Sales Provisions for

the sale of Strategic Petroleum Reserve

petroleum. 

< Developing plans for a training exercise to

perform the various functions associated

with scheduling and documenting oil

deliveries to purchasers, as well as

administering the purchase contracts.

DISTRIBUTION PLAN AND CAPABILITIES

The Strategic Petroleum Reserve is connected to

both commercial pipeline systems and marine

terminals for crude oil distribution to U.S. refiners

in the event of an energy emergency.

The Reserve’s drawdown and distribution

capabilities are summarized in Table 6. These

capabilities are based on the current crude oil

stream inventories, the existing site drawdown

systems and commercial distribution capabilities.

The Reserve is currently accessible to 19 refiners

in the Gulf Coast and 28 refiners in the

Midcontinent and Midwest, respectively, through

local and interstate pipelines. These 47 refiners

comprise approximately 49 percent of the total

U.S. refining capacity, and in 1998, they processed

over 57 percent of the U.S.’s crude oil imports.

The Reserve is also connected to five marine

terminals for waterborne distribution: Seaway

(Phillips) Terminal in Freeport, Texas; Seaway

(ARCO) Terminal in Texas City, Texas; Sunoco

and Unocal Terminals in Nederland, Texas; and

Sugarland St. James Terminal in St. James,

Louisiana. These terminals have a total of 13

tanker berths and three barge berths, and a

combined distribution capacity of approximately

2.5 million barrels per day. Figure 5 shows the

Reserve’s pipeline and marine distribution

capabilities.
Strategic Petroleum Reserve Annual Report 1998

27

TABLE 6

 DRAWDOWN AND DISTRIBUTION CAPABILITIES

(THOUSANDS OF BARRELS PER DAY)

Drawdown Distribution

Seaway Group 1,500 2,150

Texoma Group 2,070 3,090

Capline Group 480 825

TOTAL 4,050 6,065

 Data as of December 31, 1998
28

SPR

CAPLINE

SITES

SPR

SEAWAY

SITE

FIGURE 5

PIPELINE AND MARINE DISTRIBUTION CAPABILITIES

SEAWAY

Marine

Terminal

Freeport, TX

Port Arthur

Lake Charles

(6 Refiners)

Longview

(2 Refiners)

L

Mis

(2 R

Houston

Texas City

(9 Refiners)

Mid-Continent

(10 Refiners)

Central

Midwest

(12 Refiners)

SPR

TEXOMA

SITES

SEAWAY

Marine

Terminal

Texas, TX

SUNOCO

Marine

Terminal

UNOCAL

Marine

Terminal

SUGARLAND

St. James

Terminal

ARCO, AMOCO, EQUILON

MID-VALL

SEAWAY 

CAPLINE

MOBIL

EQUILON

Data as of December 31, 1998 

MOBIL
Strategic Petroleum Reserve Annual Report 1998

29

DISTRIBUTION ASSESSMENT

A comprehensive assessment was made of the

present and projected capabilities of the

commercial pipeline distribution systems to

distribute the Reserve’s crude oil to the refining

industry, in the event of a drawdown. The

purpose of this assessment was to ensure there are

adequate connections to the commercial

distribution systems, and to identify the need to

develop any remedial plans, if appropriate. 

The assessment evaluated the Strategic Petroleum

Reserve’s capability to sustain its maximum

drawdown rate in 1998, 2000 and 2005, based on

future U.S. petroleum refining demands as

forecasted in EIA’s Annual Energy Outlook, 1998.

The assessment incorporated numerous changes

which have been made to commercial pipeline

distribution systems in the last few years: the

Seaway Pipeline conversion to crude service in

1996; the Mobil pipeline reversal in 1997 for

moving oil from Beaumont, Texas to Cushing,

Oklahoma, and Patoka, Illinois; and the conversion

of several crude pipelines from Houston, Texas to

the Midcontinent to refined product operations. It

also reviewed the impact of the increasing deep

water domestic production in the Gulf of Mexico,

and the issue of increasing foreign ownership and

supply agreements of U.S. refineries. 

Finally, the assessment confirmed that the Strategic

Petroleum Reserve has sufficient offsite

distribution capabilities (defined as 120 percent of

the maximum drawdown rate) to achieve the

current, and year 2000, drawdown rates. 

EMERGENCY RESPONSE CAPABILITIES

The Strategic Petroleum Reserve was established

by the Energy Policy and Conservation Act to

reduce the impact of disruptions in petroleum

supplies, and to meet U.S. obligations under the

International Energy Program. In the Act,

Congress specified an initial storage objective

equal to 90 days of net petroleum imports, which

equated to a 500 million barrel Reserve in 1976. 

As of December 31, 1998, the inventory of crude

oil in the Reserve was approximately 561 million

barrels. This stockpile provides an import

protection level of 60 days, based on the U.S. net

import rate for crude and petroleum products

during 1998. As shown in Figure 6, the level of

net import protection has continued in a declining

trend over the last thirteen years, due to the U.S.'s

increasing dependence on oil imports, depicted in

Figure 7.

The United States, as a member nation of the

International Energy Program, is committed to

maintaining stocks of crude and products in

reserves “sufficient to sustain consumption for at

least 90 days with no net oil imports.” For the

International Energy Program, computations of

member stocks are based on both public and

privately-held stocks, and net imports are defined

to be the average daily level in the previous year.

The most recent International Energy Program

computation for the United States credits the

United States with 155 days of emergency

reserves, including both Reserve and privately held

stocks.
Strategic Petroleum Reserve Annual Report 1998

30

1

9 12 17

45

71

93

100

118

95 93

86 81 82 86 83 77 73 75

67 62 60

0

30

60

90

120

150

77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

Calendar Year

NOTE: Data as of December 31, 1998 reflects the year-end Strategic Petroleum Reserve inventory, 

 divided by the average daily U. S. net imports for that year.

SPR2532.ppt

DAYS OF NET IMPORT PROTECTION (1977 - 1998)

FIGURE 6

Days

FIGURE 7

U.S. NET CRUDE AND PRODUCT IMPORTS (1977 - 1998)

0

1

2

3

4

5

6

7

8

9

10

77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

Calendar Year

Million Barrels Per Day

Product

Crude

SPR2593.ppt
Strategic Petroleum Reserve Annual Report 1998

31

COMMERCIALIZATION ACTIVITIES

DEPARTMENT POLICY AND OBJECTIVES

Under Section 159(f)(D) of the Energy Policy and

Conservation Act, the Secretary of Energy has

statutory authority to "use, lease, maintain, sell or

otherwise dispose of storage and related facilities."

Since 1995, the Department has successfully used

this authority to lease or outgrant the use of its

underutilized distribution facilities for the purpose

of reducing operational costs and generating

revenues, while retaining the ability to use these

facilities in the event of a national energy

emergency. The Government contracts for these

leases provide that the facilities will be maintained

in good condition, and that, with notice, the

Government will have priority for the emergency

drawdown of oil from the Strategic Petroleum

Reserve.

In 1997, the President signed the Balanced Budget

Act of 1997 (Public Law 105-33) which amended

the Energy Policy and Conservation Act to provide

explicit authority to the Secretary of Energy to

lease unused storage capacity within the Strategic

Petroleum Reserve to foreign governments or their

representatives. The Department supports the

storage of foreign or commercial oil in the

Reserve’s unused storage capacity. The leasing

authority for the storage of either foreign or

commercial customers promotes world oil

stockpiling, which contributes to both U.S. and

world energy security. 

During 1998, the Department pursued both foreign

and commercial storage initiatives with the

objective of acquiring oil for the Reserve in lieu of

payment. In this way, the Department should be

able to increase the Reserve’s fill level without

Federal funding. 

COMMERCIAL LEASES OF DISTRIBUTION

FACILITIES

Over the last three years, the Strategic Petroleum

Reserve has successfully commercialized its

marine terminal in St. James, Louisiana, and three

of its five major crude pipelines, by leasing them

to industry for commercial crude oil operations.

These commercialization efforts have reduced the

annual operational costs of the Reserve and

generated revenues for the U.S. Treasury, while

retaining the capability to use these facilities in the

event of a national energy emergency. 

ST. JAMES TERMINAL

The Reserve’s St. James terminal, constructed in

1980, has six storage tanks and two tanker docks

located on the west bank of the Mississippi River

at St. James, Louisiana. The St. James Terminal

was leased to Shell Pipe Line Corporation (now

Equilon Pipeline Company) on January 31, 1997,

on a revenue-sharing basis. The leasing of this

facility has provided an annual operational cost

savings to the Reserve of $6 to $7 million per year.

During 1998, the Government received $469,059

in lease revenues from the terminal. 

BAYOU CHOCTAW PIPELINE

The Bayou Choctaw pipeline is a 37-mile, 36-inch

pipeline extending from the Bayou Choctaw

storage facility in Plaquemine, Louisiana to marine

facilities in St. James. This pipeline was leased to

Shell Pipe Line Corporation (now Equilon

Pipeline Company) on May 1, 1997, on a revenuesharing basis. During 1998, the Department

modified the lease from a year-to-year to a 10-year

lease, and Equilon initiated the construction of a
Strategic Petroleum Reserve Annual Report 1998

32

17-mile extension to the pipeline for crude

movements to the Baton Rouge area. The

Government will start receiving lease revenues

from the pipeline when it begins commercial

operations in early 1999. 

BIG HILL PIPELINE

The Big Hill pipeline is a 24.4-mile, 36-inch

pipeline extending from the Big Hill storage

facility near Winnie, Texas to marine facilities in

Nederland, Texas. A 7.5 mile segment of this

pipeline was leased to Texaco Pipe Line

Incorporated (now Equilon Pipeline Company) on

October 15, 1997, under a 75 percent capacity lease

contract. During 1998, the Government received

$402,525 in lease revenues from the pipeline. 

BRYAN MOUND PIPELINES 

The Bryan Mound storage site has three connecting

pipelines: a 46-mile, 40-inch pipeline to Texas

City, a 4-mile, 30-inch pipeline to Seaway’s Jones

Creek Tank Farm, and a 3.9-mile, 30-inch pipeline

to Seaway’s marine docks at Freeport, Texas.

During 1998, the Reserve negotiated and awarded

two leases for Texas City and Jones Creek

segments. A short-term (6-month) lease was

awarded to the Seaway Pipeline Company on

December 11, 1998 and will be used to move crude

oil from Seaway’s Texas City facility to its Jones

Creek facility, while its storage tanks are out of

service for maintenance. A long-term (10+ year)

lease was awarded to Exxon Pipeline Company in

January 1999. Under this lease, Exxon will use the

Texas City and Jones Creek pipeline segments,

starting in July 2000, as part of its onshore

distribution system for Exxon’s Diana-Hoover

production in the Gulf of Mexico. 

WEST HACKBERRY PIPELINES

The West Hackberry storage site has two

connecting pipelines: a 42.8-mile, 42-inch pipeline

from the West Hackberry storage site to Nederland,

Texas and a 13.6-mile, 36-inch pipeline from the

West Hackberry storage site to Lake Charles,

Louisiana. Neither of these pipelines has been

leased due to the lack of industry interest in these

facilities.

FOREIGN OIL STORAGE CAPABILITIES AND

ACTIVITIES

The Big Hill storage facility has the capacity to

store 170 million barrels of crude oil and currently

contains 82 million barrels of oil. During 1998,

the Department continued to offer to store

foreign-owned oil of both consuming and

producing countries in the underutilized caverns

at Big Hill. The unused storage space provides an

opportunity to increase world oil stockpiling, add

oil to the U.S. Reserve in lieu of a lease fee, or

generate additional revenue for the U.S. Treasury.

The Balanced Budget Act of 1997 (Public Law

105-33), which was enacted on August 5, 1997,

provides specific authority to store petroleum

product owned by another country, or its

representative, in the Strategic Petroleum Reserve,

provided that the U.S. is fully compensated for all

related costs of storage and that the ability to draw

down U.S. oil is not impaired.

On September 22, 1998, the Big Hill storage site

was activated as a foreign trade zone subzone. A

foreign trade zone is a site within the United

States, in or near a U.S. Customs port of entry,

where foreign and domestic merchandise is

considered to be in international commerce. This

designation, which permits customers to store oil

without paying customs fees and certain taxes, is

expected to enhance the Department’s offer to

store oil for foreign governments, or their

representatives. The Department of Energy is the

first government entity to receive foreign trade

zone designation for one of its facilities. 

The Department worked closely with authorities of

Port Arthur, the Department of Commerce and the
Strategic Petroleum Reserve Annual Report 1998

33

United States Customs Service in seeking foreign

trade zone subzone status for Big Hill. 

WEST HACKBERRY COMMERCIAL STORAGE

INITIATIVE

The surplus oil market during the first half of 1998,

resulted in low oil prices and a lack of commercial

storage facilities within the U.S. The Department

initiated a concept whereby it would store

commercially-owned crude oil in unused storage

capacity, for a fee, to be paid in oil, which would

be stored in the Reserve. In this manner, the

Department would be able to increase the

Reserve’s fill level without Federal funding.

On July 23, 1998, the Department issued a

solicitation to the oil industry seeking weekly

offers to store up to 20 million barrels at the West

Hackberry storage site for a minimum period of six

months. However, due to changing market

conditions and the fact that the domestic pipeline

and terminalling systems were operating at full

capacity, preventing prospective offerors from

economically delivering oil to the West Hackberry

site, no offers were received. Consequently, the

solicitation was cancelled in September. 

The Department continues to explore similar

opportunities that should result in additional oil for

the Reserve. On February 17, 1999, a solicitation

was issued requesting offers to store up to 70

million barrels at the Big Hill site for a minimum

of one year.
Strategic Petroleum Reserve Annual Report 1998

34

BUDGET AND FINANCE

The Department of the Interior and Related

Agencies Appropriations Act, 1998, provided

$207.5 million for Strategic Petroleum facilities

operations and management. 

The Department of the Interior and Related

Agencies Appropriations Act, 1999, provided

$160.1 million for Strategic Petroleum Reserve

facilities operations and management. 

APPROPRIATIONS THROUGH FISCAL YEAR

1998

A total of $21.0 billion, net of sales and transfers,

has been appropriated for the Strategic Petroleum

Reserve through fiscal year 1998. Included in this

total are the distribution of annual and total

appropriations described in Table 7. Figure 8

illustrates the cumulative appropriations for

storage facilities operations and management, as

well as petroleum acquisition and transportation.

STRATEGIC PETROLEUM RESERVE ACCOUNT

The Strategic Petroleum Reserve Account funds

the development, operation, and maintenance of

Reserve facilities; the salaries and expenses

necessary to plan and manage the program,

including the operation of the Project Management

Office in New Orleans, Louisiana; and the

activities pertinent to major issues concerning the

development and use of the Strategic Petroleum

Reserve. 

Obligations for the Strategic Petroleum Reserve in

fiscal year 1998 totaled approximately $212.9

million. From this amount, $16 million was

obligated for federal program management salaries

and benefits, and $196.9 million was obligated for

contractual goods and services to operate and

maintain the Reserve. The remaining $36.6 million

available for obligation at the end of fiscal year

1998 was associated with Life Extension program

awards, which slipped to early fiscal year 1999,

Weeks Island decommissioning obligations, which

slipped to early fiscal year 1999, construction

changes and claims, and workload rescheduled

from late fiscal year 1998 to early fiscal year 1999.

Also included in these carryover balances is

approximately $1 million associated with the

Expansion Study, which was suspended in 1993.

These funds have been reported available for

rescission after Congress rescinds the requirement

to complete the Plan to expand storage capability

to 1 billion barrels.

SPR PETROLEUM ACCOUNT

The SPR Petroleum Account funds the acquisition

of oil for the Strategic Petroleum Reserve; the

associated costs for transportation and

terminalling; U.S. customs duties, Superfunds and

Oil Spill Liabilities Trust Fund taxes; and other

miscellaneous costs, such as Defense Energy

Support Center administration costs associated

with non-emergency sales, as well as oil

acquisition, and transportation support. During an

emergency drawdown and sale, the SPR Petroleum

Account is the source of funding for the

incremental costs of withdrawing oil from the

storage caverns and transporting it to the point

where purchasers take title. During an emergency

drawdown and sale, an amount equal to Federal

receipts realized is deposited in the SPR Petroleum

Account to create additional budget authority for

filling the Reserve. At the end of fiscal year 1998,

approximately $33 million remained available for

obligation in the Account; an amount sufficient to
Strategic Petroleum Reserve Annual Report 1998

35

finance approximately 55% of the incremental

costs of a six month emergency drawdown.

The capitalized cost for the oil in the Strategic

Petroleum Reserve at the end of fiscal year 1998

was $15.09 billion, for an average cost of

approximately $27 per barrel. The cost for the

Department of Defense inventory was $125 million

for an average cost of $19.32 per barrel.
Strategic Petroleum Reserve Annual Report 1998

36

TABLE 7

ANNUAL APPROPRIATIONS FOR STORAGE FACILITIES OPERATIONS AND MANAGEMENT AND

PETROLEUM ACQUISITION AND TRANSPORTATION

Fiscal Year Oil Account Facilities Management Total Defense SPR

1976 0 300,000 13,975 313,975

1977 440,000 0 7,824 447,824

1978 2,703,469 463,933 14,704 3,182,106

1979 New BA 2,885,670 103,290 18,111 3,007,071

Reprogramming (529,214) 529,214 0 0

Total 1979 Appropriations 2,356,456 632,504 18,111 3,007,071

1980 Rescission (2,000,000) (2,000,000)

Reprogramming - No. 1

Reprogramming - No. 2

Total 1980 Appropriations

(20,391)

(1,881)

(2,022,272)

0 20,391

1,881

22,272

0

0

(2,000,000)

1981 2,688,282 82,834 19,391 2,790,507

Entitlements 542,146 0 0 542,146

Reprogramming - No. 1

Reprogramming - No. 2

Total 1981 Appropriations

(18,000)

(7,334)

3,205,094

18,000

7,334

108,168

0

19,391

0

0

3,332,653

1982 3,684,000 171,356 20,076 3,875,432

Reprogrammings (4,300) 4,300 0

Total 1982 Appropriations 3,679,700 175,656 20,076 3,875,432

1983 2,074,060 222,528 19,590 2,316,178

1984 650,000 142,357 16,413 808,770

1985 2,049,550 441,300 17,890 2,508,740

1986 0 94,015 13,518 107,533

Reprogrammings (12,964) 12,964 0 0

Total 1986 (12,964) 106,979 13,518 107,533

1987 0 134,021 13,412 147,433

1988 438,744 151,886 12,276 602,906

1989 242,000 160,021 13,400 415,421

1990 371,916 179,530 12,953 564,399

1991 566,318 187,728 12,846 766,892

1992 88,413 171,678 13,384 273,475

1993 (125,625) 161,940 14,227 50,542

DOD Transfer (non add) 124,925 700 0 125,625 125,625

1994 0 191,035 15,775 206,810

1995 (107,764) 226,938 16,780 135,954

1996 transfer from SPR

Petroleum Account 

(187,000) 170,173 16,827 0

1996 Weeks Is. Oil Sale (97,114) 97,114 0

1996 deficit reduction oil sale

1996 Total

(227,000)

(511,114)

 0 

267,287 16,827

(227,000)

(227,000)

1997

Rescission

1997 Total

(220,000)

0

(220,000)

203,411

(10,411)

193,000

16,589

(589)

16,000

0

(11,000)

(11,000)

1998 0 191,500 16,000 207,500

Total Thru FY 1998 15,865,981 4,809,989 357,644 21,033,614 125,625

1999 0 145,120 15,000 160,120

Note: FY 1991 SPR Petroleum Account of $566,318 includes proceeds of $122,681 from the Test Sale authorized by the President on September 26,1990,

pursuant to the EPCA authorities enacted September 15, 1990, in P.L. 101-383. These proceeds are recorded as additional budget authority rather than

reductions to obligations, costs, and outlays. It also includes $315,424,985 in Desert Storm Drawdown proceeds and $19,755,064 from FY 1991 NPR excess

receipts. Thus the cumulative budget authority is "gross" and not related directly to the inventory of oil on hand. 

Data as of December 31, 1998
37

05

10152025

Fiscal Year

Billions of Dollars

Facilities

Petroleum

Facilities 0.3 0.3 0.8 1.4 1.4 1.6 1.8 2.1 2.2 2.7 2.8 2.9 3.1 3.3 3.4 3.7 3.8 4 4.2 4.2 

Petroleum 0 0.4 3.1 5.5 3.5 6.7 10.4 12.4 13.1 15.1 15.1 15.1 15.6 15.8 16.2 16.7 16.8 16.7 16.7 16.6 

’76 ’77 ’78 ’79 ’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 

Data as of December 31, 1998

FIGURE 8

CUMULATIVE FUNDING

0.3 0.7

3.9

6.9

4.9

8.3

12.2

14.5 15.3

17.8 17.9 18

18.7 19.1

19.6

20.4 20.6 20.7 20.9 20.8 
Strategic Petroleum Reserve Annual Report 1998

38

COMMERCIALIZATION REVENUES

As summarized in Table 8, the Strategic

Petroleum Reserve generated $883,535 in revenues

for the U.S. Treasury from leases of distribution

facilities during calendar year 1998.

TABLE 8

SUMMARY OF COMMERCIALIZATION REVENUES

 

FACILITY OR ASSET 1996 1997 1998

St. James Terminal No Lease $133,300 $481,010

Bayou Choctaw Pipeline No Lease 0 0

Big Hill Pipeline $472,809 $429,824 $402,525

Bryan Mound Pipelines $102,606 No Lease No Lease

Total Revenue $575,415 $563,124 $883,535

Notes:

a. Bryan Mound crude pipelines were first leased to Seaway Pipeline Company in May 1996 

b. Big Hill crude pipeline was leased to Texaco Pipe Line Inc. on May 15, 1996

c. St. James Terminal was leased to Shell Pipeline Company on January 31, 1997

d. Bayou Choctaw crude pipeline was leased to Shell Pipeline Co. on May 1, 1997 

e. Big Hill crude pipeline was released to Texaco Pipe Line Inc. on October 15, 1997

Data as of December 31, 1998
Strategic Petroleum Reserve Annual Report 1998

39

OTHER ACTIVITIES

REGIONAL PETROLEUM RESERVE REPORT

In June 1998, the Department of Energy submitted

a “Report to Congress on the Feasibility of

Establishing a Heating Oil Component to the

Strategic Petroleum Reserve.” The report

examined the vulnerability of the Northeast to

disruptions and price spikes in the price of heating

oil. It specifically evaluated the feasibility, costs

and benefits of creating a distillate (heating oil)

reserve as part of the Strategic Petroleum Reserve.

The study and report were precipitated by low

inventories of heating oil, and associated high

prices, in the Fall of 1996.

The report contained insights and detailed analysis

regarding the causes of high heating oil prices and

the pros and cons of a distillate reserve, but did not

make any recommendations. The “U.S. Statement

of Policy on the Strategic Petroleum Reserve”,

issued on May 13, 1998, reaffirmed the

Department’s position that a Government-owned

and controlled crude oil reserve in the Gulf Coast

region is the most cost-effective way to ensure

continued oil product supplies in a severe oil

supply interruption and that product reserves are

not required to ensure a prompt and effective

response.

ORGANIZATIONAL IMPROVEMENT

ACTIVITIES

The Strategic Petroleum Reserve had another

excellent year in continuous quality improvement.

The Reserve and its management and operating

contractor, DynMcDermott Petroleum Operations

Company, won prestigious quality awards during

1998, expanded its industry outreach efforts

through a Customer Outreach Day at the Bryan

Mound site, and increased attendance and exhibits

at industry meetings. 

QUALITY ASSURANCE

The Quality Assurance group completed a

comprehensive appraisal of the storage sites and

the Project Management Office, as part of its

On-Site Review Program. Teams visited each site

for a one week period, beginning in October 1997

and ending in September 1998. The teams also

reviewed contractor compliance with the

Department’s directives and orders, and adherence

to required programs and procedures.

The Quality Assurance group also increased the

number of independent audits. Audit assessments

of Construction Management, Unclassified

Computer Security and Management of

New/Revised Requirements were planned and

completed during the year. 

FIFTH ANNUAL QUALITY EXPO 

The Strategic Petroleum Reserve sponsored its

fifth annual Quality Expo on November 17 and 18,

1998, and more than 400 people attended. The

theme of this year's Quality Expo was

Benchmarking. The Expo presented 39 exhibits of

quality improvement projects from the Department

of Energy, DynMcDermott Petroleum Operations

Company, and their contractors.

 

Individual quality improvement team competitions

were held and awards presented to the winners. 

"Vision Awards" were given to the best

organizations which won this year's competition.

The Malcolm Baldrige National Quality Award

Criteria were used as the basis for awards .
Strategic Petroleum Reserve Annual Report 1998

40

QUALITY COUNCILS AND IMPROVEMENTS

ACTIVITIES 

The Program Office has a Quality Council,

consisting of all staff personnel. During 1998,

the Quality Council conducted an organizational

self- assessment, in the form of a Baldrige Award

application workshop, that resulted in a number

of organizational improvement projects and

initiatives. 

The Project Management Office also has a

Quality Council for monitoring the progress of

quality improvement teams in specific projects.

During 1998, the Council’s charter was revised

to give it more freedom to determine qualified

improvement projects. 

CUSTOMER SERVICE INITIATIVES

The Customer Service Team published a revised

Customer Service Plan. It identifies employees'

customer service responsibilities, and describes

how to systematically improve customer service

and work quality. 

The Customer Service Team has provided for

increased participation in industry conferences,

and sponsored exhibits at several major industry

meetings. These included the National

Petroleum Refiners Association Annual Meeting

in San Francisco, California, Petro-Safe

Conference in Houston, Texas, and the National

Association of Foreign Trade Zones Conference

in Monterey, California.

 In October 1998, a Customer Outreach Day was

held at the Bryan Mound storage facility. The

event was attended by 137 visitors, including

representatives of domestic and foreign oil

companies, terminal companies, contractors,

government agencies, and elected officials. The

event included a site tour, demonstrations, and

exhibits.

QUALITY AWARD EXAMINERS

The Strategic Petroleum Reserve sponsored

several of its employees to become quality award

examiners. For the first time, two employees

served as examiners for the Presidential Quality

Award. Also, six employees served as Energy

Quality Award examiners, and three served as

quality award examiners for the State of

Louisiana. 

All examiners were trained in the Malcolm

Baldrige National Quality Award Criteria

evaluation process and conducted site evaluations

at Federal, Department of Energy, and Louisiana

organizations.
Strategic Petroleum Reserve Annual Report 1998

41

ENVIRONMENT, SAFETY, AND HEALTH

The Strategic Petroleum Reserve successfully

implemented the Department of Energy’s

Integrated Safety Management System. This

system addresses how the Reserve manages and

performs work. The objectives of the system are

to weave environmental, safety, and health

considerations into management and work

practices at all levels in order to accomplish the

Reserve mission while protecting the public,

workers, and the environment.

In October 1998, the Reserve co-hosted a

Department of Energy conference on Integrated

Safety Management in New Orleans. By year’s

end, the Reserve deemed its Integrated Safety

Management System fully implemented and is

preparing to verify it in 1999.

Pollution prevention, waste minimization, and

recycling are an integral part of the Reserve’s

routine activities, such as inventory management,

maintenance, procurement, warehousing,

property management, finance, budgeting, and

engineering. During 1998, the Reserve did not

attain its hazardous waste reduction goals for the

year because of the quantity of solvent-based

paints used in maintenance and construction.

However, paper recycling continued to be

successful, surpassing expectations, and pollution

prevention continued to contribute substantial

savings to the Reserve’s operating costs. 

Two major environmental reviews of projects

were conducted pursuant to the National

Environmental Policy Act (NEPA) Compliance

Program. In September, the Reserve prepared an

Environmental Assessment of Bayou Choctaw

Pipeline Extension to Placid Refinery

(DOE/EA-1251) and issued a Finding of No

Significant Impact. This action supported the

decision to change the Bayou Choctaw Pipeline

lease to enable the lessee, Equilon, to construct a

privately owned, 16-mile common carrier pipeline

from Bayou Choctaw to Placid Refinery near Port

Allen, Louisiana. The Reserve facilitated its

NEPA process by coordinating it with the U.S.

Army Corps of Engineers Section 404 permit

process for construction in waterways and

wetlands. The principal impact expected was the

clearing of up to 86 acres of bottomland

hardwoods (forested swamp). With careful

planning and execution, Equilon was able to limit

the cutting of trees so that only 37 acres will

require compensatory wetlands mitigation.

In addition, Sandia National Laboratories was

tasked to conduct a second Risk Assessment of

Weeks Island decommissioning to address

changed circumstances of oil recovery and

geologic stability. Sandia’s follow-up Risk

Assessment, which was completed at year’s end,

substantiated the previous conclusions of the 1995

Environmental Assessment and Finding of No

Significant Impact. No further NEPA review of

Weeks Island is required at this time.

Other planned activities, such as Life Extension

projects, routine operations, and facility and

equipment repairs, replacements, or upgrades, also

were reviewed throughout the year for

environmental consequences to determine whether

they required further review under NEPA.

Groundwater has been monitored for salinity and

hydrocarbons at Bayou Choctaw, Big Hill, Bryan

Mound, and West Hackberry for many years. In

1998, a groundwater monitoring program was

added at Weeks Island to monitor for

hydrocarbons. At West Hackberry, a groundwater

remediation program has been in place to correct

contamination from a leaking brine pond. During

the preceding four years, groundwater recovery

stabilized the shape and extent of the salinity

plume within site boundaries. In 1998, the brine

pond was replaced by aboveground tanks and

removed from service. This eliminated the source
Strategic Petroleum Reserve Annual Report 1998

42

of contamination. There continued to be no

detectable hydrocarbon contamination in the

groundwater at any site.

At St. James Terminal, the Reserve made

progress in correcting soil contamination in a

340-square-foot area around the crude oil booster

pump station. Based on investigations completed

during the year, the Reserve believes the situation

meets criteria for monitored natural attenuation

(i.e., passive remediation that relies on natural

degradation of the oil) under the State’s new Risk

Evaluation/Corrective Action Program. In return

for monitoring the site twice yearly, the Reserve

would avoid removing and disposing of more

than 1300 cubic feet of soil and could save more

than $70,000.

Under the first full year of the Behavioral Safety

Program, employees exhibited safe behaviors 94

percent of the time as determined by observations

by fellow employees. Despite this

accomplishment, there was a slight increase in

total recordable illnesses and injuries among

contractor and subcontractor personnel,

attributable mainly to the substantial increase in

major maintenance and Life Extension

construction activities. The Reserve also

implemented an ergonomics program at all sites,

which included ergonomics awareness training

for all personnel.

Ongoing Life Extension construction, Weeks

Island decommissioning activities, and

commercialization initiatives necessitated

numerous actions to renew, extend, modify,

and/or update various environmental permits. To

date, the Reserve has been unsuccessful in

obtaining an approved alternative to the current

dual reporting of National Pollutant Discharge

Elimination System permit requirements to both

Louisiana and the Environmental Protection

Agency. For the year, there was one oil spill of

less than one-half pint that produced a sheen on

an irrigation ditch; three brine spills, the largest of

which was 30 barrels; and 11 self-reported permit

non-compliances, none of which resulted in

environmental damage.

During the year, there were seven environmental

inspections by Federal and State agencies. In

addition, the Occupational Safety and Health

Administration conducted two site inspections that

resulted in one minor citation (without fine) for

misrecorded data on a three-year old occupational

illness record. The Reserve conducted its own

inspections, audits, and assessments for Safety and

Health, Process Safety Management, and Federal

Employee Occupational Safety and Health at all

five sites, and assessed the procedures and

performance of four of its own laboratories.
Strategic Petroleum Reserve Annual Report 1998

43

EMERGENCY MANAGEMENT PROGRAM

The Strategic Petroleum Reserve continued to

maintain a high level of readiness under its

emergency management program to protect the

environment, workforce and facilities. Significant

activities during the year included:

< Training site Emergency Response Teams

in oil spill and fire protection;

< Developing standardized confined space

rescue training and procedures;

< Conducting emergency response exercises

at each of the sites;

< Acquiring a new communications vehicle

with expanded capability to support

extended field emergency operations;

< Completing the high-volume fire

equipment upgrade with the acquisition of

four 1500 gallon-per-minute pumper fire

trucks;

< Updating various emergency response

plans and procedures;

< Supporting local community emergency

planning and management;

< Acquiring a Hurricane Tracking System

for expanding the Reserve’s ability to

reliably collect, develop and disseminate

critical weather information; and

< Enhancing the Annual Equipment

Deployment Exercises required by the

National Preparedness for Response

Exercise Program, so as to annually

validate each site’s response readiness in

lieu of the Reserve’s prior annual single

Emergency Exercise (EMEX) that tested

only one or two sites per year.

SECURITY

Borg-Warner Protective Services Corporation

provides protection services through a

subcontract with the Reserve's management and

operating contractor, DynMcDermott Petroleum

Operations Company. The current protection

force includes 145 armed officers who provide

protection for the four storage sites and the

Project Management Office complex. 

As part of the Life Extension Program, site

physical security systems, such as intrusion

detection equipment and alarm displays, are

being upgraded.

The Reserve, through its security program,

continues to actively maintain formal liaison with

outside federal, state and local law enforcement

agencies who would respond to emergencies at

Strategic Petroleum Reserve facilities. 

Periodical tactical exercises with outside law

enforcement agencies, and continued intensive

training, ensure that the protective force

maintains its proficiency. In September 1998, 40

members of the New Orleans Office of the

Federal Bureau of Investigation (FBI),

participated with the protection force in a joint

tactical exercise at the Reserve’s complex in New

Orleans. This included simulating a

terrorist/hostage situation requiring the response

of a Special Weapons and Tactics (SWAT)

Team, Crisis Negotiation Team and Tactical

Operations Center. The FBI has lead agency

jurisdiction for counter-terrorism, and this is the

first exercise of its kind involving the Strategic

Petroleum Reserve. The deployment of a regional

FBI SWAT Team was a significant

accomplishment for the Reserve, requiring over

two years of planning. 
Strategic Petroleum Reserve Annual Report 1998

44

Since November 1998, the Reserve has been on

“enhanced vigilance” status in response to

tensions in the Middle East.

REAL ESTATE ACTIONS

The U.S. Army Corps of Engineers’ interagency

agreement DE-AI96-78PO02816 was extended for

an additional five year period from 1998 to 2003

to provide real estate assistance to the Strategic

Petroleum Reserve.

The Department acquired through the U.S. Army

Corps of Engineers, Galveston District, two Big

Hill pipeline easements (0.059 and 0.215 acres)

from Sun Pipeline Company.
Strategic Petroleum Reserve Annual Report 1998

45

APPENDIX A

Strategic Petroleum Reserve Site Information

BRYAN MOUND

Location

Brazoria County, Texas (three miles southwest of

Freeport, Texas).

Site Description

232-million-barrel storage facility consisting of 20

caverns.

24-inch diameter, 6-mile brine disposal pipeline

extending 4 miles offshore in the Gulf of Mexico.

Oil, brine and raw water piping distribution system

connecting caverns with central plant and water

intake structure located on Brazos River. Twentyfour(24) pumps totaling approximately 47,000

horsepower. 

System Parameters

< Drawdown Rate: 1,500,000 bbl/d

< Raw Water Pumping Rate: 1,545,000 bbl/d

< Oil Fill Rate: 225,000 bbl/d

< Brine Disposal Rate: 360,000 bbl/d

Distribution Facilities

< DOE 3.9 mile, 30-inch pipeline to Seaway

Freeport Marine Terminal

< DOE 4.0 mile, 30-inch pipeline to Seaway

Jones Creek Tank Farm and Pipeline

< DOE 46 mile, 40-inch pipeline to Seaway

Texas City Terminal and Docks

Acquisition

Acquired 499.47 acres fee simple, by

condemnation April 1977, from Freeport Mineral

Company and other owners. Dow Chemical

Company was the previous operator.

WEST HACKBERRY

Location

Cameron Parish, Louisiana (22 miles southwest of

Lake Charles, Louisiana).

Site Description

222-million-barrel storage facility consisting of 22

caverns.

Oil, brine, and raw water piping distribution

system connecting caverns with central plant,

water intake structure located on Intracoastal

waterway and 10 brine disposal wells. Twenty(20)

pumps totaling over 40,000 horsepower. 

System Parameters

< Drawdown rate: 1,300,000 bbl/d

< Raw Water Pumping Rate:1,339,000 bbl/d

< Oil Fill Rate: 225,000 bbl/d

< Brine Disposal Rate: 240,000 bbl/d

Distribution Facilities

< DOE 42.8 mile, 42-inch pipeline to Sunoco

Nederland Terminal

< DOE 13.6 mile, 36-inch pipeline to

Equilon common carrier pipeline system at

Lake Charles

Acquisition

Acquired 405.36 acres fee simple, by

condemnation April 1977, from numerous private

landowners. Olin Corporation was the previous

site operator. Acquired 160.0 additional acres fee

simple by condemnation in two actions, July 1979

and March 1980.
Strategic Petroleum Reserve Annual Report 1998

46

BIG HILL

Location

Jefferson County, Texas (20 miles southwest of

Beaumont, Texas).

Site Description

170-million-barrel storage facility consisting of

fourteen caverns.

Oil, brine, and raw water systems connecting

caverns with central plant, water intake structure

located on the Intracoastal Waterway, and a 48-

inch diameter, 14-mile brine disposal pipeline

extending 5 miles offshore in the Gulf of Mexico.

Seventeen(17) pumps totaling 37,000 horsepower.

System Parameters

< Drawdown Rate: 930,000 bbl/d

(Will increase to 1,100,000 bbl/d in 2000)

< Raw Water Pumping Rate: 1,400,000 bbl/d

< Oil Fill Rate: 225,000 bbl/d

< Brine Disposal Rate: 280,000 bbl/d

Distribution Facilities

< DOE 24.5 mile, 36-inch pipeline to Sunoco

Nederland Terminal

< Unocal 2 mile, 36-inch pipeline to Unocal

Docks

< Equilon 20-inch pipeline system to East

Houston

Acquisition

Acquired 271 acres fee simple, by condemnation

November 1982 and July 1983, from three

landowners, i.e., 238.48 acres from Amoco, 27.06

acres from the Pipkin estate, and 5.46 acres from

the Patrick Henry Phelan estate.

BAYOU CHOCTAW

Location

Iberville Parish, Louisiana (12 miles southwest of

Baton Rouge, Louisiana).

Site Description

76-million-barrel storage facility consisting of six

caverns.

Oil, brine, and raw water piping distribution

system connecting caverns with central plant, a

water intake structure, 12 brine disposal wells, and

a pipeline for disposing of brine to Union Texas

Petroleum, Inc. Seventeen(17) pumps totaling

over 21,000 horsepower. 

System Parameters

< Drawdown Rate: 480,000 bbl/d 

(Will increase to 515,000 bbl/d in 1999)

< Raw Water Pumping Rate: 514,000 bbl/d

< Oil Fill Rate: 75,000 bbl/d

< Brine Disposal Rate: 75,000 bbl/d

Distribution Facilities

< DOE 37.2 mile, 36-inch pipeline to

Equilon’s Sugarland Terminal and Capline

Pipeline.

Acquisition

Acquired 355.95 acres fee simple, by

condemnation April 1977, from numerous private

owners. Union Texas Petroleum (a subsidiary of

Allied Corporation) was the previous operator.

In 1985 the Department of Energy acquired an

additional existing cavern through a cavern

exchange agreement with Union Texas Petroleum.

The transaction involved a 3.5 acre exchange with

no net change in Government-owned acreage.