Evaluating the management of U.S. Strategic Petroleum Reserve during oil disruptions. (June 2018)

• Record Type: Journal Article
• Authors: Bai, Yang; Dahl, Carol
• Is Part Of: Energy policy. Volume 117(2018)
• Page Start: 25
• Page End: 38
• Publication Date: 2018-06
• Subjects: Oil disruption -- Strategic Petroleum Reserve (SPR) -- Cost benefit analysis -- United States; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2018.02.034
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: Numerous countries have set up strategic petroleum reserves (SPRs) in response to oil disruptions since 1970. While numerous studies model such programs, we found few that evaluate SPRs' historical performance. Thus, we evaluate the U.S. SPR's performance by comparing actual real costs with estimated real benefits. From 1976 to 2014, the real U.S. SPR cost was about $219 billion real (2014$) dollars, whereas the real benefit was only $122 billion. Sensitivity testing suggests such negative net benefits are qualitatively robust. However, if world oil demand is extremely inelastic to oil price or GDP is elastic enough to oil price shocks, the estimated U.S. SPR net benefit is positive. Sensitivity testing around total real costs and benefits range from $380 billion to $80 billion. Limited testing of IEA coordinated drawdowns suggests that total U.S. benefits jump from $122 billion to more than $400 billion putting the SPR strongly in the black. Limited testing of private sector inventory changes was more disappointing and tentatively suggests private activities may at times have offset some of the government drawdowns. With 20-20 hindsight, initial experimentation found that better management could have significantly enhanced the value of the U.S. SPR, especially for the 1990-91 disruption. Highlights: We report our evaluation of actual costs and estimated benefits of the U.S. SPR. The benefits are measured for the three significant drawdowns of the SPR. We found the total real cost of the SPR is $219 billion (2014 $). We found the estimated total real benefit is only $122 billion (2014 $). The net benefit could be positive over the time period only in extreme situations.