[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]







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

=======================================================================

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON ENERGY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 24, 2018

                               __________

                           Serial No. 115-156






[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]










      Printed for the use of the Committee on Energy and Commerce
                        energycommerce.house.gov

                                   ______
		 
                     U.S. GOVERNMENT PUBLISHING OFFICE 
		 
35-837                    WASHINGTON : 2019                 


































                    COMMITTEE ON ENERGY AND COMMERCE

                          GREG WALDEN, Oregon
                                 Chairman
JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
FRED UPTON, Michigan                 BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
MICHAEL C. BURGESS, Texas            ELIOT L. ENGEL, New York
MARSHA BLACKBURN, Tennessee          GENE GREEN, Texas
STEVE SCALISE, Louisiana             DIANA DeGETTE, Colorado
ROBERT E. LATTA, Ohio                MICHAEL F. DOYLE, Pennsylvania
CATHY McMORRIS RODGERS, Washington   JANICE D. SCHAKOWSKY, Illinois
GREGG HARPER, Mississippi            G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
ADAM KINZINGER, Illinois             PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida            PAUL TONKO, New York
BILL JOHNSON, Ohio                   YVETTE D. CLARKE, New York
BILLY LONG, Missouri                 DAVID LOEBSACK, Iowa
LARRY BUCSHON, Indiana               KURT SCHRADER, Oregon
BILL FLORES, Texas                   JOSEPH P. KENNEDY, III, 
SUSAN W. BROOKS, Indiana                 Massachusetts
MARKWAYNE MULLIN, Oklahoma           TONY CARDENAS, California
RICHARD HUDSON, North Carolina       RAUL RUIZ, California
CHRIS COLLINS, New York              SCOTT H. PETERS, California
KEVIN CRAMER, North Dakota           DEBBIE DINGELL, Michigan
TIM WALBERG, Michigan
MIMI WALTERS, California
RYAN A. COSTELLO, Pennsylvania
EARL L. ``BUDDY'' CARTER, Georgia
JEFF DUNCAN, South Carolina
                         Subcommittee on Energy

                          FRED UPTON, Michigan
                                 Chairman
PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
  Vice Chairman                        Ranking Member
JOE BARTON, Texas                    JERRY McNERNEY, California
JOHN SHIMKUS, Illinois               SCOTT H. PETERS, California
ROBERT E. LATTA, Ohio                GENE GREEN, Texas
GREGG HARPER, Mississippi            MICHAEL F. DOYLE, Pennsylvania
DAVID B. McKINLEY, West Virginia     KATHY CASTOR, Florida
ADAM KINZINGER, Illinois             JOHN P. SARBANES, Maryland
H. MORGAN GRIFFITH, Virginia         PETER WELCH, Vermont
BILL JOHNSON, Ohio                   PAUL TONKO, New York
BILLY LONG, Missouri                 DAVID LOEBSACK, Iowa
LARRY BUCSHON, Indiana               KURT SCHRADER, Oregon
BILL FLORES, Texas                   JOSEPH P. KENNEDY, III, 
MARKWAYNE MULLIN, Oklahoma               Massachusetts
RICHARD HUDSON, North Carolina       G.K. BUTTERFIELD, North Carolina
KEVIN CRAMER, North Dakota           FRANK PALLONE, Jr., New Jersey (ex 
TIM WALBERG, Michigan                    officio)
JEFF DUNCAN, South Carolina
GREG WALDEN, Oregon (ex officio)



















  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     1
    Prepared statement...........................................     2
Hon. Bobby L. Rush, a Representative in Congress from the State 
  of Illinois, opening statement.................................     3
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     4
    Prepared statement...........................................     6
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     6

                               Witnesses

Steven Winberg, Assistant Secretary of Fossil Energy, U.S. 
  Department of Energy...........................................     8
    Prepared statement...........................................    10
Frank Rusco, Director, National Resources and Environment, 
  Government Accountability Office...............................    33
    Prepared statement...........................................    35
Daniel M. Evans, Project Manager, Fluor Federal Petroleum 
  Operations.....................................................    50
    Prepared statement...........................................    52
Kevin Book, Managing Director, Clearview Energy Partners, LLC....    61
    Prepared statement...........................................    63

                           Submitted Material

GAO report.......................................................    82
Center on Global Energy Policy report \1\

----------
\1\ The information can be found at: https://docs.house.gov/
  meetings/IF/IF03/20180724/108593/HHRG-115-IF03-20180724-
  SD013.pdf.

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

                              ----------                              


                         TUESDAY, JULY 24, 2018

                  House of Representatives,
                            Subcommittee on Energy,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:15 a.m., in 
room 2322 Rayburn House Office Building, Hon. Fred Upton 
(chairman of the subcommittee) presiding.
    Members present: Representatives Upton, Olson, Barton, 
Shimkus, Latta, McKinley, Kinzinger, Johnson, Bucshon, Flores, 
Hudson, Walberg, Duncan, Walden (ex officio), Rush, McNerney, 
Peters, Green, Doyle, Welch, Tonko, Loebsack, Kennedy, and 
Pallone (ex officio).
    Staff present: Samantha Bopp, Staff Assistant; Kelly 
Collins, Legislative Clerk, Energy/Environment; Jerry Couri, 
Chief Environmental Advisor; Wyatt Ellertson, Professional 
Staff, Energy/Environment; Margaret Tucker Fogarty, Staff 
Assistant; Jordan Haverly, Policy Coordinator, Environment; 
Mary Martin, Chief Counsel, Energy/Environment; Sarah Matthews, 
Press Secretary, Energy & Environment; Drew McDowell, Executive 
Assistant; Brandon Mooney, Deputy Chief Counsel, Energy; 
Brannon Rains, Staff Assistant; Mark Ratner, Policy 
Coordinator; Peter Spencer, Professional Staff Member, Energy; 
Austin Stonebraker, Press Assistant; Madeline Vey, Policy 
Coordinator, Digital Commerce and Consumer Protection; Hamlin 
Wade, Special Advisor, External Affairs; Everett Winnick, 
Director of Information Technology; Andy Zach, Senior 
Professional Staff Member, Environment; Tiffany Guarascio, 
Minority Deputy Staff Director and Chief Health Advisor; Rick 
Kessler, Minority Senior Advisor and Staff Director, Energy and 
Environment; John Marshall, Minority Policy Coordinator; 
Alexander Ratner, Minority Policy Analyst; Tuley Wright, 
Minority Energy and Environment Policy Advisor; and C.J. Young, 
Minority Press Secretary.

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

    Mr. Upton. I know there is a couple different subcommittee 
meetings today, but good morning.
    Good morning. Welcome to the Energy Subcommittee for a 
legislative hearing on a discussion draft that authorizes DOE 
to conduct a pilot program to lease spare capacity in the 
Strategic Petroleum Reserve. I want to thank Vice Chairman 
Barton and Ranking Member Rush for partnering on this draft as 
we continue our work to modernize the Department of Energy.
    The SPRO is the world's largest emergency stockpile of 
crude in the world. More than 40 years ago, Congress authorized 
the creation of the SPRO in response to the Arab oil embargo to 
mitigate the threat of an energy supply disruption. Back then, 
our domestic production was in the decline, energy costs were 
rising, and we were becoming increasingly reliant on imports. 
The oil embargo exposed our vulnerabilities and panic quickly 
spread. Some of us will remember those long lines at the gas 
pump for sure.
    So let's go to today. The U.S. is, arguably, more energy 
secure now than ever before. We are the number one world 
producer of oil and gas and our imports have declined by about 
70 percent since peaking in 2005. With the surge of domestic 
production, our private stocks of crude oil are at record 
levels, our pipelines are full, and our refineries are 
operating at near peak capacity.
    So I want to thank our witnesses on both panels for 
appearing before us today to provide their views on this 
legislation. I want to thank Vice Chair Barton and Ranking 
Member Rush for their work on this important piece of 
legislation.
    I look forward to working with both of them and all members 
of the subcommittee as we move this bill, hopefully, to the 
House floor in the coming months.
    And I now yield to the ranking member of the subcommittee, 
Mr. Rush, for an opening statement.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    Good morning, and welcome to the Energy Subcommittee for a 
legislative hearing on a discussion draft that authorizes DOE 
to conduct a pilot program to lease spare capacity in the 
Strategic Petroleum Reserve. I want to thank Vice Chairman 
Barton and Ranking Member Rush for partnering on this draft as 
we continue our work to modernize the Department of Energy.
    The Strategic Petroleum Reserve is the world's largest 
emergency stockpile of crude oil in the world. More than 40 
years ago, Congress authorized the creation of the SPR in 
response to the Arab Oil Embargo to mitigate the threat of an 
energy supply disruption. Back then, our domestic production 
was in decline, energy costs were rising, and we were becoming 
increasingly reliant on imports. The oil embargo exposed our 
vulnerabilities and panic quickly spread--some of us will 
remember those long lines at the gas pump.
    Fast forward to today--the United States is arguably more 
energy secure now than ever before. We're the world's number 
one producer of oil and gas and our imports have declined by 
about seventy percent since peaking in 2005. With the surge of 
domestic production, our private stocks of crude oil are at 
record levels, our pipelines are full, and our refineries are 
operating at near peak capacity. In the very unlikely event of 
another embargo, the United States wouldn't be impacted in the 
same way.
    Even with America's energy abundance, the Strategic 
Petroleum Reserve will remain an important energy security 
asset, which is why I have prioritized its modernization. This 
Committee led the charge to right-size the SPR and increase the 
funding levels to clear the maintenance backlog. Over the next 
10 years, DOE will drawdown and sell approximately 300 million 
barrels of crude oil. Now, it's up to Congress to decide what 
to do with the spare capacity.
    The Discussion Draft before us today authorizes DOE to 
lease some of the underutilized space that will become 
available over the next several years. Commercializing the 
excess storage capacity through a leasing program is an 
innovative idea--and it could be a win-win for the federal 
government. At a minimum, DOE may be able to offset some of its 
maintenance costs and invest in new infrastructure.
    It's been over 40 years since Congress created the SPR, and 
a lot has changed. As we work to modernize this valuable energy 
security asset, we should bear in mind just how far we've come 
since the energy crisis of the 1970's. With the right policies 
in place, the United States is on track to become a net energy 
exporter in just a few short years.
    I'd like to thank our witnesses for appearing before us 
today to provide their views on the legislation. I also want to 
thank Vice Chairman Barton and Ranking Member Rush for their 
work on this important piece of legislation. I look forward to 
working with them to move it through Committee and the House 
floor in the coming months.
    Thanks, I yield back.

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

    Mr. Rush. I want to thank you, Mr. Chairman, for holding 
this important hearing this morning examining legislation to 
authorize a pilot project to commercialize SPRO.
    As you know, Mr. Chairman, subcommittee staff from the 
minority and the majority side worked together on this 
bipartisan bill and I am pleased to co-sponsor this legislation 
with my good friend and colleague, Mr. Barton of Texas.
    Mr. Chairman, since the inception of the SPRO, which was, 
as you indicated, established as a result of the oil shortages 
of the 1970. The energy portfolio of the United States has 
changed dramatically. In fact, the U.S. is expected to go from 
a heavy importer of foreign oil to become the global leader in 
oil exports by as early as next year, according to the IEA.
    As a result of these shifting dynamics, Mr. Chairman, it is 
important for policy makers including members of this 
subcommittee to examine important questions including if there 
is still a need for the SPRO. If so, how large should it be and 
how should it be completed?
    It is my hope, Mr. Chairman, that the pilot program 
outlined in this bill will help inform our decision regarding 
the feasibility of leasing all or part of the SPRO to the 
private sector or to foreign governments, even those that do 
not pose a national security risk.
    As we will discuss today, congressionally-mandated sales of 
SPRO oil has provided an opportunity to potentially lease the 
subsequent unused space to private companies and/or foreign 
governments as a way to maximize taxpayers' return on 
investment.
    Mr. Chairman, I am also pleased that we have with us today 
representatives from both the Department of Energy and the GAO, 
among other witnesses, as both agencies have issued reports to 
help guide our decision making on matters regarding the SPRO.
    Unfortunately, Mr. Chairman, there appears to be some 
discretion between the two agencies over the final 
recommendations that GAO made in its May report entitled 
``Strategic Petroleum Reserve: DOE Needs to Strengthen Its 
Approach to Planning the Future of the Emergency Stockpile.''
    First, Mr. Chairman, DOE appears to concur with the GAO's 
recommendation to supplement its 2016 review by conducting 
additional analysis regarding the objective and purpose of the 
SPRO, taking into account additional factors such as market 
projections and private sector response.
    DOE also agreed with the GAO's recommendation to 
periodically reexamine the size of the SPRO with analysis 
looking at the cost and benefits of the SPRO for a variety of 
different sizes.
    DOE also appears to concur with the GAO's findings as the 
agency considers options for the long-term continuation of the 
SPRO after the impact of congressionally-mandated sales of SPRO 
oil are taken into account.
    Mr. Upton. That's not my wife either.
    [Laughter.]
    Mr. Rush. Maybe it's my new wife.
    Mr. Upton. Your new wife. Yes, sir.
    [Laughter.]
    Mr. Upton. Better answer it.
    Mr. Rush. Yes.
    Mr. Upton. You want to keep being married another 60 years.
    Mr. Rush. All right, Mr. Chairman.
    Hold on, dear.
    [Laughter.]
    Based on the testimony, it appears that some of these 
recommendations will be included as a part of GAO's small post-
sale configuration study expected to be completed in October of 
this year.
    Mr. Chairman, the largest area of disagreement appears to 
be over GAO's recommendation that DOE--Department of Energy--
conduct a cost benefit analysis of establishing regional 
product reserves around the country at areas that have been 
identified as vulnerable to fuel supply disruption.
    Mr. Chairman, I hope that we can get to the bottom of this 
and I look forward to the testimony provided by our witnesses 
today.
    And finally, I want to tell our witnesses that we 
appreciate them appearing before us today.
    Thank you, Mr. Chairman. I yield back.
    Mr. Upton. The gentleman yields back.
    The chair will recognize the chairman of the full committee 
from the good state of Oregon, Mr. Walden, for an opening 
statement.

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

    Mr. Walden. Thank you, Mr. Chairman.
    Over the course of the past year, the Energy and Commerce 
Committee has been hard at work identifying what's necessary to 
modernize the Department of Energy's national and energy 
security functions.
    The urgency of our focus has been driven by domestic and 
international challenges that will be confronting the nation in 
the decades ahead. These challenges, which range from 
maintaining our nuclear security to protecting the reliable 
supply and delivery of energy, require a Department of Energy 
that has appropriate organization, management focus, and 
authorities to succeed in its missions.
    In recent months, the committee has moved legislation that 
will establish enduring leadership within the DOE for 
addressing all energy emergencies, including cybersecurity 
threats. It has moved legislation that will ensure there is 
sufficient coordination for secure and reliable delivery of 
fuels we rely upon for our energy needs, including bulk 
electric power.
    And just over the past few weeks, we moved legislation that 
will strengthen DOE's support for next-generation nuclear 
energy. We've also moved reforms that streamline DOE's 
cumbersome regulatory approval process for foreign nuclear 
commerce, which has inhibited American businesses from 
competing effectively in global nuclear energy markets.
    So with today's draft legislation that Vice Chairman Barton 
and Ranking Member Rush have put together offers a similar 
forward-looking path--this one, toward ensuring the Nation's 
Strategic Petroleum Reserve, managed by DOE, will be more 
capable of responding to oil supply emergencies for decades to 
come.
    Congress, under this committee's leadership, established 
the SPRO in the wake of the 1973-1974 Arab oil embargo. That 
incident and the gasoline shortages and price spikes of ensuing 
years really underscored the growing vulnerability of the 
United States to international oil supply shocks, especially as 
reliance on imported oil was rapidly increasing.
    Well, times have changed, of course, and dramatically. The 
resurgence in American oil and gas production over the past 
decade has placed the United States into a dominant role when 
it comes to global oil and gas supplies and has begun to shift 
how we should view our SPRO assets.
    While the role of the SPRO may be shifting, it remains 
important for energy security. It will continue to help us meet 
our treaty-level obligations to international partners in the 
event of major supply disruptions. It will also help maintain 
our international energy diplomacy, inhibiting adversaries from 
attempting to use oil as an economic weapon, which ultimately 
benefits our own and our allies' energy security.
    Yet, we know that SPRO facilities require considerable 
upgrades to be responsive when called upon, and as Congress has 
mandated sales of some 290 million barrels, there is risk that 
without serious reforms much of the reserves' capacity to serve 
as a strategic stockpile will degrade further as those stocks 
decline.
    So against this backdrop arrives the draft legislation, 
which offers an innovative way to accelerate reforms to the 
SPRO by leasing underutilized space created as the reserve is 
drawn down over the next decade.
    A successful leasing program would attract investment into 
improving facilities' operations that would be responsive to 
commercial needs. This in turn would enable more responsive use 
of Federal oil stocks during those emergencies and by 
preserving the existing capacity of the reserve's caverns, the 
pilot program also ensures this asset will remain available for 
DOE's security missions well into the future.
    So I appreciate the testimony of those who are testifying 
today and we will continue to work on this legislation. I don't 
know if anybody else wants the balance of my time.
    But if not, I will yield back.
    [The prepared statement of Mr. Walden follows:]

                 Prepared statement of Hon. Greg Walden

    Over the course of the past year, the Energy and Commerce 
Committee has been hard at work identifying what is necessary 
to modernize the Department of Energy's national and energy 
security functions.
    The urgency of our focus has been driven by domestic and 
international challenges that will be confronting the nation in 
the decades ahead. These challenges-which range from 
maintaining our nuclear security to protecting the reliable 
supply and delivery of energy-require a DOE that has the 
appropriate organization, management focus, and authorities to 
succeed in its missions.
    In recent months, the committee has moved legislation that 
will establish enduring leadership within the DOE for 
addressing all energy emergencies, including cybersecurity 
threats. It has moved legislation that will ensure there is 
sufficient coordination for secure and reliable delivery of the 
fuels we rely upon for our energy needs, including bulk 
electric power.
    And just over the past few weeks, we moved legislation that 
will strengthen DOE's support for next generation nuclear 
energy. We've also moved reforms that streamline DOE's 
cumbersome regulatory approval process for foreign nuclear 
commerce, which has inhibited American businesses from 
competing effectively in global nuclear markets.
    Today's draft legislation that Vice Chairman Barton and 
Ranking Member Rush have put together offers a similar forward-
looking path--this one toward ensuring the Nation's Strategic 
Petroleum Reserve, managed by DOE, will be more capable of 
responding to oil supply emergencies for decades to come. 
Congress, under this committee's leadership, established the 
SPR in the wake of 1973-1974 Arab oil embargo. That incident 
and the gasoline shortages and price spikes of ensuing years 
underscored the growing vulnerability of the United States to 
international oil supply shocks, especially as reliance on 
imported oil was rapidly increasing.
    Times have changed, of course--and dramatically. The 
resurgence in American oil and gas production over the past 
decade has placed the United States into a dominant role when 
it comes to global oil and gas supplies--and has begun to shift 
how we should view our SPR assets.
    While the role of the SPR may be shifting, it remains 
important for energy security. It will continue to help us meet 
our treaty-level obligations to international partners in the 
event of major supply disruptions. It will also help maintain 
our international energy diplomacy-inhibiting adversaries from 
attempting to use oil as an economic weapon, which ultimately 
benefits our own and our allies' energy security.
    Yet we know that SPR facilities require considerable 
upgrades to be responsive when called upon. And as Congress has 
mandated sales of some 290 million barrels, there is risk that 
without serious reforms much of the reserves' capacity to serve 
as a strategic stockpile will degrade further as its stocks 
decline.
    Against this backdrop, this draft legislation offers an 
innovative way to accelerate reforms to the SPR, by leasing 
underutilized space created as the reserve is drawn down over 
the next decade.
    A successful leasing program would attract investment into 
improving facility operations to be responsive to commercial 
needs. This in turn would enable more responsive use of federal 
oil stocks during emergencies. By preserving the existing 
capacity of the reserve's caverns, the pilot program also 
ensures this asset will remain available for DOE's security 
missions well into the future.
    I look forward to the expert testimony from DOE and others 
this morning, and to continue work on the legislative details 
going forward.

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

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

    Mr. Pallone. Thank you, Mr. Chairman.
    Today we will be discussing bipartisan draft legislation on 
the future of the Strategic Petroleum Reserve. In December 
2016, then Chairman Upton and I wrote the Government 
Accountability Office requesting that GAO review the Strategic 
Petroleum Reserve as it is currently configured.
    We asked whether there might be more cost-effective options 
for protecting against supply shocks and for meeting our 
international obligations.
    Most other countries have used contracts with private 
companies to address these matters. So it's fair to ask whether 
there might be more efficient and effective ways for us to 
address our energy security needs in this area.
    There were a number of reasons why I thought this request 
of GAO was particularly important in 2016. First, former Energy 
Secretary Moniz had laid out one vision for modernization of 
the SPR in the Quadrennial Energy Review that the Obama 
administration released in 2015. As part of that vision, 
Secretary Moniz suggested the establishment of more regional 
refined product reserves, like the Northeast home heating oil 
and gasoline supply reserves.
    Second, at the end of 2015, Congress lifted the 40-year-old 
ban on crude oil exports and this was done at a time when we 
were seeing a radical alteration of the transportation fuels 
landscape. Supply was increasing, demand was decreasing, and we 
were seeing a rise in electric vehicles.
    Third, beginning in 2015, Congress had turned to the SPR 
repeatedly as an offset for deficits, highways, and other 
items. In fact, it has been used far more in recent years for 
those purposes than for energy security. And recently, the 
Trump administration has even been sending signals that it's 
seriously considering releasing oil from the reserve for the 
express purpose of lowering gas prices, in my opinion to help 
Republicans heading into the midterm elections. When you get to 
the point where an administration is publicly discussing using 
the SPR for blatantly political purposes, then it is certainly 
a good time to discuss the future of the reserve. And this 
discussion is also timely now since we are already requiring 
the sale of so much oil for nonenergy reasons, which will free 
up a great deal of physical space in the reserve.
    We need to consider ways to ensure taxpayers continue to 
receive value for the salt dome storage caverns and associated 
facilities that comprise the crude reserve if they are not 
being used to store oil.
    The draft legislation that Vice Chairman Barton and Ranking 
Member Rush are championing is an important first step in 
realizing that goal. The draft bill would facilitate the 
leasing of unused storage space in the reserve while attempting 
to ensure that government and taxpayers benefit from those 
leases, and that's important no matter what the future has in 
store.
    If we elect to keep the SPR in its current form, the Energy 
Department will need to repair and upgrade facilities to keep 
them useful and if we elect to create regional reserves either 
in addition to or in place of the SPR, we will still need to 
fund those regional reserves, and this bill will help bring in 
the revenue we need to do that.
    There are still questions that need to be answered about 
this proposal. I want to make sure that the taxpayers see 
meaningful return on the investment that we made in the SPR and 
I want to ensure that the government isn't left holding the bag 
for environmental liability costs while private industry gets 
all the benefits of the leasing arrangement.
    So as long as we can get assurances on these two key 
points, I think moving forward with this pilot project makes a 
lot of sense.
    And unless someone else wants the time, I'll yield back, 
Mr. Chairman.
    Mr. Upton. The gentleman yields back. Thank you.
    We are joined, again, by two panels. We will start with 
Steven Winberg, Assistant Secretary of Fossil Energy from the 
Department of Energy. We welcome you here.
    We appreciate you submitting your testimony in advance and 
if you wouldn't mind taking no more than 5 minutes to summarize 
that, at which point we will go into questions, that would be 
terrific.
    The time is yours. Thank you.

  STATEMENT OF STEVEN WINBERG, ASSISTANT SECRETARY OF FOSSIL 
               ENERGY, U.S. DEPARTMENT OF ENERGY

    Mr. Winberg. Thank you, Chairman Upton, Ranking Member 
Rush, and distinguished members of this committee. It's my 
pleasure to appear before you to discuss the Department of 
Energy's Strategic Petroleum Reserve and the related use of 
underutilized SPRO facilities resulting from congressionally-
legislated crude oil sales.
    The mission of the SPRO, as has been discussed, is to 
protect the United States' economy from severe petroleum supply 
interruptions and to carry out U.S. obligations under the 
international energy program.
    As a member of the International Energy Agency, the United 
States has two primary objectives. First, as a net importer, 
the United States must maintain crude oil and/or refined 
product inventories whether held by industry or government 
equal to at least 90 days of net petroleum imports. As of June 
30th of this year, the United States held about twice that 
amount.
    Second, the United States must be able to contribute a 
proportionate share of an IEA collective action response based 
on its share of IEA oil consumption, which is currently at 41.4 
percent. The U.S. government relies on use of SPRO to meet this 
requirement, although commercial stocks may also contribute, 
albeit voluntarily.
    In the event of an international oil supply disruption 
large enough for the President to authorize the release of the 
SPRO, U.S. crude oil production alone would not be able to ramp 
up quickly enough to make up for the lost barrels in a crisis. 
The SPRO can be ready to deliver crude oil within 13 days of a 
presidential finding while domestic production would take 
months to substantially expand.
    Turning to the proposed legislation, it is expected that 
the SPRO will have approximately 300 million barrels of unused 
storage capacity by the end of fiscal year 2027 or, roughly, 45 
percent of the current design capacity. To that end, DOE is 
currently conducting the SPRO post-sale configuration study 
that will recommend the configuration of the SPRO post-2027. 
This study should be completed within the next 6 months and 
understanding the best configuration for the SPRO will guide us 
as we continue to sell barrels over the next several years.
    It will also guide us in identifying the SPRO storage 
caverns or related facilities likely to become underutilized or 
operationally inefficient, therefore, informing possible 
decisions concerning site decommissioning. Further, determining 
the optimum configuration for the SPRO to meet domestic needs 
will be critical in developing and executing this proposed 
pilot program.
    The department is supportive of maximizing the value of 
this taxpayer-funded asset and there are a number of issues 
that need to be considered related to the configuration of the 
SPRO post-2027. Therefore, we believe it is premature to 
comment on the operational feasibility of commercially leasing 
underutilized storage. But I can discuss with you some of the 
challenges. Further, it is important for both Congress and the 
department to consider the impact of using government 
facilities to compete with commercially available petroleum 
storage capacity.
    Finally, we need to review the logistical and 
infrastructure challenges associated with the likely commercial 
requirement for increased inflow and outflow activities. 
Accommodating this requirement may require large up-front 
capital expenditures to enable commercial leasing.
    I would also like to take this opportunity to discuss the 
recently released GAO report titled ``Strategic Petroleum 
Reserve.'' I would like to focus on the one recommendation the 
department did not concur with. Specifically, we did not concur 
with the recommendation to conduct or complete studies on 
regional refined product reserves.
    It's important to understand that while hurricanes and 
other natural disasters may create severe short-term logistical 
constraints for gasoline supplies that therefore impact 
gasoline prices, these constraints and price increases are 
quickly overcome when a hurricane passes.
    This was evidenced by Hurricane Irma in 2017. Even if more 
gasoline was available in Florida during Hurricane Irma, there 
would not have been enough trucks or other transportation 
infrastructure to get the supplies to the retail gasoline 
stations where they were needed due to, first, increased 
evacuation traffic and then, later, flooded roads.
    So given the cost of above-ground gasoline storage, it 
would be inappropriate to use taxpayer funds to conduct any 
additional studies on the use of federally-owned storage of 
refined petroleum products.
    While there is certainly more information about the SPRO 
that I could discuss, I will refer the committee to my written 
testimony submitted to the record.
    Mr. Chairman and members of the committee, this completes 
my prepared statement and I am happy to answer any questions.
    Thank you.
    [The prepared statement of Mr. Winberg follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Upton. Well, thank you very much for coming up this 
morning. I have a couple of questions.
    My first couple relate to the GAO study that I know that 
you're familiar with. It was published in May, 2 months ago. On 
Page 27, it talks about the DOE could close at least one SPRO 
site based on the analysis by CBO of projected excess storage 
capacity.
    For example, if DOE were to close the smallest SPRO site--
Bayou Choctaw--the agency could also explore selling the 
connected pipeline and marine terminal, which is currently 
being leased to a private company.
    The DOE could consider leasing excess storage capacity to 
other countries so that they could store oil at SPRO. DOE has 
not entered into any such leases with other countries. It has 
not considered such leases because, according to DOE, the SPRO 
has historically lacked capacity to store additional oil.
    DOE has not proposed any of these options or explored the 
revenue the agency could generate by selling or leasing these 
assets. According to DOE officials, the agency would examine 
the feasibility of such options in the ongoing SPRO pool sale 
configuration study.
    Does that sound like a potential that DOE would support?
    Mr. Winberg. Yes. Yes, we would. The first requirement we 
have under SPRO is to make sure that we are meeting our 
domestic requirements as well as our IEA requirements.
    And so, based on the math and reducing the SPRO by some 300 
million barrels, I think it's quite possible that we may end up 
deciding we can close one of the sites. Which site? We don't 
know yet, and that's the purpose of the SPRO post-sale 
configuration study. Completing that study they then will 
inform us on which caverns we need to keep open, which 
facilities we need to keep open, so that we can meet those 
requirements.
    Not all caverns are alike, and so various of our caverns 
can discharge oil at faster rates. And so we need to do that 
study so that we clearly understand what our options are and 
then also, sir, our options with respect to using these 
facilities in a commercial nature.
    Mr. Upton. Now, as you know, we have the author of the EPCA 
bill--Mr. Barton--down at the end of the dais here.
    Officials said that under EPCA--the Energy Policy and 
Conservation Act--it gave DOE authority to lease underutilized 
storage to other countries but not to the private sector.
    DOE doesn't currently have the authority to pursue that, 
according to the agency officials. What is the department's 
view on making that change to allow the DOE the authority to 
sell to the private sector as well? Are they supportive of 
that? Would they----
    Mr. Winberg. Yes. Yes, we are supportive. But if I might, 
there are some technical challenges with doing that. So let me 
start off with other IEA member companies that also have a 
reserve requirement. That would be generally for long-term 
storage. We wouldn't expect to be moving that product in and 
out of the caverns. In a commercial situation, that may not be 
the case and the commercial suppliers of oil use the storage 
and then discharge and then want to inject and discharge.
    So there is a cycling mechanism, and the challenge with 
this particular geography or geology is that these were soft 
caverns and the way we discharge oil out of these caverns is we 
inject freshwater and that starts to erode the walls of the 
cavern in the lower part of the cavern. And so if you do that 
numerous times, you may affect the integrity of the salt 
cavern.
    So what we would need to do to go to a commercial operation 
where we are going to inject and discharge on a very regular 
basis we would have to go with what we call a brine drive 
system, meaning we would use saturated brine water and we'd 
have to store that and then inject that down into the caverns 
so that we weren't dissolving the walls of the cavern, and we 
have not yet come up with a cost for doing that.
    But we know that it is not going to be inexpensive and 
that's part of the post-sale configuration studies to begin to 
look at those costs.
    Mr. Upton. Great. Thank you. My time has expired.
    Mr. Rush.
    Mr. Rush. Assistant Secretary Winberg, will the DOE's SPRO 
post-sale configuration study, which will be released in 
October, examine issues that would help to determine a future 
optimal size of the SPRO.
    Will that study make recommendations regarding opportunity 
to release SPRO storage space to the private sector or to other 
countries that are now a part of the IEA's collective action? 
And if not, when can we expect information from DOE on those 
specific topics of interest?
    Mr. Winberg. The post-sale configuration study, sir, will 
indeed address the optimal size for the SPRO to meet U.S. needs 
and also our IEA requirements.
    It will help inform us on what caverns we might be able to 
use for leasing purposes. As I mentioned earlier, if we are 
going to lease those caverns to other IEA member countries, 
it's considerably easier in terms of the mechanics of utilizing 
that storage.
    The post-configuration study will not be able to give us 
complete guidance on what we might be able to do in terms of 
leasing to the commercial sector. That's going to take some 
more work beyond the configuration study.
    And what I would propose we could and should do for the 
commercial market is to send out a request for information--an 
RFI--and we'd be looking for two, maybe three, basic bits of 
information: Number one, does the commercial marketplace value 
this asset; number two, in what manner would they like to use 
the asset, meaning would they want to inject oil and then 
extract oil on a very frequent basis because then that will 
help inform us on what upgrades we need to make; and then 
number three, how does the private sector view the Federal 
Government stepping into oil storage leasing business, which 
has been the domain of the private sector for many, many years.
    And so those are the three pieces of information that we 
would want to glean from this RFI. With that information, I 
think that would help inform us on what type of a leasing 
program we would want to develop, whether we would want to have 
the entity leasing the facility to make the investment 
necessary so that they can inject and extract or whether we 
make that investment, which would take appropriations, and then 
factor that into the cost of the lease.
    So a lot of moving parts there.
    Mr. Rush. All right. I am going to move on to another area.
    Can you briefly discuss the disagreement between GAO and 
DOE regarding the recommendation that the department conduct a 
cost-benefit analysis for establishing regional product 
reserves in areas around the country that may be vulnerable to 
fuel supply disruptions.
    Why does DOE disagree with this recommendation and is this 
disagreement only due to funding issues?
    Mr. Winberg. It's in part due to the cost but it's in part 
due to the viability of refined petroleum reserves--gasoline 
storage.
    So let me start with the logistics, and I talked about this 
in my testimony a little bit. Having regional or even state 
gasoline storage reserves above ground doesn't necessarily 
solve the problem because you need to get that stored gasoline 
to the retail outlets--the gasoline stations.
    The problem is when you're in an evacuation situation along 
the coast--Florida, I think, is probably a good example of what 
happened during the Hurricane Irma--you couldn't get the 
gasoline from the storage to the retail outlets because the 
roads were being used for evacuation.
    Right after the hurricane passed through then the roads 
were flooded and so having that storage wouldn't have done 
Florida much good at all--perhaps none at all.
    And so we'd be incurring quite a cost in order to maintain 
regional or state gas reserves around the country. We spend 
about somewhere between $10 and $30 million per year on the 
Northeast gasoline supply reserve.
    It currently has about a million barrels of gasoline. And 
so multiply that by whatever number a regional refined 
petroleum facilities we might contemplate.
    The costs get pretty expensive pretty quickly and we may 
not be able to use it because of the logistics of getting it to 
the retail stations.
    Mr. Upton. Thank you. The gentleman yields back.
    Mr. Barton.
    Mr. Barton. Thank you, Mr. Chairman and Ranking Member Rush 
for scheduling this hearing. I'd like to make a few comments 
and then I have a few questions.
    First, I want to thank Congressman Rush for working with me 
as one of the two lead bipartisan sponsors. Legislation, I 
think, always is better if it is bipartisan and certainly we, 
on the majority side, want to make every effort to make this 
bipartisan.
    I was very heartened by the opening comments of Mr. Rush 
and Mr. Pallone. I think we have got a chance to help the 
country if this draft becomes, in fact, a bill and is passed. 
It doesn't change the basic mission statement. It doesn't 
change the authorized level of the Strategic Petroleum Reserve. 
It doesn't change the presidential authority. What it does do 
is add to the mission statement. It gives the secretary of 
energy the authority so long as it doesn't impact the basic 
existing mission statement the ability to lease and utilize 
underutilized capacity of the existing SPR to the private 
sector for storage and, hopefully, utilization of crude oil.
    I think that's an important point, that we are not trying 
to change the basic statement that became law in the 1970s. We 
are just trying to adopt the SPR to the modern situation.
    A couple of questions for our friend from DOE. What is the 
authorized capacity currently of the SPR in terms of millions 
of barrels?
    Mr. Winberg. The design capacity is 712 million barrels. In 
2018 right now we have 660 million barrels and in 2027 we will 
be down to 405.
    Mr. Barton. What did Congress authorize the capacity to go 
up to? I thought we were about 900 million barrels. Is that not 
true?
    Well, I can find out. I just thought you might know.
    Mr. Winberg. I'll get back to you on that.
    Mr. Barton. OK. Whatever the authorized capacity is, if I 
understand you correctly, the existing physical capacity is a 
little over 700 million barrels. Is that correct?
    Mr. Winberg. Yes, sir.
    Mr. Barton. And of that, how much oil is actually stored 
right now?
    Mr. Winberg. We have 660 million barrels stored right now.
    Mr. Barton. OK. So we are not quite at 100 percent of 
existing physical capacity?
    Mr. Winberg. That's correct.
    Mr. Barton. OK.
    If this draft legislation becomes law, whatever the 
authorized capacity is--and let's assume that it is 900 million 
because I think that's right--under this pilot program would it 
authorize the secretary of energy if it meets all the other 
requirements under the draft legislation to actually add 
capacity to the SPR so long as it doesn't go above the 
authorized level?
    Mr. Winberg. In order to add capacity above the 712, it 
would take some additional capital investment in the facility 
to get----
    Mr. Barton. But there is nothing in the law that would 
prevent going above what's physically available today. Is that 
not correct?
    Mr. Winberg. I believe that's correct.
    Mr. Barton. OK. I have one more question. I think I'll 
yield back.
    One final comment--we don't claim--Mr. Rush and I--that 
this draft is perfect. If we go through the hearing and there 
are things that we need to change, I think I speak for 
everybody on the majority side that we are very open.
    But I also think I speak for the majority and the minority 
that we hope that this is something that can move reasonably 
expeditiously and that means actually end up in a bill the 
President signs in this Congress.
    And with that, Mr. Chairman, thank you for your leadership 
and Mr. Rush's and Mr. Pallone's, and I yield back.
    Mr. Upton. The chair would just say that I am delighted 
that the two of you are working on this. It's something that 
needs to be done and we look forward to getting this to the 
President's desk before the year is out, if we can.
    Mr. Pallone is recognized for an opening statement.
    Mr. Pallone. Thank you, Mr. Chairman.
    Mr. Secretary, the idea of establishing regional refined 
product reserves came out of the first Quadrennial Energy 
Review and was strongly supported by former Secretary Moniz.
    And now GAO is also saying we need to look at regional 
reserves, particularly in the Southeast and the West and I, 
too, think that regional refined product reserves needs to be a 
part of any SPR modernization effort.
    Now, you can correct me if I am wrong. But you mentioned, I 
believe, that the Trump administration seems hostile to the 
concept. In fact, President Trump had proposed doing away with 
the Northeast gasoline supply reserve, which had been created 
administratively by President Obama in response to the 
dangerous shortages that occurred in the wake of Superstorm 
Sandy, including in my area of New Jersey. And, frankly, I 
think this administration's attempt to undo the Northeast 
reserve is reckless and that's why I introduced legislation to 
establish that reserve in statute.
    But it seems like everybody but the Trump administration 
sees the benefit in establishing regional reserves and 
particularly one in the Southeast, where states like Florida, 
Georgia, South and North Carolina are extremely supply 
constrained, and those states are really vulnerable in the face 
of an extreme weather event. Yet, this administration and you, 
I think, said don't want to take any action on that.
    So can I just ask you, Mr. Assistant Secretary, you said 
that the price of gasoline I think--you can correct me--goes 
back to normal soon after a storm like Sandy or Irma.
    What is that based on? That wasn't true in New Jersey after 
Sandy. Did I misunderstand you? I thought that's what you said, 
as one of the reasons why it wasn't necessary to have these 
regional reserves.
    Mr. Winberg. The first point, I wouldn't characterize the 
administration's position as hostile against the gas reserves.
    What I talked about in my testimony is, A, the cost of 
these gasoline reserves, and I used----
    Mr. Pallone. Yes. You said they would cost the government 
too much and--my understanding is you said that you were not 
supportive of it or the administration wasn't because the price 
of gasoline goes back quickly after a storm like Sandy--I think 
you said Irma.
    And then you also said that the regional reserves would 
cost the government too much. I am just asking you what those 
two things are based upon because I am wondering--wouldn't the 
same argument be used against the existing SPR? Why are you 
saying--I don't believe it's true that the price goes up 
quickly right after and I don't believe that this is going to 
cost the government too much--certainly, less than it costs to 
maintain the SPR.
    I am just challenging those two statements. That's all.
    Mr. Winberg. I can address the pricing issue with respect 
to Hurricane Irma. The prices came back down to relatively 
normal levels.
    I can't speak to every gasoline station around Florida. But 
as the product moved back into the state and retail stations 
were opening back up again, there was competition and prices 
reflected that.
    I think that the bigger issue is that if we set up reserves 
and we have these fairly sizeable storage areas and we can't 
get the gasoline to the retail outlets because of congested 
roads due to evacuation and then flooded roads, then it is an 
expense that's not really serving the public good.
    Mr. Pallone. But what I was arguing--see, look, I 
understand what you're saying in all these cases. But I just 
would like to know what that's based on.
    In other words, my experience in Sandy which, admittedly, 
is only one hurricane, is that the price--it does take a while 
before the price goes back to normal and that I don't know why 
it would cost more to have these regional reserves 
significantly more than it does to maintain the SPR.
    I am not saying we shouldn't have an SPR but I think the 
costs of the regional ones would actually be less. And it seems 
like everybody's suggesting that this is a good idea.
    There is going to be some cost to the government, but I'd 
just like to know--if you get back to me, tell me, what's the 
evidence that the price goes back quickly?
    Why are you saying it's going to cost so much and now 
you're saying that they can't bring it to the gas stations. 
That's not my experience.
    So I just want you to get back to us and--either now or get 
back to us and explain what this is based on because it seems 
to be contrary to everything I've heard.
    Mr. Winberg. We will be happy to get back to you with some 
specific cost numbers on utilization.
    Mr. Pallone. All right. I'd appreciate it.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Olson.
    Mr. Olson. I thank the chair and welcome, Mr. Winberg, and 
please give your boss, Secretary Rick Perry, my best. It's not 
very good, but it's my best.
    Mr. Winberg. I will do so.
    Mr. Olson. He will know where that comes from.
    The SPR is important back home in Texas-22 in southeast 
Texas. You mentioned the status of your modernization program. 
Could you please talk about the most important steps DOE can 
take in this next year to continue to improve the readiness of 
the SPR?
    Mr. Winberg. Yes, sir, I can. Thank you.
    One of the steps that I mentioned already is the post-sale 
configuration study and then the second one is we are 
developing the Life Extension program.
    We are in the process of pulling that together and the Life 
Extension program is going to allow us to continue to meet our 
needs under IEA, number one.
    And then, number two, the Life Extension program will focus 
on those assets that we are going to continue to need post-
2027. That's the primary role of the Life Extension program.
    Mr. Olson. The second question, sir--as you know, Texas oil 
production is booming. The Permian Basin itself is projected in 
a few years to produce more oil than every country in the world 
except for Saudi Arabia.
    One oil plain in Texas takes over all the world except for 
one country--Saudi Arabia. A lot of that crude has to go to 
export--go to the Gulf Coast ports--goes to either Corpus 
Christi, Houston, Port Arthur, Beaumont--all those ports--
Brownsville--goes there for refining and export.
    If we pass this discussion draft before us, do you think 
the oil industry will view the SPR sites on the Texas Gulf 
Coast as a good holding site for their oil and are their needs 
looking more shorter term than what the SPR is designed for?
    Mr. Winberg. The answer to your first question, we are not 
yet sure how the commercial market is going to view this 
government asset--the SPRO and our ability to potentially store 
oil for the commercial sector.
    That's part of the RFI--the request for information that we 
are going to send out so that we can better understand what the 
commercial industry needs and wants and whether the SPRO will 
fulfill that requirement.
    So as we get that information I'll be happy to meet with 
the committee or meet with you individually----
    Mr. Olson. Thank you.
    Mr. Winberg. And give you the results of the study.
    Mr. Olson. Thank you.
    My final question--as we had these SPR drawdowns over and 
over and over--June of 2011, 30 million barrels of oil; August 
of 2012, 1 million barrels of oil; November of 2015, 58 million 
barrels; December 2015, 66 million barrels; January 2017, 8 
million barrels--over and over.
    I am curious to hear how about the state of the SPR is with 
all these draw downs. Specifically, we have a lot of light 
crude here at home.
    Are you happy about the balance between light crude and 
heavy crude in the SPR and the balance between sweet and sour 
oil? I know there is lots of people concerned especially about 
heavier crude with a supply disruption because of this wave of 
sweet crude and light crude. Any concerns about the SPR's 
makeup with those issues, sir?
    Mr. Winberg. Well, we are going to--I don't have any 
particular concerns about them. But that is part of the post-
sale configuration study to evaluate sweet crude versus sour 
crude and what percentage we should have of both of those, 
given the changing dynamics of oil production here in the 
United States. But I don't have any particular concerns about 
them right now.
    Mr. Olson. My time is about to expire. I yield back. Thank 
you.
    Mr. Upton. Mr. McNerney.
    Mr. McNerney. Well, I thank the chairman for holding the 
hearing and I thank Mr. Barton for your work on it. I thank the 
witnesses for your thoughtful answers so far.
    Similar to the Northeastern gasoline supply reserve, what 
do you think about establishing a reserve in the West for 
hurricane preparedness and other sorts of emergencies that we 
have out there, as opposed to hurricanes, which we won't have? 
Earthquakes.
    Mr. Winberg. I think the same issues that we have--our 
concerns about our ability to develop a surface reserve and 
then get that product in that surface reserve to the market 
where it's needed or----
    Mr. McNerney. Well, you don't have a lot of warning for 
earthquakes so you don't have an evacuation problem.
    Mr. Winberg. Well----
    Mr. McNerney. You have some roads disrupted but, I think 
it's a better case to be made in the West where we could have 
those different sorts of emergencies.
    Mr. Winberg. That's true. But if we have an immediate 
earthquake situation, there is some road damage----
    Mr. McNerney. Right.
    Mr. Winberg [continuing]. That means that the gasoline can 
still move in through the normal infrastructure and 
transportation mechanisms that it would. There may be some that 
would be cut off, depending on where the earthquake----
    Mr. McNerney. Right.
    Mr. Winberg [continuing]. Happened and the effect of it and 
how many roads or rails might be damaged. But, generally, there 
are multiple routes into an urban area or a suburban area where 
there is----
    Mr. McNerney. So we have a pretty good case to be made for 
establishing the product reserves in the West?
    Mr. Winberg. I am sorry. Say that again.
    Mr. McNerney. We have a pretty good case to be made then 
for establishing those reserves in the West?
    Mr. Winberg. Well, I think if you had limited damage to 
road or railroad infrastructure then you'd have to look at the 
cost of establishing that reserve and maintaining it and 
whether it would provide a lot of value in this example of an 
earthquake situation.
    Mr. McNerney. OK. Changing the subject a little bit, what 
about the challenges with respect to the infrastructure of the 
existing SPRO facilities?
    My understanding is that the extraction network 
infrastructure was aging and not in very good shape. We have 
the degradation of the caverns when you put in that water to 
push out the oil and so on.
    Can you talk a little bit more about that existing 
infrastructure?
    Mr. Winberg. Sure, and I think there are two parts to the 
infrastructure. One is the subsurface and then the other is the 
surface.
    And on our Life Extension program, that we are involved in 
right now, mostly that is surface infrastructure. So we are 
talking about pipes, pumps, and motors and that type of 
infrastructure. And so we have got a program in place to 
upgrade that because, as was mentioned earlier, the SPRO has 
celebrated its 40-year anniversary last year.
    The subsurface infrastructure, while we have had a number 
of withdrawals, the caverns are generally good for about five 
withdrawals and then refills before you start to see a lot of 
degradation.
    And so part of the assessment that we are looking at in the 
configuration study is the stability of the caverns, how much 
erosion--well, it's not erosion. It's really----
    Mr. McNerney. Well, five cycles doesn't sound like a lot if 
we are going to be leasing out space.
    Mr. Winberg. Well, those are the cycles given--that's what 
the caverns were designed for. If we leased it out under 
commercial operation, we might see considerably more than that 
because people store oil and they use it as a hedge.
    The price goes up, they are going to want to withdraw, and 
then they are going to want to reinfect. So it could happen 
many, many times, which is our concern about the integrity of 
the caverns.
    Mr. McNerney. What happens to the water when you inject 
water to pressurize release? What happens to that excess water? 
Does it just get absorbed into the landscape?
    Mr. Winberg. The water stays down in the cavern and if we 
refill it then we would extract the water.
    Mr. McNerney. So it's----
    Mr. Winberg. Then we have to treat the water.
    Mr. McNerney. Is it better to be at 100 percent capacity or 
is it better to be 90 percent capacity or some lower value?
    Mr. Winberg. Operationally, it's probably always better to 
be somewhere in the 90 to 100 percent. But there is a cost 
associated with being at that capacity level. You're storing 
oil in a lot of facilities.
    Mr. McNerney. All right. I thank the chairman. I yield 
back.
    Mr. Upton. The gentleman yields back.
    And before we move to Mr. Shimkus, Mr. Barton will have a 
brief announcement here.
    Mr. Barton. I have a point of personal privilege. In the 
back of the room, two of my granddaughters and my two daughters 
and their significant others are watching the hearing and, in 
typical millennial fashion, they are sitting on the minority 
side of the room.
    [Laughter.]
    If they would stand up and let us acknowledge their 
presence.
    [Applause.]
    Mr. Upton. Maybe we will let Mrs. Rush give them a call as 
well.
    [Laughter.]
    Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Mr. McNerney's just leaving but I wanted to follow up on 
some of his comments because they had raised maintenance as an 
issue and this was going to be my third question. But I am 
going to bring it up just in the timely manner that he 
addressed it.
    The GAO reported that the SPRO had experienced at least 
five major equipment failures since 2013 including a major 
pipeline failure that shut down the Big Hill site for 5 years.
    Could leasing underlie SPRO capacity help offset the cost 
of operations and maintenance?
    Mr. Winberg. Yes, and under two different scenarios. One, 
we might make the upgrades and then roll that in to the price 
of the lease but that would require appropriations.
    Another option, of course, is to have the entity leasing 
the space to make those upgrades.
    Mr. Shimkus. Yes. Based on my experience with the 
appropriation committees, I wouldn't encourage the first course 
of action. I would think that maybe in the leasing agreement of 
upgrades that would be a more straightforward process. But 
that's me.
    It was also talked about a little bit earlier in the 
question and answers about spare caverns and I think being able 
to, in essence, lease those out and there was some interest in 
that.
    Did I understand that question and answer process? Another 
member mentioned about excess space in other caverns and the 
ability to lease that out to private entities.
    Mr. Winberg. Yes. Congressman, we have not yet tested the 
market, if you will, on commercial interest in leasing the 
space. That would be the subject of the request for information 
that we will be sending out.
    Mr. Shimkus. Let me also talk about there has been some 
debate about the refined product reserves that are established 
and I think there is a cost to doing this, right? A financial 
cost of setting these things up.
    Mr. Winberg. Yes.
    Mr. Shimkus. Do you know what it is for the East coast 
refined product?
    Mr. Winberg. Yes. We spend between $10 and $30 million a 
year for, roughly, a million barrels of gasoline.
    Mr. Shimkus. That's per year?
    Mr. Winberg. Yes, sir.
    Mr. Shimkus. So I think it's credible for us to have the 
debate of a cost benefit analysis. If we are spending $25 
million a year for $1 million of refined product versus the 
timeliness of transportation and the access, I think that's 
where the debate is. Everybody would like to have a refined 
reserve available next door for disruption.
    In the Midwest, we have tornadoes and things go down and 
power goes off. But the question is, is $25 million for 1 
million--I don't think that makes financial sense.
    I wanted to raise that. The last thing I want to address is 
U.S. will become a net energy exporter by 2022. That's the 
expectation. Do you agree with that?
    Mr. Winberg. Yes, sir. I do.
    Mr. Shimkus. Do you think there is a need for a strategic 
petroleum reserve? I was a big supporter of this years ago when 
we were worried about our enemies around the world shutting off 
the sea lanes because we were importing our crude oil.
    But if we are a net exporter does that even lend to the 
question of whether we need a SPRO?
    Mr. Winberg. I think it's difficult to forecast what kind 
of geopolitical challenges we might have----
    Mr. Shimkus. Well, if we listen to Olson, Texas is going to 
supply the whole world. So I----
    Mr. Winberg. But there is also the hurricanes and other----
    Mr. Shimkus. And I would think that more speaks to 
pipelines and diversification of a refinery basis and I think 
that's occurring as we speak right now, too, with North Dakota 
and some other places where we are having that occurring.
    So those are just questions I pose. It's great to have you 
here. We live in some exciting times. Whoever thought that we'd 
be exporting crude oil and exporting liquefied natural gas, and 
we all know the benefits for that just for our balance and our 
income or the trade balance but also for our allies who, in 
some places around the world, are being held hostage by foreign 
powers who really don't like us that much.
    So I appreciate it. Send my regards to the department and 
with that, Mr. Chairman, I yield back.
    Mr. Upton. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. Thank you for being 
here.
    You have a couple Texans on the committee, both Republican 
and one Democrat. But I have a district in east Harris County 
and so the salt domes that are created are there in Chambers 
County all the way through southeast Texas.
    This Congress and previous Congresses have chosen to sell 
oil from the SPRO since 2015. The cumulative sale of these 
barrels--250 million barrels--could occur about 2027. Is that 
correct?
    Mr. Winberg. Yes, sir.
    Mr. Green. OK. And leave us with the expected inventory of 
410 million barrels?
    Mr. Winberg. Four hundred and five.
    Mr. Green. Four hundred and five. OK. I know we talked 
about it one time. Over the years the SPRO had as much as 725 
million barrels. Is that correct?
    Mr. Winberg. Yes. Well, I think the capacity is 712 million 
barrels.
    Mr. Green. OK. Although the authorization or the intent was 
to have a billion barrels?
    Mr. Winberg. Yes, I believe that's correct.
    Mr. Green. Back when it was created. With what's happening 
today in the energy market I can't imagine us--are we buying 
crude oil into the SPRO now?
    Mr. Winberg. No, we are not.
    Mr. Green. OK. And because as a Texan, you want to buy it 
at $30 and sell it for $70 and so I would hope we would not be 
buying $70 a barrel oil.
    One of the concerns I have is that during the Hurricane 
Harvey that was last year, Hurricane Ike that was 2008, even 
Katrina, because part of the SPRO goes into southwest 
Louisiana, has the storage facilities been damaged because of 
these hurricanes?
    Mr. Winberg. I think there was some surface damage but that 
damage has been repaired and the SPRO is fully capable of 
meeting its withdrawal requirements.
    Mr. Green. OK.
    This crude oil is selling from SPRO on the open market, do 
you have any idea who's buying it? Because I have five 
refineries in east Harris County that typically uses the 
heavier crude still, although they are retooling now because of 
the lighter sweet coming.
    Is it typically local refineries that are buying that or 
are they other countries or anything else that you know of--
anyone who sells oil from the SPRO?
    Mr. Winberg. We do know who's buying the crude and I don't 
have the specifics here with me but I am happy to get that 
information to your office with respect to whether it was 
domestic or international purchases.
    Mr. Green. At one time, I think people would be concerned 
about someone from another country that's not an ally buying 
our crude oil.
    But since we are exporting crude oil now from everywhere I 
can imagine on the Gulf Coast in Texas and Louisiana, that's 
probably not a big issue.
    Does U.S. or the DOE SPRO post-sale configuration study--
has it been completed?
    Mr. Winberg. No, sir. It's underway right now. We expect we 
will complete it this autumn.
    Mr. Green. OK. The SPRO is a lot of different sites in the 
salt dome because some of that salt dome underneath southeast 
Texas and Louisiana may have to be qualified or--if we wanted 
to get to a billion barrels, how could we do that? Is it 
engineeringly possible?
    Mr. Winberg. Yes. Yes, we could develop more storage 
capacity. If we ended up selling into the commercial market and 
we needed to develop the brine drive system so that we could 
plug the caverns and then reinject oil, we would need some 
additional caverns for the brine storage system.
    Mr. Green. We are currently required to maintain a 90-day 
supply of crude oil and, currently, we have a supply of about 
170 days. Is that correct?
    Mr. Winberg. Yes, sir. I think that's correct.
    Mr. Green. In DOE's opinion, are the current level of 
reserves adequate for future potential disruptions?
    Mr. Winberg. Yes, sir.
    Mr. Green. OK. And, again, the market has changed so much 
because, literally, just down the road we are seeing a lot of 
crude oil produced. Although, again, it's typically lighter 
sweet than compared to the heavier crude.
    Mr. Chairman, I appreciate you having this hearing on the 
oversight. This is kind of in the neighborhood for those of us 
in southeast Texas. So we have a big interest in it.
    Thank you for being here.
    Mr. Winberg. Thank you.
    Mr. Upton. Mr. McKinley.
    Mr. McKinley. Thank you, Mr. Chairman, and thank you for 
the sponsors of this legislation to consider that.
    Mr. Winberg, some of your testimony has just raised more 
questions for me as a result. The one was your testimony--you 
talked about the annual cost for this--the gasoline reserve we 
have in the Northeast at about $25 to $30 million a year.
    But I remember a few years ago we were having that 
discussion about this because it was done not by legislation 
but through the administration, that as one of the discussions 
we have to replenish that--gasoline does not have a very long 
shelf life.
    So is it physically emptied and restored? How is the 
mixture so that we know the age of that gasoline there?
    Mr. Winberg. We do roll the gasoline, Congressman. I don't 
know specifically how many turns we do. But I can find out for 
you.
    Mr. McKinley. I am just curious because if crude is selling 
for $70 a barrel but you're selling refined product at only $30 
a barrel, something's wrong with the math here. You must not be 
emptying it entirely and using it.
    So we can have more of a conversation. I am just curious to 
see how that's functioning there. Also, you talked about the 
five--perhaps you can cycle about five uses or draw down about 
five times out of the salt dome.
    But if we go to this process--this is what I am having a 
little concern with--by leasing it out to other entities and 
then you indicated that perhaps they might want to draw down 
more often than five.
    Do you see a possibility that you will have them posting 
bonds or some kind of verifications that they pay for the 
repairs to the salt dome if that--other security so that 
someone with an outside interest could cause us to lose the 
integrity of our salt storage?
    Mr. Winberg. We believe we have a technical solution for 
the problem and that technical solution would be what we are 
calling the brine drive system.
    So rather than injecting fresh water into the salt cavern 
to lift the oil, we would inject a saturated brine solution.
    Mr. McKinley. I'd like to know a little bit more about 
that. I heard you talk about some additional brine that you had 
put back into that. That was interesting.
    How do you verify--because we got the problem with the 
ethane storage hub up in the Appalachian area--how do you 
verify the thickness of the walls of the salt dome in an 
existing while it's in operation.
    How are you doing that so that you could make a 
determination maybe 5 years it could reach its life? How do you 
verify that?
    Mr. Winberg. That's a great----
    Mr. McKinley. The extent of their degradation.
    Mr. Winberg. That's a great question and, Congressman, I 
don't know the answer. But I will get back to you and let you 
know specifically what testing mechanisms we use to determine--
--
    Mr. McKinley. Just one engineer to another engineer. I am 
just curious how you're going to do that.
    And the last is more about security. I've never really 
actually seen a map that showed where our salt domes are 
located until today. I didn't want to know where they were.
    But if I know now, hostile actors can know where those salt 
domes are, and if they are that important to our national 
security why would we ever put it on a map where those things 
are?
    Mr. Winberg. Well, these are pretty large facilities and so 
people know where they are. They are very secure----
    Mr. McKinley. My point, again--how secure are they? At the 
Greenbriar we used to have a bunker there for congressmen to go 
hide until someone revealed where it was and then we had to do 
away with that.
    Now we are revealing our strategic reserve is--600 million 
barrels of gas or crude oil. The bad actors know exactly where 
that is. So if we had to abandon the Greenbriar what are we 
doing here?
    Mr. Winberg. Well----
    Mr. McKinley. How secure is it?
    Mr. Winberg. Yes. We have an ongoing security program and 
so we are updating it, both physical security as well as 
cybersecurity. You know, we are opening up a new office in DOE, 
the CESER, which is going to address the cyber issues.
    The physical security issues that----
    Mr. McKinley. It's not the cyber. I am talking about 
something a bad actor--I don't know that we have an Iron Dome 
outside these things. So I am just curious how we are going to 
protect them.
    Mr. Winberg. Well, they are fenced in. We have guards, 
guns, and gates.
    Mr. McKinley. I yield back. Thank you.
    Mr. Olson [presiding]. The gentleman yields back.
    The chair notes for the record that the Greenbriar is doing 
just fine because this week the Houston Texans started their 
practice for the football season at the Greenbriar.
    The chair now calls upon Dr. Bucshon for five minutes.
    Mr. Bucshon. Thank you, Mr. Chairman.
    Mr. Winberg, we spend more than $200 million per year on 
SPRO management and operations, yet most of the equipment is 
beyond its serviceable life and there is a growing backlog of 
deferred maintenance.
    For example, GAO reported that the SPRO has experienced at 
least five major equipment failures since 2013, including a 
major pipeline failure that shut down the Big Hill site for 5 
weeks.
    You're talking about changing to a brine-related way to 
extract oil. It seems like we need to catch up on this 
maintenance first.
    What's been the reason why there is a backlog of deferred 
maintenance and all the equipment is beyond its serviceable 
life and what can we do about it?
    Mr. Winberg. I think the backlog is because we didn't have 
appropriations sufficient to keep the facility in optimal 
operating condition. We now have our----
    Mr. Bucshon. OK. I am just going to interrupt you there for 
a second because I think that's the answer we get from every 
Federal agency any time we ask this question.
    But were there requested appropriations that didn't get 
appropriated? Were there no appropriations or, there is more to 
it than that, I would imagine.
    Mr. Barton. Would the gentleman yield?
    Mr. Bucshon. I will yield.
    Mr. Barton. I don't want to speak for the Department of 
Energy, but the draft legislation allows, without going through 
the appropriation process, funds generated by using this 
facility for private purposes to be used for maintenance of the 
facility. So we have tried to solve that problem in the 
legislation before us.
    Mr. Bucshon. Thank you, Mr. Barton, because that's going to 
be one of my next questions.
    So it sounds like we have probably had an appropriations 
issue over the years. I get that, and it seems like we need to 
address that.
    So the question, and is a follow-up to what Mr. Barton just 
said, could leasing underutilized space, capacity, help offset 
the cost of operations and maintenance?
    Mr. Winberg. Yes, I think it could. Again, we need to query 
the market and find out what value they place on this storage 
and what they are willing to pay for it.
    Mr. Bucshon. Yes. So potentially this draft legislation 
could help us solve what appears to be probably a long-standing 
issue with our maintenance and serviceable life of our 
equipment being at the end of its serviceable life if we find 
more money and put that into operation and maintenance.
    Also, most of the time it sits idle, could some of the 
spare caverns--and I think you went over this and the answer is 
yes--be commercialized in such a way to improve its overall 
operational readiness?
    Mr. Winberg. Absolutely. Yes, sir.
    Mr. Bucshon. And you described some of that--I was 
interested in the fact that on a commercial basis you'd have to 
have more going in and out all the time, right? Could you 
isolate that to the commercial space versus the noncommercial 
space?
    So you're not talking about the entire reserve being 
accessed all the time. Were you talking about a way to cordon 
off, so to speak, what we could utilize and in that way the 
caverns of the whole reserve wouldn't be at risk.
    Mr. Winberg. That's correct. We would utilize the brine 
drive system in those caverns where we were discharging and 
refilling on a frequent basis for commercial purposes.
    Also, I spoke earlier about leasing some of the space to 
other countries that are members of the IEA activity and in 
that case then those countries would not be withdrawing and 
injecting on a routine basis, and by having that capacity our 
overall costs likely would go down because we would have more 
oil stored so you'd spread the cost out over----
    Mr. Bucshon. Right. So we would do that on a build-out 
basis or they would pay for it or we'd build out what they need 
or they'd pay for that?
    Mr. Winberg. Well, I think we would utilize the excess 
capacity we have and if there was a big enough market I think 
we could look at building out additional. But we are going to 
have 300 million barrels of capacity when we finish the draw 
down in 2027.
    Mr. Bucshon. Understood.
    Thank you, Mr. Chairman. I yield back.
    Mr. Olson. Thank you.
    Mr. Duncan, 5 minutes for questions, sir.
    Mr. Duncan. Thank you, Mr. Chairman.
    There is no doubt that demand for oil is much greater now 
than when the SPR was originally developed, and I wonder is the 
SPR big enough to have an impact in the case of a real crisis 
in the 21st century. Is it big enough?
    Mr. Winberg. I think it probably is big enough.
    Mr. Duncan. Is it storing enough?
    Mr. Winberg. I think it is storing enough right now. As we 
move into 2027, we are going to be very close to meeting our 
IEA requirements. In fact, we----
    Mr. Duncan. Have you all looked at the demand as it applies 
in the 21st century here and 2018, right, or----
    Mr. Winberg. Yes, we have. But a balancing factor for that, 
of course, is that we have much more domestic production and 
that domestic production, while it takes several months to come 
online, it's much quicker than it was before the unconventional 
oil plays became commercial in the United States.
    So we are down to 4 or 5 or 6 months to get wells online as 
opposed to----
    Mr. Duncan. Well, just let me ask you this. In your 
opinion, has SPR been used effectively over the past four 
decades to respond to oil price volatility?
    Mr. Winberg. I believe it has, yes.
    Mr. Duncan. Has been used effectively? OK.
    Has it been appropriately used as a tool to balance supply 
and demand?
    Mr. Winberg. That's not its purpose to balance----
    Mr. Duncan. I remember the oil shortage in the 1970s and 
since then we really haven't had a true oil shortage. We have 
had price volatility, right.
    So given the change in landscape, the fact that the United 
States is now a net exporter, do you see the SPR being able to 
balance the supply and demand or even necessary to balance the 
supply and demand when we have an abundant supply?
    Mr. Winberg. Well, the purpose of the SPRO was never to 
balance supply and demand but, rather, its purpose was to be 
there in the event that there was more of a crisis situation 
rather than short-term supply and demand imbalances.
    And so that was its purpose. That still is its purpose, and 
I think where we are right now, even with the draw downs, given 
the fact that we have much more domestic production and that 
production can come on much quicker, I think that we have 
sufficient reserves and sufficient capacity with the SPRO.
    However, getting to an earlier question, we do need to 
upgrade it and maintain mostly the surface facilities but also 
subsurface facilities to make sure that we can meet the----
    Mr. Duncan. Let me ask your opinion about--Congress has 
sold off some of the SPR in order to cover deficits and when we 
have had some of these crises since I've been in Congress--8 
years--it also seems like we always sell it for a lot less than 
we paid for it, and that's kind of opposite of buy low sell 
high, right?
    That's the first thing. Who manages what price point we 
purchase or replenish? If you've got a high-value asset that 
you paid less for, do you all play the market in that regard 
and sell it at a higher price and buy it again at a lower price 
to help the American taxpayer?
    Mr. Winberg. When we have a release we do it under an 
auction mechanism. So we get the highest price that the 
market's willing to pay.
    Under some releases, where we have a test sale, for 
example, then whoever buys that oil has to replenish that oil 
plus an additional amount of oil.
    So in that manner, we are paying for the cost of extracting 
oil from the facility. But the SPRO and the operation of the 
SPRO does not play the market, per se. We do it through an 
auction mechanism.
    Mr. Duncan. Mr. Chairman, 30 seconds I've got left.
    Since I've been in Congress, we have used the SPR as an 
opportunity to offset spending with cut-go or whatever, and 
that's wrong. This is a strategic petroleum reserve to help us 
in the time of a crisis and oil shortage or restriction of the 
flow of oil by OPEC like we saw in the late 1970s.
    And I am always going to argue that this Congress and this 
government should not use this as a pay for. It should be used 
as it's designed.
    But we also ought to manage it--if you've got a bulk asset 
that you've got a high basis on sell it--buy it low and help 
the American taxpayer.
    With that, I yield back.
    Mr. Olson. Thank you.
    Mr. Tonko, are you ready, sir? Are you ready? Five minutes 
for questions.
    Mr. Tonko. Thank you, Mr. Chair.
    Mr. Winberg, can you provide us with an update of DOE's 
current modernization plan and how great is the need to invest 
in the infrastructure in order to keep it operating 
effectively?
    Mr. Winberg. Yes. To answer the second part of your 
question, I think the need is pretty great. This facility, as 
we have talked about, is over 40 years old. The last major 
upgrade was about 25 years ago. So we have piping, pumps, and 
valves that need to be replaced on the surface.
    So the need is pretty great. We have got a Life Extension 
program and we are developing that program so that, A, we can 
best handle the legislatively mandated sales, and then, B, the 
Life Extension program is being designed so that we can upgrade 
our systems to allow the SPRO to operate post-2027 for an 
additional 25 years.
    Having said that, the Life Extension program on the way 
it's been designed has enough flexibility so that if we decide 
we are going to lease space to other countries or commercial 
leases, we have got enough flexibility in the program so that 
we can adjust it so that we are not using taxpayer dollars to 
upgrade systems that perhaps someone leasing would pay for.
    Mr. Tonko. Thank you.
    And do you believe there is private sector demand for SPRO 
capacity?
    Mr. Winberg. That's a great question, and we don't know the 
answer to that yet. What we are planning to do is send out a 
request for information, an RFI, out into the marketplace and 
what we want to find out is, A, is there a need for government-
owned storage in the commercial market; B, how would they 
utilize that storage space if we leased it to them; and then, 
C, are there concerns or issues with the government leasing 
space in a market that has mostly been done by commercial 
entities.
    Mr. Tonko. So and how would it compare to existing storage 
options--for example, a tank storage or----
    Mr. Winberg. Right. We don't yet know the answer to that 
question either. That will be informed by the RFI. Once we know 
how private industry might want to utilize this storage, then 
we can put a cost, because there will be some capital needed in 
order to facilitate commercial storage activities.
    Mr. Tonko. And do you believe there is an opportunity to 
use the revenues raised by commercial leases to invest in 
modernization to benefit the public's use of SPRO?
    Mr. Winberg. I think there might be. But, again, we are a 
little bit early in the process to know that right now.
    But that's certainly the hope, and I think if there wasn't 
value to the taxpayer I would question whether or not we want 
to enter into this type of arrangement.
    Mr. Tonko. OK. And SPRO is able to draw down and deliver 
crude oil within 13 days?
    Mr. Winberg. Yes, sir.
    Mr. Tonko. Are you confident that space can be leased 
without slowing down the Federal Government's ability to 
utilize SPRO?
    Mr. Winberg. That would be one of the key issues or key 
elements of any leasing program that we entered into with 
commercial clients but also with other countries, if we chose 
to go that route.
    The American taxpayers bought and paid for this thing. They 
have maintained it for the last 40 years. So our responsibility 
is to the U.S. taxpayers to make sure that, A, we are meeting 
our domestic oil requirements and, B, that we are meeting our 
international requirements as well.
    Mr. Tonko. And I appreciate that.
    In the Northeast, we are particularly vulnerable to supply 
disruptions, which can be caused by natural disasters such as a 
hurricane like Superstorm Sandy.
    The Northeast gasoline supply reserve was created to 
mitigate those risks and, thankfully, it hasn't been needed 
yet. But that doesn't mean it won't be needed in the future.
    So I would really caution the administration against trying 
to dissolve this reserve. I think, again, for our region of the 
country it's of great concern.
    And with that, I thank the chair and yield back.
    Mr. Olson. Thank you.
    And seeing no further witnesses, members seeking to ask 
questions, I'd like to thank you, Mr. Winberg, for coming 
today.
    All members should know they have 5 days to submit 
questions for the--10 days--another panel. OK. I'll back off.
    Thank you, Mr. Winberg. Before you leave, as Vice Chairman 
Barton will confirm with your boss, you have to say gig 'em 
over and over. Thumbs up. Gig 'em, Aggies.
    Mr. Winberg. Thank you.
    Mr. Olson. Uh-oh. Is your mic? You sure? One more time.
    Thank you, Mr. Winberg.
    Mr. Winberg. Thank you.
    Mr. Olson. Second panel, please come up.
    It looks like we are ready so let's kick off the second 
panel.
    Our witnesses for the second panel today include Mr. Frank 
Rusco, Director of Natural Resources and Environment at the 
GAO; Mr. Daniel Evans, Project Manager for Fluor Federal 
Petroleum Operations; and Mr. Kevin Book, Managing Director for 
ClearView Energy.
    We are so thankful for you all being here today. We will 
begin this panel with Mr. Frank Rusco. You are recognized for 5 
minutes to give an opening statement.

  STATEMENTS OF FRANK RUSCO, DIRECTOR, NATIONAL RESOURCES AND 
ENVIRONMENT, GOVERNMENT ACCOUNTABILITY OFFICE; DANIEL M. EVANS, 
  PROJECT MANAGER, FLUOR FEDERAL PETROLEUM OPERATIONS; KEVIN 
    BOOK, MANAGING DIRECTOR, CLEARVIEW ENERGY PARTNERS, LLC

                    STATEMENT OF FRANK RUSCO

    Mr. Rusco. Thank you, Mr. Chairman, Ranking Member, and 
members of the subcommittee.
    I am pleased to be here today to discuss our recent report 
on DOE's management of the SPR. The SPR is an important energy 
security asset capable of mitigating negative effects of global 
oil supply disruptions in concert with other IEA member 
countries. In several collective actions of IEA members, the 
SPR has been effective at adding oil supply during actual or 
expected supply disruptions.
    To date, however, the SPR has most often been used in 
response to domestic supply disruptions caused by extreme 
weather. In such events, the SPR has been less effective 
because SPR infrastructure has not been able to deliver 
reserves when, where, and in the form they are needed.
    In particular, when severe weather has battered Gulf Coast 
states, damaging refineries or electricity grids needed to run 
pipelines, SPR oil reserves in the Gulf Coast have not been 
effective in mitigating what have generally been shortages in 
finished petroleum products such as gas line and diesel fuel.
    Most IEA member countries hold significant parts of their 
strategic reserves as petroleum products. DOE has studied such 
product reserves and the conclusions of its studies point to 
net benefits in some regions. Yet, DOE has disagreed with our 
recommendation to complete these studies and advise Congress of 
its findings.
    In addition, we found that DOE's most recent strategic 
analysis of the SPR, which was mandated by Congress, was 
deficient in several key ways. These deficiencies denied 
Congress better information to make decisions about the size, 
disposition, and configuration of the SPR.
    For example, DOE did not do adequate risk-based scenario 
analyses of when the SPR may be called upon to deliver oil or 
petroleum products and, as a result, DOE cannot advise Congress 
on even a credible range of sizes, composition, or disposition 
of reserves that would best enhance energy security across a 
range of potential future events.
    Further, in part, because of the way in which the SPR has 
been used over the years and in part just because needed 
maintenance has been deferred for many years, the SPR storage 
and delivery infrastructure is in serious disrepair.
    DOE's current plan is to rebuild the existing SPR 
infrastructure in its historical configuration and capacity. If 
this is done and, given planned future sales of SPR oil, the 
SPR will have excess storage capacity in the future. However, 
DOE made its plan to rebuild and repair SPR infrastructure 
without adequately studying alternatives, including selling or 
leasing such excess capacity.
    The discussion draft that is the focus of this hearing goes 
a long way toward requiring DOE to rectify some of the 
deficiencies in its strategic study and its SPR modernization 
plan. Specifically, the discussion draft requires DOE to take 
actions to evaluate and test the market for leasing its excess 
capacity by, one, authorizing the leasing of storage and 
related facilities to private sector and foreign entities; two, 
directing revenue earned from such leases to the general fund 
and to cover costs associated with leasing; and three, 
requiring a pilot program to lease 200 million barrels of 
excess capacity.
    To make fiscally prudent decisions about how to implement 
such a pilot, DOE will have to conduct additional analyses. For 
example, DOE's decision to use fresh water to displace oil 
during releases has caused the SPR's salt caverns to 
deteriorate over time with use.
    Fresh water absorbs salt, which increases the size and 
alters the shape of caverns and damages their integrity. 
Alternatively, there are salt cavern facilities operated by the 
private sector that use brine to displace that oil during 
release, which does not have these effects.
    Brine ponds add operation and maintenance costs but 
increase the life of caverns. Ideally, GAO should evaluate this 
and many other factors we have identified before finalizing its 
modernization plans to ensure the SPR is run in an effective 
and fiscally prudent manner.
    Thank you. This ends my oral remarks. I'll be happy to 
answer questions.
    [The prepared statement of Mr. Rusco follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Olson. Thank you, Mr. Rusco.
    Mr. Evans, 5 minutes for an opening statement, sir.
    Microphone, please. Hit the right button here.
    Mr. Evans. I am here. There we go. Start again.

                   STATEMENT OF DANIEL EVANS

    Mr. Evans. Good morning, Vice Chairman Olson, Ranking 
Member Rush, and members of the Subcommittee on Energy.
    I am the Project Manager for Fluor Federal Petroleum 
Operations, Dan Evans. We are the maintenance and operation 
contractor for the Department of Energy at the Strategic 
Petroleum Reserve since 2004.
    Fluor's partnerships with DOE date back to the Manhattan 
Project. Today, in addition to the SPR, we are currently active 
in roles with DOE facilities that are part of the Environmental 
Management and National Nuclear Security Administration 
missions.
    The congressionally-mandated sales have changed the day-to-
day operations of the SPR dramatically. The sites have gone 
from a 4.4 million barrel per day draw down and readiness 
posture to maintaining draw down readiness while at the same 
time conducting intermediate variable rate deliveries from the 
reserves.
    Working with DOE, Fluor has met this challenge. One example 
is the response to the impacts to Hurricane Harvey. We were 
able to maintain mission draw down readiness throughout the 
event and deliver approximately 5 million barrels of crude oil 
to refineries in need.
    I would like to note that to support this need, certain 
employees volunteered to leave their own homes at peril, their 
whole families, and endure the hurricane at the Texas sites. 
They provided day-to-day monitored conditions and real time 
updates on the readiness for us to fill the Nation's mission. 
The dedication of SPR employees to the mission is American 
exceptionalism at its finest.
    The sales have and continue to put a significant level of 
stress on aging SPR infrastructure. In some cases, we have 
postponed planned maintenance and diverted funding to address 
emergency repairs.
    As we continue the draw down over the next 9 years, 
Congress should not lose sight of the importance of the SPR's 
annual maintenance funding to be able to address the needs of 
the sites and make necessary repairs to execute the current 
contemplated draw down schedule.
    Next, I would like to address the ideas raised by the 
subcommittee's discussion draft. Fluor, of course, stands ready 
to support the leasing and operation of underutilized cavern 
capacity.
    We anticipate in the particular draft legislation the 
committee has provided the authorization without further 
appropriation to use a portion of leased revenue cost related 
to storage and removal incurred by the SPR as a result of 
releases.
    Commercially-leased petroleum storage currently presently 
operates under one of two models: segregated or co-mingled. In 
segregated storage, the product accepted for storage is the 
same product that is ultimately delivered. Under the co-mingled 
model, a limited range of products are accepted for storage.
    When a withdrawal is made, a product of agreed to 
specification is then provided to the owner of the equivalent 
product that was accepted into storage.
    Either model presents challenges for leasing at SPR 
facilities while maintaining government inventories. Presently, 
the government practices intensive inventory management--
segregating crude oil by two specifications and tracking the 
volumes down to the very barrel not only across caverns but 
also with piping, pipelines, and crude oil storage tanks.
    If the SPR designates specific caverns to be leased for 
storage under the segregated model, the cavern is nonetheless 
integrated into the site infrastructure.
    The operation of a storage cavern requires routine ability 
to convey crude oil, water, and salt brine in and out of the 
cavern for purpose of preventative and corrective maintenance.
    The cycling of fluids in and out of leased caverns with 
equipment in common with the SPR storage caverns will, 
inevitably, lead to co-mingling of government and commercial 
assets which will, in our opinion, require additional capital 
investments. The co-mingled model shares the same challenges of 
the segregated model and also adds additional complexities in 
terms of product quality matters and tracking thereof.
    In conclusion, two policy issues require resolution prior 
to implementing a lease storage concept. The first, it's a 
target inventory of the SPR.
    Congress should also carefully consider the overall leasing 
concept to be adopted. We strongly recommend that should 
Congress move forward with a leasing regime, it allows 
sufficient time to make this determination and to develop and 
physically implement the necessary SPR enhancements.
    Mr. Vice Chairman, thank you again for the opportunity to 
appear here today. I stand by to answer any questions that you 
might have.
    [The prepared statement of Mr. Evans follows:]

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    Mr. Olson. Thank you, Mr. Evans.
    Mr. Book, 5 minutes for an opening statement, sir.

                    STATEMENT OF KEVIN BOOK

    Mr. Book. Thank you.
    Good morning, Vice Chairman Olson, Ranking Member Rush, 
Vice Chairman Barton, distinguished members of this committee.
    My name is Kevin Book. I lead the research team at 
ClearView Energy Partners, an independent firm that analyzes 
macro energy issues for institutional investors and corporate 
strategists.
    Thank you for inviting me to contribute to your discussion 
regarding modernization of the SPR. I would like to begin by 
offering my admiration for the foresight the U.S. Congress 
showed in creating the SPR.
    In my view it remains one of the greatest energy security 
achievements in modern history. It still matters, too. Even 
with U.S. crude production averaging 11 million barrels per day 
during the week ending July 13, that surge is good news. But 
those barrels already have customers.
    As a government-controlled stockpile, the SPR can provide 
emergency supply that comes from outside the market. That said, 
ensuring against worldwide economic fallout and sheltering U.S. 
consumers may require a robust and well-functioning reserve 
capable of delivering its full design capability.
    Today's discussion reflects that Congress has passed six 
major laws in the last 4 years that mandate, roughly, 300 
million barrels of oil sales from the SPR. Those sales could 
leave the SPR with approximately 400 million barrels at the 
start of fiscal 2028. It, therefore, seems prudent to ask 
whether and how the resulting surplus storage capacity might be 
put to productive use.
    Today's legislative draft would expand storage leasing 
currently available to foreign governments so that private 
commercial entities could lease SPR space too. In my opinion, a 
pilot leasing program of this sort could potentially benefit 
U.S. producers and refiners in need of additional storage.
    If that program also helped to preserve or expand SPR 
capabilities at the same time, it could enhance petroleum 
supply insurance for U.S. consumers, too.
    My testimony offers several additional considerations. From 
a feasibility perspective, DOE might wish to evaluate the costs 
of restoring, rehabilitating, or improving spare capacity to 
support the requirements of commercial lessees. Those 
requirements can differ in many cases from current long-term 
strategic storage requirements.
    DOE might also wish to evaluate availability of takeaway 
capacity from leased storage sites, especially in the absence 
of incremental SPR marine distribution capacity. Storage with 
faster deliverability can command a higher market price also. 
From a competitiveness perspective, it may be useful for DOE to 
evaluate the market impact of introducing up to 2 million 
barrels of crude storage into the Gulf Coast, also known as PAD 
3.
    In March 2018, the Energy Information Administration, or 
EIA, counted 341.2 million barrels of working storage capacity 
at refineries, tank farms, and underground facilities in PAD 3. 
The agency assessed that about 49 percent of that capacity was 
in use of that time. That was a big change from 2 years 
earlier. Storage volumes grew by 29.7 million barrels since the 
EIA's March 2016 report and did not report the agency-assessed 
PAD's restorage capacity at a much higher 68 percent capacity 
utilization.
    It could be undesirable if additional low-cost government-
run SPR storage were to crowd out existing privately operated 
facilities. Likewise, salt cavern storage tends to be 
significantly cheaper than thank storage and so-called floating 
storage in leased tankers. But draw down constraints and take-
away bottlenecks could limit commercial demand compared to tank 
farms and ships.
    Finally, from a strategic perspective, capacity leasing 
should probably also reflect the vision Congress and the 
department have for the reserve. For example, today's draft 
would allocate net balances to the general fund. It might be 
worth considering whether proceeds could also pay for expanded 
modernization.
    To this point, the U.S. has dramatically reduced its net 
petroleum imports. But U.S. refiners still import gross volumes 
of about 6.3 million barrels per day. When they do, they pay 
global prices that reflect global supply demand balances. 
Today's oil prices remain high, relative to historical norms.
    Partly, this is because global oil production is itself 
running at relatively high capacity utilization. Crude prices 
are also high because global inventories have thinned out.
    Currently, OPEC producers are drawing on spare capacity to 
offset losses from collapsing Venezuelan production. They soon 
could lean even harder on spare production capacity to replace 
Iranian crude oil barrels.
    That, by the way, set off my Siri. I apologize. I am not 
sure why.
    And what happens when the production system is stressed and 
inventories are lean and a big supply disruption occurs 
somewhere in the world?
    In that situation, without strategic reserves, the oil 
market must balance and painfully so on the backs of consumers. 
Preventing that result, in short, is the nature of the 
insurance the SPR provides.
    Mr. Chairman, this concludes my prepared testimony. I will 
be happy to answer any questions at the appropriate time.
    [The prepared statement of Mr. Book follows:]

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    Mr. Olson. Thank you, Mr. Book, and thank you, all our 
witnesses.
    I will now move into the Q and A portion of the hearing. I 
will begin the questioning. I recognize myself for 5 minutes.
    First of all, again, welcome to our three experts. A 
special welcome to Mr. Evans. Fluor Enterprise--big tall 
building, one street light up from my official office area--
Sugarland, Texas. So welcome, welcome, welcome, dear friend.
    My first question is for you, Mr. Book. As a point on the 
first panel, Texas oil production is booming. I won't brag, but 
right now we are moving a lot of light crude to the coast about 
as fast as we possibly can.
    If the SPR were open to lease by the industry, do you 
think, first of all, number one, there would be interest? 
Number two, would there be value as a holding location for more 
oil or would the benefits be in the uncertainties going forward 
with leasing this great asset we have, the SPR?
    Mr. Book. Congressman, I think bragging is appropriate and 
you should be proud. That crude is going to keep going to 
coast, as you say, and exported to global markets that can use 
it for value.
    I think Secretary Winberg was wise to suggest that an 
inquiry of commercial interest would be a good place to start. 
One of the issues that you have right now is that you do have 
storage building at export and transit sites in the Gulf Coast 
and its building quite rapidly.
    The SPR could serve a different purpose for long-term 
storage today. But as the other witnesses have mentioned, it 
would require adaptation to be potentially useful for the kinds 
of commercial applications that different kinds of customers 
might use.
    But definitely there's going to need to be more storage if 
you in Texas keep producing more crude.
    Mr. Olson. Count on it, guaranteed.
    Second question is for you, Mr. Rusco. As you know, the DOE 
has taken some steps in modernizing the SPR. However, much work 
still remains and at the moment the SPR seems to lack a clear 
end goal.
    Can you talk about the most important steps DOE has taken--
what you think the best pathway forward to them to get this 
thing up and running to modernize?
    Mr. Rusco. I am encouraged that the Assistant Secretary was 
talking about testing the market and going out and trying to 
figure out what the market is and also that is cognizant of the 
differences in a way that different entities might use excess 
capacity.
    So it's our cost of storing fuel--oil in the ground is much 
lower than most IEA members' costs and there are members that 
would like to store oil in our reserves. So that may be 
ultimately the best way. But you got to test the market to 
know. I am encouraged about that.
    What I am concerned about is DOE has not done a good job of 
periodically assessing how the market has changed, how energy 
security issues have changed, and doing complex risk-based 
analysis involving scenarios of possible use. That's what they 
need to do.
    Mr. Olson. Thank you. Mr. Winberg is right over your left 
shoulder. So message accepted and sent. Thank you so much.
    Final questions for you, Mr. Evans, of Fluor. The SPR sites 
are made for long-term storage. But we certainly have a lot of 
maintenance issues.
    Fluor has been maintained as this asset for over almost two 
decades, as you said. Can you please tell me about the most 
common cause of maintenance issues and whether the DOE or the 
private sector can be better suited to fix these problems as 
quickly as possible?
    Mr. Evans. So the most common maintenance issues that we 
face today are with regards to the equipment that was not 
placed during Life Extension One. That was the '91 to '95 
timeframe.
    We have a lot of piping valves, actuators, and those kinds 
of pieces of equipment that are 40 years old. We did have a 
rupture in a low-pressure fresh water system at the Big Hill 
that was a dramatic one and that's our second significant 
rupture there.
    We find more and more common leaks and we are able to deal 
with them very quickly. But Life Extension Two, and if it's 
smartly coupled with a concept to commercialize could replace 
and deal with, those highest level of common kinds of 
maintenance risks.
    We also have a very old degasification plant that's on its 
last legs at the West Hackberry Louisiana site. Part of LE2 
then is to recycle that and come in with a new much more 
modular modern design that will be more efficient to make sure 
that we can deliver crude oil even during difficult hot 
months--the end of the pipeline system.
    Mr. Olson. Thank you, Mr. Evans.
    My time has expired.
    Now the chair calls on the ranking member of the 
subcommittee, Mr. Rush, for 5 minutes.
    Mr. Rush. I want to thank you, Mr. Chairman.
    I want to ask each witness if you would give me feedback on 
this draft legislation.
    Do you feel that there is a need for the draft or do you 
find it helpful or are you concerned about any of the 
unintentional consequences? And I would like to just ask each 
one of you if you would respond to the question, and beginning 
with you, Mr. Rusco.
    Mr. Rusco. I think that the draft legislation addresses an 
important issue that DOE had not been thinking about when they 
planned their modernization and that is that there is going to 
be excess capacity.
    And it makes good sense to try to use that capacity in a 
way that can help pay for the modernization and pay for the 
routine operations and maintenance so that we don't end up 10, 
20 years later with a bunch of deferred maintenance and 
depreciated usefulness of the assets.
     Mr. Evans. Mr. Rush, we at Fluor are here to implement 
these at the pleasure of the Congress and the department. We 
certainly would be responsive in the near term to integrating 
immediate team needs to, as I mentioned earlier, go the market 
to understand what market demands are, to perform engineering 
and operations analysis studies that would take a look at what 
we needed to do to operate under market conditions.
    Number three, see how to fully integrate those with Life 
Extension Two so we can take advantage of the significant 
change in investment that Congress is making in the SPR, and 
then do all the environmental studies necessary as well to make 
sure that that operates as integrate smart hole.
    I do think that, with the addition of things like brine 
caverns that were mentioned earlier by Secretary Winberg, those 
would be very beneficial for overall operation in the long run 
for the SPR for the government as well as for commercial 
customers.
    Mr. Rush. Mr. Book.
    Mr. Book. Congressman Rush, I think it's a good idea to 
make best use of what you have, particularly if you have a way 
of making money for the taxpayer using an asset owned by the 
taxpayer. That's always a good idea.
    You asked about unintended consequences and I think that 
Secretary Winberg has already suggested that he wants to take a 
look at the implications of this. Part of understanding the 
role of government is understanding the way in which government 
actions can impact private investment.
    It's always a bad idea to lean too heavy with the 
government on something that where private industries put 
capital to work. And so if I had any concern it would be that 
there would be a risk potentially of commercially undercutting 
existing investments.
    But until one looks at it, there's no reason to not proceed 
with looking into it.
    Mr. Rush. I want to thank each and every one of you.
    Mr. Rusco, in your testimony you state that if DOE is 
authorized to lease unused small storage capacity to the 
private sector, as this bill would do, this leasing capacity 
could generate revenue that could help offset the costs of 
modernization.
    Are you confident that DOE will indeed look at this issue 
and, if not, what are some of the missing opportunities of not 
examining this particular topic or subject?
    Mr. Rusco. I am confident that DOE will pay attention to 
what you all do and my concerns are sort of where the bill 
doesn't specify what to do and DOE has not been very proactive 
in evaluating the strategic purpose and future on an ongoing 
basis of the strategic petroleum reserve and, hence, we got to 
a point where we, clearly, according to a lot of folks in 
Congress had more oil than we ought to have.
    There's going to be a lot of drawdowns. But that was done 
without a really quality strategic look at the pros and cons of 
that from DOE.
    Mr. Rush. Well, thank you, Mr. Chairman. I yield back.
    Mr. Olson. Thank you.
    The chair now calls upon the one man who knows more about 
this topic than any single human being in Congress, vice 
chairman of the full committee, Chairman Joe Barton.
    Five minutes, sir.
    Mr. Barton. Well, I am not sure that's true, Mr. Chairman. 
But if it is true that still doesn't say much.
    So well, but it does point out a fact is that there really 
hasn't been a strategic look at the SPR in a long time and the 
last three or four Congresses, as our oil production has ramped 
up in the United States, especially since the repeal of the 
crude oil export ban and our ability to lessen our imports, the 
Congress is using this as a piggy bank and it's not being 
evaluated.
    Let's take oil out of the SPR. This committee--we did it 
the last Congress--21st Century Cures. We needed some money, 
we've got jurisdiction over the SPR so we just said we are 
going to sell some oil and use it. The Budget Committee is 
using it. The omnibus is and the appropriation process is.
    Long story short, under current law, even though it says 
only the President can make a decision to use the reserve and 
he has to declare that it's a national emergency, Congress says 
not withstanding any other law we are going to sell oil for 
this or that or bacon fat.
    And so this draft bill before us says we don't want to 
change the basic mission statement but we want to add a mission 
statement. Under current law, you can't use the SPR for storage 
for private purposes. It's illegal.
    And so we decided let's see if maybe the private sector 
wants to use it. Now, Mr. Book's concerns, we don't want the 
private sector to be crowded out on storage capacity. I think 
that's valid. But it's not mandatory. If we don't sell another 
barrel of oil other than what we've already authorized, we are 
going to have over 100 million barrels of existing capacity 
that could be utilized--maybe two--we were authorized up to a 
billion barrels. But we don't have the current physical 
capacity but about a little over 700 million.
    Let's see if the private sector might want to use that, and 
this problem of being able to maintain the reserve because it 
has to be appropriated--we've got to ask the appropriators to 
appropriate it--and some years they do, some years they don't.
    We changed that. We give the specific authority to the 
secretary. All the money goes into the general fund. But we 
allow money from rentals fees, so to be used to maintain and 
improve the reserve without appropriate--and go through the 
appropriation process. That puts control in this committee in 
the Energy and Commerce.
    So we are trying to fix that problem. I guess I will ask 
Mr. Book, given the existing market dynamic, would the private 
sector decide to utilize the reserve to store their own crude 
oil? What's your bet on that?
    Mr. Book. Well, if you ask an analyst to take a bet you're 
probably going to get an analyst answer. It could be right or 
wrong and I will come up with a new one for you when it's 
wrong.
    But the private sector breaks down into different sets of 
customers. So you do have folks who are trading oil, and when 
the future price of oil is higher than the current price of 
oil, there's an incentive to store.
    They're going to want to move oil out of their storage 
pretty quickly when the market turns around, as it sometimes 
does. And then you have the government customers that we 
mentioned and other potential long-term storage customers or 
longer-term storage customers and we have different needs.
    And I think until you ask and see what's on offer out 
there, it's hard to know. Right now, what you have are mid-
stream companies that are building out storage as they're 
developing transit capabilities, leasing that storage, and 
coming up with innovative new ways.
    Mr. Barton. But they're having to pay capital costs to 
build and operate it.
    Mr. Book. Well, that's right. They do have----
    Mr. Barton. And under this case, you have existing capacity 
that it's a lease or a rental--I am not sure how we would do 
it. But there's no upfront cost, except a commitment--probably 
a time certain commitment.
    Mr. Book. Yes. The costs of salt cavern storage are 
generally cheaper than tank storage and certainly cheaper than 
leasing a ship to store it and then floating storage when 
things get tight.
    So it could be very competitive.
    Mr. Barton. Well, what we are trying to do--Mr. Rush and 
I--we have an asset that's underutilized. We are going to have 
excess capacity.
    Why not have a new mission statement that allows the 
private sector but doesn't mandate the private sector? Maybe 
it'll work. Maybe it won't.
    But we are not going to be any worse off than we are and we 
will probably be better off if the private sector makes a 
decision to utilize it because it's going to give some funding 
that's at the discretion of the secretary of energy to improve 
the facility and I think it's worth a shot.
    But there may be other ideas. Anyway, my time has expired.
    Mr. Olson. Thank you. The chair now calls upon the 
gentleman from California, Mr. McNerney, for 5 minutes, sir.
    Mr. McNerney. Well, thank you, Mr. Chairman.
    I appreciate Mr. Barton's remarks about this. But I have a 
question. Sort of a philosophical question. Is leasing capacity 
to foreign governments or private entities is that going to 
degrade the capacity--the long-term capacity of the caverns?
    Mr. Evans.
    Mr. Evans. I am not an expert in the interests of foreign 
governments. I think that if appropriately handled that the 
caverns themselves can remain integral, if we use brine drive 
to be able to handle those issues and do multiple small 
drawdowns that we could continue to operate those in the 
interests of the government, should we wish to terminate 
agreements with either commercial or foreign countries.
    Mr. McNerney. Well, Mr. Rusco, do you believe that the 
current proposed legislation will give us enough information to 
provide that guidance to the operating SPRO effectively and not 
degrading its capability?
    Mr. Rusco. I think that the implementation of this 
legislation by DOE matters a lot. They would have to implement 
this in a way where there are controls.
    So, for example, if they were to lease this to other IEA 
members, lease the access capacity to store long-term oil, 
which I want to say we have the cheapest storage of anybody in 
the world and we know of at least two countries that have 
actually contacted DOE about leasing space like this.
    If you did that, then you're really enhancing global energy 
security because you have larger storage of crude oil in 
exactly the same place that it would be if we owned it all.
    Now, if the private sector owns it, then we have smaller 
capacity here. Other countries have to have their storage 
capacity somewhere else.
    Mr. McNerney. So my question is does the proposed 
legislation give us and you and the operators the capability to 
operate it in a way that would be beneficial rather than 
detrimental to the long-term capacity? Or does it need to be 
enhanced or improved?
    Mr. Rusco. I think that what I have read, which is just the 
discussion draft, that there--you could implement this in a way 
that would give you flexibility to say OK, we want more--if we 
want more of that capacity for our own storage, then when a 
contract is terminated you could take it back and use it as 
U.S. storage. So I believe it would have that flexibility.
    Mr. McNerney. OK. Thank you.
    Again, Mr. Rusco, do you think there's a good enough case 
for product reserve capacity in the western part of the 
country--on the West coast where we have earthquakes?
    Mr. Rusco. We looked at studies that were done by DOE and 
those studies came to the conclusion that in the case of the 
Southeast and the West Coast there were net positive benefits 
to these things.
    DOE chose not to release those reports. They say they're 
not complete. They've chosen not to complete those reports. But 
everything that is in those reports indicates that there are 
net positive benefits to that.
    Mr. McNerney. Thank you.
    Mr. Evans, you talked a little bit about co-mingling and 
the inevitability of co-mingling, and refineries are 
specialized in terms of the kind of oil they take.
    How is the co-mingling going to impact the refineries' 
ability to produce gasoline and other products?
    Mr. Evans. It's a great question. Each particular demand 
would be somewhat different, Congressman.
    But, however, if we were to lease to a, say, a shell or a 
commercial entity, the crude oil that would be stored there in 
their own cavern, if you would, you would think that it would 
make sense for them to store the material that they would 
utilize most effectively in terms of a turnaround of a refinery 
without product.
    So I think the market handles that piece. We'd have to be 
very careful about co-mingling the crude oil with the 
government oil, and those are practices that are commonly 
done--this is not an impossibility.
    But we are, for example, very sensitive to a high gas 
content oil in our reserves. We believe that's very detrimental 
to the overall safety and quality of the reserves.
    So we have to manage that extremely carefully. We think our 
current regime is a good one in terms of being able to respond 
to refinery needs on an instant basis and if we were able to 
add, similarly, to that mix within the right blend level, that 
that ought to be utilized well as well.
    Mr. McNerney. Thank you.
    Mr. Chairman, I yield back.
    Mr. Olson. Thank you.
    Mr. Doyle, 5 minutes for questions, sir.
    Mr. Doyle. And I thank you to the witnesses today.
    Let me just ask all the witnesses--it's been noted I think 
in Mr. Rusco's testimony that the U.S. will become a net 
exporter in the late 2020s but then become a net importer again 
in 2040, 2050s.
    So in your opinion, how should the U.S. be prepared for 
this long-term outlook for the SPRO?
    Mr. Rusco. Our most recent report is not the first time 
we've recommended to DOE that they do periodic strategic 
studies of conditions and report to Congress about what they 
see coming down the pike.
    So if we see a situation where our net imports are going to 
be increasing over the next few decades at some point, DOE 
should be up here talking to you all and saying we need to 
rethink our capacity.
    Similarly, if they think that risks have either reduced or 
increased of global supply disruptions or if there's big 
changes to demand or supply in any other way, all of that stuff 
needs to be modeled on a regular basis so that they can give 
you really quality information so you can make good decisions.
    Mr. Doyle. Do you agree with that, Mr. Evans?
    Mr. Evans. I do. I think the market volatility is very 
significant right now. I am not an expert in global markets. 
But reading the newspaper leads me to believe that there are a 
number of scenarios that could be invoked over time and, 
certainly, a value in having reserves.
    Mr. Doyle. Mr. Book.
    Mr. Book. I think humility would be the minimum requirement 
for anyone looking at the global oil market, given how much 
things have changed over the last 10 years.
    Mr. Doyle. Yes. Thank you.
    Mr. Rusco, you mentioned that $2 billion from the sale of 
crude oil from the SPRO is authorized for the modernization 
program.
    Has this been implemented, in your opinion, effectively so 
far and do you have a status update on the use of these funds?
    Mr. Rusco. I don't. I don't have an up to date status. I 
know that there have been some sales. I think it's $700 
million. But I don't think most of that money or much of that 
money has actually been spent.
    I think that DOE is doing some further analysis before they 
actually spend that money. But I can't give you much more of an 
answer. I could give you something for the record.
    Mr. Doyle. OK. Thank you.
    Mr. Evans, how safe is the current infrastructure and how 
is your company prioritizing and planning for long-term safety?
    Mr. Evans. So we are very safety conscious. You will note 
our last 3 years on the SPR are the safest years that we have 
seen in the 40-year operation. It's one of Fluor's core values.
    We are very sensitive to the infrastructure and the quality 
of the infrastructure. We run routine programs and 
investigations that will allow us to take a look at the 
quality, for example, of the piping and those kinds of things.
    In the short term, it's manageable with, for example, the 
degasification unit it's on its last legs. We are not going to 
extend that unit. It simply is not feasible and impossible to 
do that.
    When we invest in Life Extension Two, we'll specifically 
look at those old and perhaps more risky components that need 
to be removed and to see how we can possibly configure those to 
be in a more safe and operating environment in the future.
    For example, old pipelines that are 40 years old that are 
underground that are not possible to send a ``smart'' pig 
through perhaps we want to reroute those and have a different 
method to be able to track the quality of what we've done.
    So those are all a part of the department's plans in moving 
forward.
    Mr. Doyle. So tell me, what type of financial investment 
does Congress as well as the DOE need to make to update and 
secure the SPRO's infrastructure?
    Mr. Evans. Well, I think the current, roughly, $1.4 billion 
is a terrific start in getting the infrastructure where it 
needs to go. It certainly attacks the high-profile things that 
we've got in our infrastructure.
    However, it will not replace all of the issues. We'll need 
to have a continual authorization and appropriation for major 
maintenance projects as they come around because by no means 
are we able to use the current funding to replace everything 
that we know that will be coming along in the next 5 to 10 
years.
    Mr. Doyle. Do you have any idea what that number looks 
like, down the road?
    Mr. Evans. I am sorry. I do not, sir. We can take a look at 
that and get back to you.
    Mr. Doyle. OK.
    Thank you, Mr. Chairman. Thank you.
    Mr. Olson. Thank you, Mr. Doyle.
    Mr. Tonko, 5 minutes for questions, sir.
    Mr. Tonko. Thank you, Mr. Chair, and welcome, gentlemen.
    Mr. Rusco, as we have heard this morning, there have been a 
number of legislative requirements to sell SPRO oil in recent 
years.
    Do you believe that the frequent changes to SPRO's long-
term size target have impacted DOE's ability to develop and 
maintain a modernization plan?
    Mr. Rusco. Well, I think that DOE's modernization plan was 
made largely without consideration for those sales and now 
they're adjusting to those sales and doing further analyses.
    So I think the modernization plan will also be affected by 
any legislation that comes out of this Congress about leasing 
excess capacity. But even if Congress does not mandate that 
they look into leasing excess capacity, DOE should do something 
with its excess capacity. They should either tell you that they 
need to shrink capacity or sell some, for example.
    But they need to do something because just leaving that 
excess capacity there is just throwing money away.
    Mr. Tonko. Thank you.
    And Mr. Evans, depending on how the leases are structured, 
might they result in additional stress on aging SPRO 
infrastructure, requiring greater investments in modernization 
and improvements that then might otherwise be required?
    Mr. Evans. It is certainly hopeful that--with decisions 
made on a timely basis to go forward from Congress that we'll 
be able to integrate many of the needs for commercialization 
within the current LE2 environment since there are significant 
upgrades to pipelines and those kinds of things.
    Certainly, we are not currently intending to build brine 
drive caverns. That's an additional cost that we would incur. 
There may be other costs associated as well with piping 
interlinking and valving and control room modifications. Right 
now, we are not aware of those.
    However, I would venture that in the long term those would 
also benefit the longevity and utilization of the reserve.
    Mr. Tonko. Thank you very much.
    And this question, I guess, could go to any of the three of 
you. It's my understanding that the proposed pilot program 
would allow DOE to recover additional costs from the leases.
    How much of the proposed pilot program's revenue should be 
dedicated to investing in the SPRO modernization?
    Mr. Evans. I don't have a number figure. That's probably 
better answered to you when we have some more detailed 
engineering studies and can get back to you on that topic.
    Mr. Tonko. Anyone else? Mr. Book, anything?
    Mr. Book. I am just an analyst, sir.
    [Laughter.]
    Mr. Tonko. Mr. Rusco, currently, is DOE able to enter into 
an agreement with a foreign nation to store oil at the SPRO 
without a change to the statute?
    Mr. Rusco. We believe that's correct, yes.
    Mr. Tonko. Thank you.
    And Mr. Book, I noticed in your testimony that there are 
other nations that meet their IEA requirements by holding oil 
abroad. Are there any reasons why entering into a contract with 
a foreign government may be preferable?
    Mr. Book. Well, the long-term nature of government 
strategic reserves comports with the existing infrastructure 
capabilities of the SPRO today.
    So the customer of first resort would be the customer that 
requires the least incremental maintenance. For that reason, it 
might make sense.
    Mr. Tonko. Yes. And do you believe that there would be 
demand from the private sector to lease this space?
    Mr. Book. Well, it depends an awful lot on what a market 
test shows--that there is going to be demand for more storage 
for crude oil in PAD 3 because there's going to be more crude 
oil production that will need to be stored.
    Mr. Tonko. OK. Anyone else have ideas on that?
    Mr. Rusco. I am sure there's going to be private interest 
in this capacity. It's the cheapest way to store oil.
    Now, you have to make changes in the way that you put it 
in, take it out. You have to use the brine drive to do that. 
But it's still going to be cheaper.
    Mr. Tonko. Right.
    Mr. Evans, did you want to comment on that?
    Mr. Evans. We would also agree with Mr. Book that it would 
be simplest, most efficacious and, perhaps, quickest to be able 
to lease whole caverns to foreign governments as an 
instantaneous benefit to them and to the U.S. government as 
well.
    Mr. Tonko. Thank you. Thank you, gentlemen, and thank you, 
Mr. Chair.
    I yield back.
    Mr. Olson. Thank you, and the chair now calls upon the 
ranking member, Mr. Rush, for one additional question.
    Mr. Rush. Mr. Tonko opened up some thoughts and I just want 
to ask--we've been talking a lot this morning about private 
interests and I don't think we've been hearing enough thought 
and consideration to foreign governments.
    Are any of you aware of any interests by foreign 
governments in leasing the underutilized storage space here in 
the U.S. and if you want to--what's the potential for----
    Mr. Rusco. We spoke with representatives from Australia and 
New Zealand, both of whom have an interest in leasing oil and 
space in the SPRO, and they have actually spoken with DOE about 
this in the past.
    Mr. Rush. Just those two nations?
    Mr. Rusco. Yes, but I----
    Mr. Rush. Do you see any potential for other similarly 
situated foreign governments?
    Mr. Rusco. I would be surprised if there are no other 
governments that are interested because of the differential 
cost. A lot of countries are storing oil and product in tanks 
and if you can store oil in a salt dome it's much cheaper, and 
so I would assume that there would be additional interest.
    Mr. Rush. Thank you, Mr. Chairman. I yield back.
    Mr. Olson. Thank you, and seeing no further members wishing 
to ask questions, I would like to thank our witnesses for 
coming today, and before you leave, Mr. Evans, one special tie 
we have together, we have the Fluor tie but I just found out my 
dad was a Fighting Siwash. Knox College played football there 
'56 through '60.
    Mr. Evans. Are you kidding me? That is absolutely amazing, 
Mr. Olson.
    Mr. Olson. No prairie fire. Siwash, Siwash, Siwash.
    Mr. Evans. When I was at Knox, which is a terrific 
institution, we were the Fighting Siwash and I've never, 
fortunately, given that up. That's so amazing.
    Mr. Olson. Mr. Rush knows that's in Galesburg, Illinois--
Knox College.
    Mr. Evans. Galesburg. Grew up in Illinois and went to 
school there and my family has lived there since the 1850s. So 
Knox is a terrific institution. Thank you for that.
    Mr. Olson. Yes, sir. Yes, sir.
    And before we conclude, I ask unanimous consent to submit 
the following documents to the record: a report by GAO and a 
report from the Center on Global Energy Policy \*\.
    [The information appears at the conclusion of the hearing.]
---------------------------------------------------------------------------
    \*\ The information has been retained in committee files and can be 
found at: https://docs.house.gov/meetings/IF/IF03/20180724/108593/HHRG-
115-IF03-20180724-SD013.pdf.
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    And pursuant to committee rules, I remind members that they 
have 10 business days to submit additional questions for the 
record and I ask that the witnesses submit their responses 
within 10 business days upon receipt.
    Without objection, this subcommittee is adjourned.
    Go Siwash.
    [Whereupon, at 12:35 p.m., the committee was adjourned.]
    [Material submitted for inclusion in the record follows:]

    
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