[Senate Hearing 116-337]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 116-337
 
   THE STATUS OF THE STRATEGIC PETROLEUM RESERVE AND RELATED ENERGY 
                            SECURITY ISSUES

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 17, 2019

                               __________
                               
                               
                               
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                       Printed for the use of the
               Committee on Energy and Natural Resources

        Available via the World Wide Web: http://www.govinfo.gov
        
        
        
                           ______

               U.S. GOVERNMENT PUBLISHING OFFICE 
 39-866                 WASHINGTON : 2021 
         
        
        
               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                    LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming               JOE MANCHIN III, West Virginia
JAMES E. RISCH, Idaho                RON WYDEN, Oregon
MIKE LEE, Utah                       MARIA CANTWELL, Washington
STEVE DAINES, Montana                BERNARD SANDERS, Vermont
BILL CASSIDY, Louisiana              DEBBIE STABENOW, Michigan
CORY GARDNER, Colorado               MARTIN HEINRICH, New Mexico
CINDY HYDE-SMITH, Mississippi        MAZIE K. HIRONO, Hawaii
MARTHA McSALLY, Arizona              ANGUS S. KING, JR., Maine
LAMAR ALEXANDER, Tennessee           CATHERINE CORTEZ MASTO, Nevada
JOHN HOEVEN, North Dakota

                      Brian Hughes, Staff Director
                     Kellie Donnelly, Chief Counsel
                     John Crowther, Senior Counsel
            Tristan Abbey, Senior Professional Staff Member
                Sarah Venuto, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
           Nicole Buell, Democratic Professional Staff Member
           
           
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Murkowski, Hon. Lisa, Chairman and a U.S. Senator from Alaska....     1
Manchin III, Hon. Joe, Ranking Member and a U.S. Senator from 
  West Virginia..................................................    18

                               WITNESSES

Capuano, Hon. Linda, Administrator, U.S. Energy Information 
  Administration, U.S. Department of Energy......................    21
Winberg, Hon. Steven E., Assistant Secretary for Fossil Energy, 
  U.S. Department of Energy......................................    30
Bordoff, Jason E., Founding Director, Center on Global Energy 
  Policy, and Professor of Professional Practice in International 
  and Public Affairs, Columbia University School of International 
  and Public Affairs.............................................    36
Brown, Phillip, Specialist in Energy Policy, Congressional 
  Research Service, Library of Congress..........................    57
Sadamori, Keisuke, Director, Energy Markets and Security, 
  International Energy Agency....................................    62

          ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Bordoff, Jason E.:
    Opening Statement............................................    36
    Written Testimony............................................    39
    Responses to Questions for the Record........................   102
Brown, Phillip:
    Opening Statement............................................    57
    Written Testimony............................................    59
    Responses to Questions for the Record........................   105
Capuano, Hon. Linda:
    Opening Statement............................................    21
    Written Testimony............................................    24
    Responses to Questions for the Record........................    89
Manchin III, Hon. Joe:
    Opening Statement............................................    18
Murkowski, Hon. Lisa:
    Opening Statement............................................     1
    Committee Staff Report dated 7/27/2015 entitled ``A Turbulent 
      World: In Defense of the Strategic Petroleum Reserve''.....     2
Sadamori, Keisuke:
    Opening Statement............................................    62
    Written Testimony............................................    64
    Responses to Questions for the Record........................   114
Winberg, Hon. Steven E.:
    Opening Statement............................................    30
    Written Testimony............................................    32
    Responses to Questions for the Record........................    92


   THE STATUS OF THE STRATEGIC PETROLEUM RESERVE AND RELATED ENERGY 
                            SECURITY ISSUES

                              ----------                              


                       THURSDAY, OCTOBER 17, 2019

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:35 a.m. in 
Room SD-366, Dirksen Senate Office Building, Hon. Lisa 
Murkowski, Chairman of the Committee, presiding.

           OPENING STATEMENT OF HON. LISA MURKOWSKI, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. Good morning, everyone. The Committee will 
come to order.
    We are meeting this morning to examine the status of the 
Strategic Petroleum Reserve. We call it the SPRO, or the SPR. I 
call it the SPRO.
    We recognize around this Committee, certainly Senator 
Cantwell when she was Ranking on the Committee, we have had 
many, many conversations about the significance, the importance 
of the SPRO. We use a lot of terminology about not using this 
as an ATM or the piggy bank or the cash mechanism for so many 
other initiatives. But it seems that we are in a never-ending 
place trying to educate people about the Strategic Petroleum 
Reserve. We are going to continue that education process this 
morning as we speak about its importance to our national energy 
security.
    The SPRO is a vital national asset. In a pair of staff 
reports that we released back in 2015--I argued that it must be 
maintained in case of supply disruptions and the economic 
shockwaves that can follow. We entitled one, ``A Turbulent 
World: In Defense of the Strategic Petroleum Reserve.'' This 
was prepared for the Committee July 27th, of 2015.
    [A copy of the 7/27/2015 report referred to follows:]
    
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    The Chairman. It was important back then, and four years 
later it is still relevant.
    I think we recognize that you don't give up your health 
insurance policy when you are healthy. We should not give up on 
the SPRO just because we are producing more oil right now. In 
fact, I believe the SPRO, the most important strategic energy 
stockpile in the world, is critical to our American energy 
dominance.
    Global energy markets are what I would call ``systemically 
volatile.'' And just to kind of put that in context with a 
couple examples, and I will be quick here, but over the past 
century, we all know here in this country, we all know about 
OPEC, the Organization for Petroleum Exporting Countries. It is 
the quintessential cartel, and its mission is to benefit its 
members by controlling prices. ``OPEC Plus,'' the cartel's 
loose alliance with Russia and several other oil-producing 
countries, is the same story, just with an expanded cast.
    Second, volatility predominates from Venezuela to Libya and 
beyond. In every SPRO ``war game,'' the worst-case scenario has 
always been a violent shock to the Persian Gulf. Of course, the 
recent attacks on Saudi Arabian oil processing facilities, 
recurring incidents involving oil tankers, and persistent 
concerns about the Strait of Hormuz all foreshadow that 
potential nightmare.
    At a minimum, the activities of ``OPEC Plus'' and continued 
strife overseas will ensure that global energy markets remain 
systemically volatile. And as long as that condition exists, I 
believe that we need to have a robust and a functional 
strategic reserve.
    The fact that we did not need to tap the SPRO after the 
Saudi outage does not in any way discount the value of having 
that as an option. We had that in reserve, and I think that 
that was critical. It could have been much worse. Indeed, it 
could very well have been economically cataclysmic.
    Just under a third of the SPRO is mandated for sale over 
the next ten years, a period that I have deemed ``the decade of 
drawdown.'' We may have over 600 million barrels in reserve 
today, but over 200 million are scheduled for sale.
    A small portion will be sold to enhance our energy security 
by modernizing the SPRO itself. That is something that Senator 
Cantwell and I worked on together to make sure that not only do 
we have the Strategic Petroleum Reserve but that we have a 
functioning reserve. As that modernization continues, this 
Committee continues to conduct rigorous oversight.
    But using SPRO as an ATM for purposes completely unrelated 
to energy, let alone energy security, is something else 
entirely.
    So I want to end my comments and thank the panel for being 
here. I will make introductions after Senator Manchin's opening 
statement.
    I appreciate the fact that all of you have come to the 
Committee this morning to provide us your thoughts and your 
expertise.
    Senator Manchin.

              STATEMENT OF HON. JOE MANCHIN III, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Manchin. Well, thank you, Chairman Murkowski, for 
holding this hearing today.
    I want to thank all of you for coming. It is quite an 
illustrious panel here with a lot of knowledge, and we are 
anxious for you to share it with us.
    Again, I will call it SPRO also, which has played an 
important role in energy security since the 1970s. The 
September attack on a major Aramco oil infrastructure in Saudi 
Arabia certainly makes this a timely discussion. I went to see 
the attack firsthand. I was there about three weeks ago. And it 
was an unbelievable, precise, knowledgeable attack that was 
meant to take out the entire system.
    But because of the quick actions and the training that they 
continually enforce and instill into every one of their 
employees, even their weekend employees, a young, 22-year-old 
male basically saved the plant because of the quick actions. If 
not, we could have seen worldwide disruption, economic, the 
likes that we have not seen for a long time.
    So we are very pleased with that--the attack only cut off 5 
percent of the global supply of crude oil and caused a 14 
percent price spike when the markets opened, but it could have 
been much worse. That diminished immediately. They are back to 
100 percent, as I am understanding. We watched and saw the 
quick work that was going on 24/7, around the clock.
    In fact, while the U.S. does import crude oil from Saudi 
Arabia, these volumes are only a little over 10 percent of our 
import total. In addition to our domestic oil production, we 
import almost 48 percent of our crude oil, which, I think, very 
few Americans realize. Forty-eight percent of our oil is from 
Canada, our predominant import and export partner, as well as 
Mexico, Iraq, Venezuela and 38 other countries. In fact, in 
2018 the U.S. exported 1.7 million barrels of crude oil to 42 
countries thanks to Chair Murkowski's great work to lift that 
oil export ban that we had for so many years.
    So we weren't necessarily at risk of being cut off from 
accessing oil stocks, but we weren't insulated from the 
attack's price effects either. This is where the Strategic 
Petroleum Reserve can provide value to protect our country and 
markets from the consequences of events like the one in Saudi 
Arabia.
    While many things have changed since 1974 when the SPRO was 
created, I think it still plays a critical role because, at its 
heart, the Reserve serves a security purpose. But it is not a 
one-trick pony either. Congress has seen fit to use SPRO in a 
number of ways. In its four decades of operation, the SPRO has 
been utilized twice in response to emergency supply 
disruptions. Once during the 1990 Persian Gulf War and then 
again in response to export curtailment in Libya in 2011. More 
recently the Reserve capacity has been used for oil exchanges 
in response to domestic supply disruptions such as from 
hurricanes. It has also been used for budgetary tools, as the 
Chairman has mentioned, and far too many times on both sides of 
the aisle. The one time we did use it for energy purpose, in 
relation, was to ANWR. That was one we chose to do and it was 
used for that, and we can make those decisions later on if it 
is going to be energy-related.
    The time is ripe for discussion about how to best utilize 
the SPRO going forward and how to maintain the core security 
role it plays in the most effective ways. I think they say we 
have the capacity, and I am sure you are going to talk on that, 
how much capacity, how much reserve, where we should be and it 
shouldn't be just dwindled away because we are trying to look 
for a pay-for, which we have done.
    If we, as a Congress, decide to use SPRO sales as a 
budgetary tool, I think we have a responsibility, truly a 
responsibility, to ensure that we are conducting our purchases 
and sales of crude oil in the most fiscally prudent manner to 
ensure fairness to our taxpayers, but more importantly, to be 
transparent to the taxpayers of how we are using their 
reserves.
    I also have concerns about when we buy high and sell low--
it makes no sense to me whatsoever. Who makes those decisions? 
I have always felt that we were, the government was, the 
biggest patsy in the procurement process that I have ever seen 
in my life. And sitting on this Committee with my Chairman 
here, I am going to make sure that we do everything to prevent 
that from happening again, the way it has in the past.
    As we stand today, the International Energy Program 
requires us to maintain reserves equivalent to 90 days of our 
net imports of crude oil and petroleum products the previous 
year. Right now, we are surpassing that partially as a result 
of declining net imports.
    In fact, projections have indicated the United States could 
become a net petroleum exporter as soon as 2020. The oil and 
gas industry has experienced profound upstream growth in a 
short amount of time. This is coupled with less rapid, but 
still distinctive, changes in consumption patterns. All of this 
means that we have both an opportunity and a challenge before 
us which requires a close look at multiple factors to take into 
consideration, because changes will have broad societal 
impacts.
    This Committee has responded to the rapid changes underway 
in the oil and gas and a larger energy sector before, and we 
continue to do that as we speak. With that at the front of our 
minds, I think we need to be purposeful and, indeed, strategic 
in determining the optimal size, configuration and use of 
petroleum reserve in the most efficient manner and in 
protection of our great country in the future.
    Thank you, Madam Chair.
    The Chairman. Thank you, Senator Manchin.
    Let's go to our panel here this morning. Again, we 
appreciate you all being here.
    The panel this morning will be led off by Dr. Linda 
Capuano. We have had you before the Committee many times. We 
welcome you back. Linda is the Administrator for the U.S. 
Energy Information Administration, EIA. Thank you for being 
here.
    The Honorable Steven Winberg is with us as the Assistant 
Secretary for Fossil Energy at the Department of Energy (DOE). 
We appreciate you being here and your leadership over there at 
DOE.
    Jason Bordoff, also familiar to this Committee, is the 
Founding Director for the Center on Global Energy Policy and a 
Professor of Professional Practice at Columbia University 
School of International and Public Affairs. Welcome.
    Mr. Phillip Brown is a Specialist in Energy Policy at CRS, 
the Congressional Research Service, at the Library of Congress. 
We appreciate all the good work at the Library of Congress. 
Thank you.
    Mr. Keisuke Sadamori is the Director for Energy Markets and 
Security at the International Energy Agency (IEA). We 
appreciate your comments here this morning.
    Dr. Capuano, if you would like to lead us off with your 
comments?
    We would ask folks to try to keep their remarks to about 
five minutes. Your full statements will be included as part of 
the record, and then we will have an opportunity for questions.
    So, Administrator.

        STATEMENT OF HON. LINDA CAPUANO, ADMINISTRATOR, 
  U.S. ENERGY INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF 
                             ENERGY

    Dr. Capuano. Thank you.
    Chairman Murkowski, Ranking Member Manchin and members of 
the Committee, I appreciate the opportunity to provide 
testimony on the status of the Strategic Petroleum Reserve and 
related energy security issues. My discussion will include 
EIA's current view of the global oil market which is reflected 
in last week's update of our short-term Energy Outlook.
    To summarize that view, although recent crude oil supply 
disruptions caused short-term price increases, slowing global 
economic growth continues to put downward pressure on oil 
prices which we expect will outweigh the concerns about supply 
stability.
    On Saturday, September 14, 2019, crude oil and liquid fuels 
infrastructure was attacked in Saudi Arabia, causing damage to 
Saudi Aramco's Abqaiq processing facility and the Khurais oil 
field. The Abqaiq oil processing facility has a 7 million 
barrel-per-day capacity, which is about five percent of the 
world's crude oil and liquid fuels production capacity. The 
Khurais oil field produces about 1.2 million barrels per day of 
Arab Light crude oil. EIA estimates that Saudi Arabia's crude 
oil production averaged 9.9 million barrels per day in August 
and that it fell to 8.5 million barrels per day in September.
    The attack caused an immediate disruption of about 5.7 
million barrels per day of crude oil production, which is about 
six percent of the total global supply, and an additional 1.1 
million barrels per day of non-crude liquids production. It 
also raised vulnerability concerns about Saudi Arabia's spare 
production capacity, which represents more than 85 percent of 
the world's spare capacity. Crude oil prices responded 
immediately to the magnitude and the location of the production 
outages. Increasing sharply on the first full day of trading 
following the attack, the Brent crude oil price rose more than 
$7.00 per barrel to $68.42 per barrel on September 16th, and 
the West Texas Intermediate crude oil price rose more than 
$8.00 per barrel to $63.10 per barrel. This was the largest 
single-day crude oil price increase in the past decade.
    In general, planned and unplanned production outages happen 
for a variety of reasons and are usually offset by spare crude 
oil production capacity and oil inventories. The effectiveness 
of these two mitigating factors depends on the size of the 
outage and the prevailing market conditions. These market 
conditions include possible changes in global supply growth 
patterns and economic outlook. Currently, spare crude oil 
production capacity is relatively constrained, but oil 
inventories are at relatively plentiful levels.
    Before the outage, EIA expected global spare crude oil 
production capacity to average 2.2 million barrels per day in 
the fourth quarter of 2019. In our October Short-Term Energy 
Outlook, which included the recent Saudi Arabian outage, we 
estimated that global spare crude oil production capacity fell 
by 1 million barrels per day in September. The October outlook 
also forecasts global spare crude oil production capacity to 
average 1.6 million barrels per day in the fourth quarter of 
2019. Historically, spare capacity at less than 2.5 million 
barrels per day would indicate a relatively tight oil market; 
however, our October forecast shows global supply growth 
outpacing demand growth, which makes the low surplus capacity 
less of a concern for the remainder of 2019.
    Inventories can also act as a cushion for supply 
disruption. The United States has two types of crude oil 
inventories: those held by private firms for commercial 
purposes and those held by the Federal Government in the 
Strategic Petroleum Reserve. EIA data for the week of September 
27th estimates the total U.S. commercial inventories were 
equivalent to 26 days of current U.S. refinery crude oil inputs 
and the Strategic Petroleum Reserve holds the volume equivalent 
of about 40 additional days, resulting in a total U.S. 
inventory of about 66 days of production.
    Aside from U.S. data, the best available data measuring 
global oil inventories in the Organization for Economic 
Cooperation and Development data, OECD. Collectively, the OECD, 
which includes the United States, held about 2.9 million 
barrels of crude oil and other liquids in inventory as of the 
end of September, equivalent to about 61 days of supply. The 
total for all OECD current inventories was about one percent 
lower than the previous five-year average. Globally, crude oil 
stock data for countries that are not members of OECD are 
difficult to acquire with consistent timing and quality.
    A few days after the September 14th attack, Saudi Aramco, 
Saudi Arabia's national oil company, announced about 2 million 
barrels per day of previously shut-in volumes had already been 
returned to production and that the remainder would be restored 
within weeks. Within days, industry sources reported that Saudi 
Arabia had restored crude oil exports to pre-attack level by 
augmenting a partial restoration of production with exports 
from storage and with volumes diverted from domestic 
refineries. In response, Brent and West Texas Intermediate 
crude oil prices fell to $65.59 per barrel and $59.26 per 
barrel, respectively, by September 17th. The price declines 
continued as it became clear the outage would last days instead 
of weeks or months. By September 30th, prices had fallen below 
the pre-disruption levels, averaging about $61.00 per barrel 
for Brent and $54.09 per barrel for West Texas Intermediate.
    In our September Short-Term Energy Outlook, released before 
the outage in Saudi Arabia, we forecast Brent crude prices 
would average $63.39 per barrel in 2019 and $62.00 per barrel 
in 2020. In our September outlook, we expected the global 
supply would outpace global demand in both years, leading to 
average global inventory builds of 240,000 barrels per day in 
2019 and 360,000 barrels per day in 2020. At the time, we also 
expected that declining OPEC oil production would be more than 
offset by rising non-OPEC production, led by the United States. 
In addition, our September forecast crude oil price declines 
reflected concerns about the global economy, and our global oil 
consumption growth forecast was only 0.9 million barrels per 
day in 2019, the lowest level in 2011.
    I see that I'm running out of time, so I'll submit the rest 
of my comments and I will thank you for the opportunity to 
address the Committee.
    [The prepared statement of Dr. Capuano follows:]
    
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    The Chairman. Thank you, Administrator.
    Assistant Secretary Winberg, welcome.

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

    Mr. Winberg. Thank you, Chairman Murkowski, Ranking Member 
Manchin and member of the Committee, Senator Cassidy.
    I appreciate the opportunity to be here today with you to 
discuss the SPRO and related U.S. energy security matters. The 
mission of the SPRO is to protect the United States economy 
from severe petroleum supply interruptions through the 
acquisition, storage, distribution, and management of energy 
petroleum stocks.
    With the Department's dedicated workforce, the SPRO stands 
ready to respond to a petroleum supply disruption if a release 
from the SPRO is ordered by the President or if a collective 
action is initiated by the International Energy Agency, to 
which the U.S. is a signatory member. And it's important to 
note that under an IEA collective action, that would also 
require the President's approval.
    So, following recent attacks in Saudi Arabia, which 
temporarily reduced the world's supply of oil and caused a 
short-term price surge, when that happened, President Trump 
authorized, if needed, the use of oil from the Strategic 
Petroleum Reserve. In addition, within hours after the attack 
the SPRO leadership verified that all of the SPRO sites were 
drawdown ready. Further, the SPRO coordinated with oil refiners 
in the Gulf Coast to determine the impacts, if any, on their 
crude oil supply, and also made sure that these refiners 
understood the process for crude oil exchanges going into the 
future.
    At this time, there has been no release from the SPRO in 
connection with the recent attacks in Saudi Arabia, nor is 
there expected to be; however, the attack did highlight the 
vulnerability of critical world energy resources, and points to 
further efforts to increase oil supply chain resiliency. The 
SPRO has played a leading role in this for the past 40 years. A 
major factor in the attack not having a profoundly negative 
impact on global oil supplies is that the U.S. oil production 
growth has recently and significantly contributed to high 
levels of global crude oil inventory.
    And, with respect to the SPRO, if the United States had 
been or is called on to fill a supply gap left by the attack, 
the SPRO is well-positioned to play a key role in maintaining a 
stable global oil supply. The SPRO's 645 million barrels of oil 
and similar stockpiles in other nations is a disincentive to 
any actor looking to disrupt the world's supply of oil and is a 
moderating factor to keep prices for products such as gasoline, 
diesel fuel, and jet fuel from rising higher than they would 
otherwise in supply disruptions such as the recent attacks.
    In addition to protecting the United States from severe 
petroleum supply disruptions, the SPRO enables the United 
States to carry out its treaty obligations under the 
International Energy Program as implemented by the IEA. In the 
event of an international oil supply disruption, significant 
enough for the President to authorize a release from the SPRO, 
U.S. domestic conventional and unconventional production alone 
would likely not be able to ramp up quickly enough to make up 
for the lost barrels in a crisis. Thus, the SPRO maintains the 
ability to drawdown and deliver crude oil within 13 days of a 
Presidential finding to bridge the months it would take for 
domestic production to ramp up. The SPRO remains 100 percent 
drawdown ready if the President orders a release to protect the 
United States from petroleum supply disruptions or to fulfill 
our nation's IEA treaty commitments. The recent attacks in 
Saudi Arabia serve as a reminder of the importance of the SPRO 
as a national security asset.
    Chairman Murkowski, the DOE deeply appreciates your 
commitment and the commitment of this Committee to the SPRO and 
its mission to protect the United States economy from severe 
petroleum supply interruptions through the acquisition of 
storage distribution and management of energy petroleum stocks. 
I appreciate the opportunity to be here before you today. I'm 
pleased to answer any questions you have.
    And finally, I want to thank my wife, Anne, for joining me 
here this morning.
    The Chairman. We welcome her.
    [The prepared statement of Mr. Winberg follows:]
    
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    The Chairman. Thank you, we appreciate your testimony this 
morning.
    Mr. Bordoff, welcome.

  STATEMENT OF JASON E. BORDOFF, FOUNDING DIRECTOR, CENTER ON 
GLOBAL ENERGY POLICY, AND PROFESSOR OF PROFESSIONAL PRACTICE IN 
INTERNATIONAL AND PUBLIC AFFAIRS, COLUMBIA UNIVERSITY SCHOOL OF 
                INTERNATIONAL AND PUBLIC AFFAIRS

    Mr. Bordoff. Thank you. Good morning, Chairman Murkowski, 
Ranking Member Manchin and members of the Committee, thank you 
for the invitation to be here today.
    I will summarize the longer written testimony that I've 
submitted for the record.
    You'll hear a lot of agreement. I agree that the recent 
attack on key Saudi Arabian oil facilities serves as a reminder 
of America's continued vulnerability to global supply 
disruptions, even as we become far less dependent on imported 
oil. In that case, a confluence of factors both the state of 
the world oil market and the extraordinarily rapid, more 
rapidly than expected, recovery by Saudi Aramco, avoided a 
severe supply disruption this time. But next time we might not 
be so lucky. I think the attack revealed a vulnerability that 
the market didn't fully appreciate and obviously regional 
tensions continue to flare, and if another disruption were to 
happen, there's going to be a thinner buffer of spare capacity 
because Saudi Aramco is still in the process of undertaking 
repairs. The Abqaiq attack is important because we need to 
remember that any disruption that affects world oil prices hits 
Americans at the pump even if the U.S. is remarkably on the 
cusp of becoming a net oil exporter.
    Despite the shale revolution, the U.S. is not energy 
independent. Even if we import no oil at all on a net basis, we 
are not energy independent. If by that we mean that we are 
still connected to a global integrated oil market and that 
means that a supply disruption anywhere causes prices to go up 
everywhere. That's why the requirement under the IEA agreement 
that you hold imports equal to 90 days of import cover, supply 
equal to 90 days of import cover was never the right metric in 
the first place. And don't forget that while the U.S. is about 
to achieve net zero oil imports, again, on a net basis that 
masks huge imports and exports including nearly a million 
barrels a day, still, of imports from the Gulf Arab region. So 
despite the shale boom and declining import dependence, the SPR 
remains a critical national security asset, in my view. But the 
risk against which it protects today is different than when it 
was created, when oil was not traded as a global commodity the 
way it is today.
    Today the risk is not a physical inability to access 
barrels, but supply disruptions that cause oil prices to go up 
everywhere. And private companies don't bear the full social 
costs of those price spikes, so they lack adequate incentives 
to safeguard against them.
    It's true that the shale boom helps with oil security by 
delivering huge new volumes of that, loosen markets and bring 
prices down by shaping market expectations of future abundance 
by forcing OPEC countries to cut production which actually 
creates a little bit of a larger buffer of spare capacity and 
by reducing the macroeconomic impacts, not the impacts at the 
pump, but the macroeconomic impacts of price shocks because 
increased consumer spending flows to U.S. producers rather than 
overseas. But again, drivers still do get hurt at the pump, 
even though shale can be ramped up much more quickly than 
conventional supply. It's not spare capacity that can be 
brought to the market in a matter of weeks.
    Some argue that the SPR is less needed because the oil age 
will end soon thanks to climate action and trends like electric 
vehicles. And I want to be very clear, we need to be acting 
much, much more urgently to deal with the threat of climate 
change. But even if we do that, oil demand is going to persist 
for some time and even if oil were to peak and start to decline 
sooner than people think, actually the SPR may be more needed 
not less because I think that process of transition would be 
one that's enormously uncertain, messy. It's going to send 
mixed signals to the market with potential periods of both 
overinvestment and underinvestment as investors, potentially, 
turn away from an industry they perceive to be in decline. So 
that could lead to more price volatility that actually turns 
the SPR into more of a tool to smooth a process of energy 
transition.
    We shouldn't forget that the SPR, as useful as it is, is 
also just for short-term, temporary fixes. Our vulnerability to 
global oil price spikes is a reflection, again, not of how much 
we import, but how much we consume, so the best way to protect 
consumers and the economy from inevitable price spikes is to 
reduce how much oil we use in the first place and higher fuel 
economy standards are one smart and effective way to do that.
    Let me start--let me conclude, rather, with just a word 
about SPR management. The SPR needs to be modernized, and I 
know that's been a priority for you, Madam Chairman, and others 
on the Committee. I think, frankly, that needs to happen 
faster. The nearly 6 million barrel a day disruption in Saudi 
Arabia brought into sharp relief the concerns that exist right 
now among observers about whether the SPR could actually get to 
the purported release rate of 4.4 million barrels a day. And 
then beyond modernization, the SPR also needs continued 
strategic review. To date, I think, that has focused too much 
on the optimal size. The size today, honestly, is a reflection 
as much of political compromise as it is any sort of precise 
analysis and the optimal size is determined not just by cost 
benefit analysis but by judgments than by how large an 
insurance policy we want to take out. So the SPR, you could 
say, is either way too big or way too small depending on what 
we want it to do. So I think a strategic review needs to look, 
not just at the optimal size but think more about the SPR's 
rational, purpose, composition and the theory of use we have 
for it given how things have changed.
    People can reach different conclusions about that, of 
course, but what I hope we can all agree on, as the Chairman 
has said, is that making the decision to sell the SPR to fill 
short-term budget holes, is not wise. In my view, given the 
uncertainties and the risks, the burden of proof should be on 
those who want to sell off a strategic asset we've held for 
nearly half a century before we decide to go down that road.
    Thank you, members of the Committee, for inviting me here 
today, and I look forward to answering any questions you might 
have.
    [The prepared statement of Mr. Bordoff follows:]
    
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    The Chairman. Thank you, Mr. Bordoff. We appreciate that.
    Mr. Brown, welcome.

   STATEMENT OF PHILLIP BROWN, SPECIALIST IN ENERGY POLICY, 
      CONGRESSIONAL RESEARCH SERVICE, LIBRARY OF CONGRESS

    Mr. Brown. Chairman Murkowski, Ranking Member Manchin, 
members of the Committee, good morning.
    CRS appreciates the opportunity to testify about the 
Strategic Petroleum Reserve and in accordance with our enabling 
statutes, CRS takes no position on this policy or other 
legislation.
    In response to the 1973 oil embargo, an event that 
contributed to rapidly escalating oil prices and petroleum 
product scarcity, the Energy Policy and Conservation Act (EPCA) 
was enacted in December 1975. EPCA authorized the creation of 
the SPR to hold reserves of up to 1 billion barrels of 
petroleum products.
    As amended, the SPR section of the Code states that it is 
the policy of the United States to create an SPR to ``reduce 
the impact of disruptions in supplies of petroleum products,'' 
and ``to carry out obligations of the United States under the 
international energy program,'' the multilateral treaty that 
requires signatories to maintain emergency reserves equivalent 
to 90 days of prior year net imports. As of October 11th, 2019, 
SPR oil stocks totaled nearly 643 million barrels, 
approximately 274 days of net import coverage based on 2018 
annual data.
    With relatively little utilization in response to emergency 
supply disruptions, limited, although more frequent, oil 
exchanges in response to domestic supply disruptions such as 
hurricanes and decreasing net petroleum imports, Congress has 
recently enacted legislation that requires SPR oil to be sold 
in order to fund other legislative priorities.
    Since 2015, seven laws have been enacted that mandate the 
sale of 271 million barrels of SPR oil during Fiscal Years 2017 
through 2028. These mandated sales represent nearly 39 percent 
of SPR stocks held at the beginning of 2017. Congress has also 
authorized up to $2 billion of SPR oil sales during Fiscal 
Years 2017 through 2020 to pay for SPR modernization. To date, 
44.8 million barrels of mandated sales have either been 
delivered or have been awarded and 15.3 million barrels of SPR 
modernization sales have occurred, in total, nearly 60.1 
million barrels. By the end of Fiscal Year 2028, SPR stocks are 
estimated to be 409 million barrels and could be lower should 
Fiscal Year 2020 modernization sales occur.
    EIA reference case projections indicate that the United 
States could be a net petroleum exporter as soon as 2020 and 
remain so until 2049; however, other EIA cases indicate that 
the United States may continue to be a net importer. Should the 
reference case projections be realized, the International 
Energy Program reserve commitment for oil stocks, a 
quantifiable SPR statutory policy objective, may no longer be 
binding; however, the statutory policy to provide protection 
from the impact of supply disruptions, an objective that is 
difficult to quantify, would remain.
    The United States is integrated with the global oil market 
and may continue to be exposed to price escalation that could 
result from supply disruptions. For example, U.S. refineries 
imported 7.8 million barrels per day of crude oil in 2018, and 
U.S. crude oil and petroleum product exports were 7.6 million 
barrels per day. Market integration means that supply 
disruptions anywhere will likely be reflected in domestic price 
levels; however, market integration also allows for the U.S. 
petroleum industry to contribute toward addressing disruptions 
and price impacts.
    The September 2019 oil infrastructure attack in Saudi 
Arabia resulted in the largest single-day West Texas 
Intermediate price increase over the last 10 years. This effect 
on U.S. price levels from a temporary disruption in a foreign 
country illustrates the global nature of oil markets. Potential 
and actual economic dislocation that oil supply disruptions and 
rapid oil price increases are likely to create are among market 
conditions the SPR is intended to address. However, to date, an 
SPR drawdown in response to events in Saudi Arabia has not 
occurred and oil prices returned to near pre-attack levels 
within two weeks.
    As SPR oil sales continue and should the U.S. become a net 
petroleum exporter, the future of the SPR is likely to be the 
subject of policy debates; however, determining an optimal SPR 
size and configuration that addresses a difficult-to-quantify 
statutory objective may be challenging due to several factors, 
including the uncertain nature of future supply disruptions.
    Thank you for the opportunity to testify today. I will be 
glad to answer any questions from the Committee.
    [The prepared statement of Mr. Brown follows:]
    
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        The Chairman. Thank you, Mr. Brown.
    Mr. Sadamori, welcome.

  STATEMENT OF KEISUKE SADAMORI, DIRECTOR, ENERGY MARKETS AND 
             SECURITY, INTERNATIONAL ENERGY AGENCY

    Mr. Sadamori. Good morning, Chairman Murkowski, Ranking 
Member Manchin and distinguished members of the Committee. So 
thank you for the opportunity to appear before you today to 
present the International Energy Agency's view on Strategic 
Petroleum Reserves.
    Let me start by conveying his best regards from our 
Executive Director, Dr. Fatih Birol, to members of the 
Committee. And also, we, at the IEA, have been delighted to 
have Chairman Murkowski as a member of the Global Commission 
for the Urgent Action on Energy Efficiency. Thank you.
    Strategic oil stocks are the cornerstone of IEA's 
coordinated emergency response systems. IEA countries hold more 
than 2.2 billion barrels of emergency reserves. The recent 
attacks on Saudi Arabian oil infrastructure provides a vivid 
example of how the IEA emergency response system works and how 
the emergency oil stocks can be beneficial to supply security, 
even when these are not released.
    Early reassurances by the U.S., Japan and the IEA that 
emergency oil stocks would be employed, if needed, were 
essential to help avoid a panicked market reaction. Ultimately, 
the quick recovery in Saudi production capacity made the use of 
emergency stocks unnecessary. Had the damage been more 
extensive or beyond the ability of the Saudis to quickly 
address, however, the use of emergency oil stocks would have 
been crucial in avoiding the substantial economic damage by 
bridging the supply gap. Had the same scenario played out in 
the absence of these robust levels of emergency stocks, the 
market reaction would have been quite different.
    This underlines the importance of emergency oil stocks and 
is a reminder that the oil security matters, even when our 
energy systems transitions to cleaner and more sustainable fuel 
sources. Oil share in the global energy mix has been reduced 
from the 45 percent in 1974 to 31 percent today, yet oil still 
represents the largest share of any fuel source. Oil 
consumption is now over 100 million barrels and will continue 
to grow, will continue growth, to 2040 in the IEA's World 
Energy Outlook's May scenario.
    Oil continues to be the dominant fuel for the transport 
sector. The petrochemical sector will also lead demand growth. 
And even in the scenario that meets the goals of the 2015 Paris 
agreement, there would still be an oil market over 67 million 
barrels per day in 2040 and that is comparable in size to the 
oil market of the early 1990s.
    Oil security is not only an issue for net importers. 
Regional extreme weather events and terrorist attacks can 
affect all countries. In a global market, even in net exporting 
countries, oil consumers will be economically harmed by spiking 
oil prices and for net exporting countries, imports can still 
play a crucial role helping overcome crude quality issues and 
other issues. So achieving net exporter status shouldn't be 
seen as making strategic stocks no longer necessary. As 
highlighted by the IEA's recent in-depth review of U.S. energy 
policy, released last month, should the U.S. further drawdown 
its SPR levels, there could be a challenge to the future 
effectiveness of the IEA stock systems. So we encourage the 
United States to maintain robust SPR volumes to uphold global 
energy security, even as it transitions to a net exporter of 
oil.
    Involving major new members in the area of oil security is 
one of the IEA's highest priorities. The United States, as the 
largest IEA member, has a substantial role here. Efforts by the 
U.S. SPR to open up available storage for use by other 
countries are very welcome, as this can provide cost-effective 
options for countries wanting to build emergency stocks and it 
sets the example for countries to consider the benefits of a 
joint strategic stockpiling.
    On behalf of everyone at the IEA, I wish to once again 
thank you for inviting me before your Committee, and I'll be 
happy to answer whatever questions you may have.
    Thank you.
    [The prepared statement of Mr. Sadamori follows:]
    
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    The Chairman. Thank you, Mr. Sadamori.
    We are going to go ahead and begin with questions. I am 
going to defer to my colleague. Senator Cassidy, if you would 
like to begin questioning.
    Senator Cassidy. Thank you, Madam Chair. Thanks for holding 
the hearing.
    Welcome to the witnesses. There are two of these sites in 
my state. So I have, kind of, a hometown interest in this as 
well.
    Mr. Winberg, last year Under Secretary Menezes stated the 
Department supported legislation I introduced to authorize a 
pilot program for the Department to lease up to 200 million 
barrels of future, unused SPR capacity to meet commercial 
needs. Now you have the authority to lease to foreign 
governments but not to commercial markets. I understand as well 
the Department has been working on a SPRO post-sale 
configuration study to outline how we will maintain readiness 
in the future. What is the current status?
    I will ask you all to be brief because I have lots of 
questions, and I want to get to the them.
    What is the current status of this post-sale configuration 
study? When will it be published?
    Mr. Winberg. Thank you, Senator.
    The post-configuration study will be complete by the end of 
this year. It's going through some initial internal review.
    Senator Cassidy. Let me ask you.
    Mr. Winberg. Yes?
    Senator Cassidy. Given the support of the Department for 
commercial leasing, to what extent does the study evaluate the 
potential for an associated cost and/or profit of commercial 
leasing?
    Mr. Winberg. That is indeed part of the study, both 
commercial leasing as well as leasing SPRO assets to other IEA 
countries.
    Senator Cassidy. Now can you tip your hand and give me a 
spoiler alert?
    Mr. Winberg. Well I can tell you that for commercial 
leasing it is going to require a fair amount of capital, 
because we need to have a brine drive system for commercial 
operations. I could talk to you about that offline, but it's 
fairly expensive.
    Senator Cassidy. Okay.
    That is odd to me just because it seems as if you are 
merely using capacity currently used to store oil, but instead 
of storing it for Great Britain you are storing it for Conoco.
    Mr. Winberg. Right, except in a commercial play what would 
happen is the private sector would want to inject the oil and 
remove it on a very frequent basis and those caverns were not 
designed to do that because they're salt caverns. Every time 
that you remove oil with fresh water, which is how we do it 
right now, you start to dissolve around the cavern walls. So 
that's why the brine drive----
    Senator Cassidy. Is there a way to use a surrogate, for 
example, CO2 or something else, to move that would 
not dissolve the salt?
    Mr. Winberg. Yes, sir, that would be a brine drive system.
    Senator Cassidy. I see what you are saying, but that is 
more expensive or it is just that you have to make the initial 
investment?
    Mr. Winberg. You've got to make the initial investment, so 
it's the capital.
    Senator Cassidy. I am going to ask you another question, 
but I am going to play off something that Professor Bordoff 
wrote that in evaluating the future, a cost-benefit analysis 
must include financial factors and market impacts of SPRO 
releases under different scenarios. I assume the study will 
include this sort of analysis as well?
    Mr. Winberg. Yes, absolutely.
    Senator Cassidy. So, Professor, you say that there needs to 
be an analytically-based usage policy and you, in your 
testimony, kind of, mention maybe we want to go from national 
security to how we, in effect, blunt price spikes. But it seems 
like that is what we are doing already. When the President just 
tipped and said, I think I am going to release, that calmed 
down the markets, even though he never released. So are you 
speaking of something more than what Presidents are doing 
intuitively, because I think other Presidents have done this as 
well? If you will, just use it almost as a hedge against price 
spikes.
    Mr. Bordoff. Well, I think, given how the oil market has 
changed, when the SPR was created--we didn't have, I mean, now 
oil is the, I think, one of, if not the most, globally traded 
commodity in the world--we didn't have that, sort of, liquid 
commodity market. So at the time, the potential for physical 
shortages was more real than it is today. Today disruptions 
manifest themselves as price spikes everywhere. So I think the 
way in which we are using it today is to smooth those price 
spikes.
    I think it's a question more, there really is a lot of 
uncertainty and it's very different Administration to 
Administration. They have a lot of discretion to think about--
--
    Senator Cassidy. But it seems like they all want to avoid a 
spike in gas prices.
    Mr. Bordoff. Right.
    Senator Cassidy. And so, they all kind of say, wait a 
second, if it goes too high, I am going to release a little 
bit.
    Mr. Bordoff. Yeah, the question is how often one might 
think about using it. I mean, when we don't think about it as a 
federal reserve of oil where the government has a role to play.
    Senator Cassidy. So you are thinking of a more formal 
policy as opposed to, kind of, ad hoc?
    Mr. Bordoff. I think it would be helpful if there was a 
clearer understanding across Administrations about the 
rationale and purpose.
    Senator Cassidy. Now the only problem with that is the very 
fact that you can do it whenever you want to allows flexibility 
as to when you do it.
    Let me ask you one more question real quickly, if I may, 
Madam Chair?
    You also mention that the reserves we have may not be 
adequate for prolonged disruption implying that our shale play 
could not ramp up within 26 days, if we have a 26-day reserve 
independently of that which the refineries have. But I have a 
sense of shale plays and maybe Dr. Capuano, you could respond 
to this. They can gin up pretty quickly because, if nothing 
else, they can just re-frack something which has already been 
fracked. It is just a question of getting the equipment there.
    Now again, you may have pipeline constraints, I gather 
that. But still, it seems like our swing producers can swing up 
pretty quickly. Is it not a matter of several weeks in which 
they could?
    Mr. Bordoff. I think there's a limited extent to which they 
could. There are drilled but uncompleted wells that may be able 
to be tapped quickly. I think otherwise you're talking 6, 9, 12 
months to bring rigs in, to bring equipment in.
    The producers increasingly are hedging production which is 
very good from the standpoint of their economics but actually 
makes them a little less elastic, less sensitive to oil price 
changes because they've had----
    Senator Cassidy. It is like most of those guys are so cash-
flow intensive that if it blips a little bit, they are out 
there pumping.
    Mr. Bordoff. That's true. I think that's going to decline 
over time as we see more consolidation in the industry and you 
see players with larger capital----
    Senator Cassidy. Reserves.
    Mr. Bordoff. Ability and reserves that are dominating 
production.
    Senator Cassidy. I should stop here.
    Thank you, Madam Chair, for indulging.
    The Chairman. Thank you, Senator Cassidy.
    Senator Manchin.
    Senator Manchin. Thank you very much. Thank you all for 
being here.
    I have a couple things you may be able to help clear up or 
explain better to me.
    First of all, I noticed our strategic reserves are all 
located in the same locale as far as geographically. With the 
mindset of the world today being an upheaval, terrorist type 
things, also going back to the attack on Aramco, I was able to 
visit the site and see the precision that it was hit. I was 
thinking well, somebody has espionage capability and aren't you 
concerned about people, inside your own organization that may 
give all this information to the enemy? They looked at me and 
said, no, it was all Google. They were able to get everything 
off of Google maps.
    We seem to have all our eggs in one basket. That is a 
concern. The one in Louisiana went down in '99 because of a 
sinkhole and water infiltration.
    Then I am hearing a little bit about well, we can rent this 
out. I think we did for a budgetary act, one time in our past 
say that we could lease out to foreign entities if they wanted 
to store their oil but we don't do that to commercial. If it 
was a moneymaking scheme, I don't know what our purpose was at 
that time, policy wise, if someone has that answer?
    And very important to me, who makes the decision when to 
buy and when to sell? It makes no sense to me. It is the 
stupidest thing I have ever seen and heard in my life. We buy 
high, sell low, take a loss. Does that go in the national debt? 
Does OMB score it that way? I mean, none of this makes sense. 
And the people start asking us how you run this place.
    So you can start, whoever wants to start, wherever you want 
to start. Make sense out of this so we understand there is a 
purpose for what we do. Are we doing it in the most safe and 
secure way?
    Steve?
    Mr. Winberg. Yeah, thank you, Senator Manchin.
    Under my watch I have not bought oil.
    [Laughter.]
    Senator Manchin. Let's make that, for the record, real 
clear.
    Mr. Winberg. But anticipating somebody might ask the 
question, we went back and looked and our average price of 
purchased oil is about $30.00 a barrel. Clearly, in the last 
several Congressionally-mandated sales that we've had, we've 
been significantly above $30.00 a barrel.
    Senator Manchin. But your mandated sales were based on 
budgetary concerns. I think most of your mandatory actions, 
coming from this body, have been based on budgetary concerns.
    Mr. Winberg. Yes.
    Senator Manchin. Pay-fors.
    Mr. Winberg. Yes, and also to fund the life extension 
program. But we auction the oil and it goes to the highest 
bidder and that's whether it's----
    Senator Manchin. Why does it take 13 days to get it moving?
    Mr. Winberg. Well, because we need to send out an auction 
notice. People have to put the bids back in to us. It takes a 
day or two to----
    Senator Manchin. I don't mean to interrupt you, but because 
of time----
    Mr. Winberg. Sure.
    Senator Manchin. ----I want to make sure everybody gets in. 
But if it is a national emergency, it wouldn't take 13 days, 
would it? If you had to have it flowing because of a national 
emergency, would it still be a 13-day cycle?
    Mr. Winberg. Under the directive that we have right now in 
how we auction the oil off, it would take 13 days. However, 
under an exchange, if a refinery needed oil immediately, we 
could do that within a couple of days.
    Senator Manchin. Okay.
    Mr. Bordoff. I would just add to that, that I think even 
though it might take 13 days, knowing it is coming, that alone 
will affect the price today.
    So it does have an immediate impact on the price spike as 
we talked about before, that we're concerned with.
    Senator Manchin. Do you think we have enough reserves? A 
90-day reserve, is that adequate? I know you talked about that, 
Mr. Bordoff, a little bit and not in a complimentary way.
    Mr. Bordoff. I was making the point that I think, given the 
fact that what we are concerned about is an impact on oil 
prices around the world which are reflected in pump prices here 
at home, regardless of how much we import, that 90 days of 
import cover doesn't seem like the right metric to me.
    The fact that we are about to be a net oil exporter, but 
the International Energy Agency is here today telling us not to 
sell our stocks, suggests they don't believe 90 days of import 
covers the right metric either.
    Senator Manchin. What is the right metric? Do you all have 
a suggestion on the right metric we should be using for 
storage?
    Phillip?
    Mr. Brown. We've discussed this at CRS and determining the 
right size of the SPR is a very difficult task because, as I 
mentioned in my opening remarks, you don't really know what the 
size and duration, the duration of a supply loss is a very 
important element here, and knowing that with any degree of 
certainty is very difficult.
    There are approaches that have been used in the past to 
attempt to do that, but they're subject to assumptions in order 
to do that analysis and a lot of them are based off of 
probabilities that are very subjective in nature. And the other 
thing is that any small change to any of these assumptions that 
are used for this analysis are likely to cause pretty major 
changes to the analytical results.
    And there are certain things that are not very easy to 
predict in the future, such as what commercial stock levels 
might be at the time of a supply disruption and how that might 
integrate into the response. And it's also uncertain today, 
exactly how much stock exists or how much stock might exist in 
non-OECD countries where we have a lot of information about. 
However, non-OECD countries it's a much more difficult task to 
assess the quantity of the reserves that they may or may not 
hold.
    Senator Manchin. But you all are in agreement that 90 days 
is not enough?
    Mr. Brown. I don't have an opinion that 90 days is good or 
not. I just, I'm not sure exactly how you assess what may or 
may not be good.
    Senator Manchin. Mr. Sadamori?
    Mr. Sadamori. From the IEA perspective, as I said, that 
even for the net exporting countries, the oil security 
continues to be a very important problem. It is a very 
important issue.
    And if, and I understand that the U.S. spare size is not 
only determined by the 90 days of net imports. I mean, there's 
other requirements as well. And in case of actual strategic 
release actions, when we determine the allocation of the oil 
stocks be released, it's basically determined based on the size 
of the consumption of the country. So, in that respect, the 
U.S. continues to be the largest consuming country among the 
IEA member countries. So we expect the United States to 
maintain a substantially robust amount of SPR.
    Senator Manchin. Go ahead.
    Mr. Bordoff. I was just going to add one additional point 
which is, I think, when we ask this question and think about 
what the answer is, we really take a long-term view of that 
answer, accounting for huge amounts of uncertainty.
    So, you know, part of the reason global disruptions have 
less of an impact on price now is because shale is not only 
large, but growing very quickly. Shale grew at 1.6 million 
barrels a day. This next year it will be about 1. At some point 
we think shale growth will plateau, maybe it will start to 
decline, we don't know. This is only a ten-year phenomenon.
    So I just think we want to account for the uncertainty and 
not make decisions based on what the world looks like today 
because we didn't see the shale revolution coming. Things might 
look different in a decade, and we don't want to wake up and 
regret action we took today because we didn't see where things 
were headed.
    Senator Manchin. Do other countries do the same as we do? 
Do they have strategic reserves? China? Russia? Saudis? Middle 
East? Does anybody know that?
    Mr. Sadamori. Even among the IEA member countries, there 
are various ways to meet the obligations.
    So the U.S. depends on the SPR system, nationally-owned 
systems, but some countries depend on the obligation through 
the industries to hold certain size of the extra reserves. Some 
countries, like my home country, Japan, they have both. They 
have both a national SPR system and the industry obligation. So 
it depends.
    And also, as for China, they have built up a substantial 
scale of SPRs, but as the previous speaker said, they have not 
disclosed the full information. So at this moment, there is a 
kind of uncertainty in terms of how large they own.
    The Chairman. Thank you.
    I think this conversation about what is the right metric is 
really important.
    Mr. Bordoff, you mentioned in your comments that it is 
important for us to really determine what it is that we want 
the Strategic Petroleum Reserve to do, what is its purpose? 
Again, recognizing that what we have structured today might not 
be what we need 20 years from now.
    I am going to go ahead and again defer to colleagues here. 
So, Senator Hoeven, if you would like to join the conversation?
    Senator Hoeven. Thank you, Madam Chairman.
    Secretary Winberg, thanks for coming out to North Dakota 
recently and for your work on CarbonSAFE.
    And as we talked, DOE really does need to play a major role 
in helping our coal-fired electric industry capture and 
sequester CO2. And as you know, the key there is 
partnerships, getting private industry and the states to 
participate with DOE and get this done.
    And it really is, it is just like we are talking about the 
shale revolution. We cracked the code on the shale play for oil 
and gas, and it has paid unbelievable dividends.
    We have that same kind of opportunity in terms of cracking 
the code, but we need DOE's help to do it. And in that regard, 
one of the concerns I have is keeping the process moving. I am 
concerned about the length of time it takes between these award 
rounds in terms of slowing the process down, getting this done, 
everything from the standpoint of even qualifying for the tax 
credits, 45Q, for example, prior, you know, you have to have 
construction substantially complete by the end of 2023 in order 
to qualify for that tax credit.
    Can you explain to me DOE's thought process on the timeline 
for project selection and award funding for Phase III of 
CarbonSAFE? And explain it to me from the standpoint I think we 
need to accelerate it. I want to make sure it is done the right 
way, but I am concerned about the length of time. Can you 
address that?
    Mr. Winberg. Absolutely.
    And Senator Hoeven, thank you for hosting me out in North 
Dakota. Thank you for your support, of not just storage, but 
also the carbon capture. We had a great meeting a couple months 
ago up in your state. And not only your support, but the 
state's support.
    With respect to the CarbonSAFE project, it's right now 
we've released the request for proposal so it's very 
procurement sensitive. We made a decision that we wanted to 
give people additional time to pull together the proposals, and 
so that is what led us to the proposal timeline that I believe 
you're referring to. And so, it is, right now, procurement 
sensitive. So I can't talk about that, but what I can talk 
about and would like to talk about is the 45Q, which you 
mentioned.
    I could tell you that we are working very closely with 
Treasury on 45Q and certainly the Department of Energy and 
Treasury understand the importance of getting 45Q out, getting 
regulations, at least guidance written, so that industry can 
take advantage of that tax credit.
    Senator Hoeven. Well, and as you know, we have 
technological viability. We need commercial viability. And so, 
there are all kinds of things that go into that including 
tertiary oil recovery and all that kind of stuff, but you have 
to match both the ability if you are partnering with these 
grant rounds and CarbonSAFE with the tax credits, substantial 
completion, all these other things. So there are a lot of 
moving parts.
    You have a pretty long submission window on this next round 
which I understand you are being very careful with that. That 
is fine. But what about compressing the five-month review and 
selection process afterwards? Does it really take--once you 
have all the applications, you have a limited number of players 
you know that are going to come in. Obviously, you have a long 
submission window so anyone that wants to can get into the 
queue. Is there any way to compress that selection window then 
from the five months that you have allocated?
    Mr. Winberg. Again, it's procurement sensitive.
    Senator Hoeven. Well, maybe you could just, again, could 
you commit to look at the opportunities to expedite the process 
while still being sensitive to all the requirements that you 
have to make sure it is done properly, openly, transparently 
and comprehensively?
    Mr. Winberg. Yes, I can do that.
    Senator Hoeven. Okay, that would be greatly appreciated.
    And then, I just wanted to ask about the SPRO.
    Mr. Bordoff, if you were running our Strategic Petroleum 
supply and you could run it just the way you wanted, of course, 
with the blessing of our Chairman. Seriously, what would you 
do? How would you set it up? What changes or reforms would you 
make? What would you do in regard to our Strategic Petroleum 
Oil Reserve that we, maybe, are not doing right now? What 
should we consider? You know, like the one, the couple key 
things we need to have with that reserve.
    Mr. Bordoff. I think that we do need to make sure it's fit 
for purpose. And so, that means first having a conversation 
among policymakers across the aisle to make sure we have a 
clear sense of what the purpose is.
    I think there should be a bit more guidance and 
understanding within Administrations about when it is 
appropriate to use. Is it in response to hurricanes that take 
out, you know, a bit of supply here and there, or is this a 
once in a generation tool that we're supposed to really never 
break glass in case of emergency? That's very dependent on 
individual judgment calls now. And once we know that, I think 
we can make some decisions about how it should be adjusted.
    I think we should think more, as has been done recently, 
about where and when it may make sense to think about the 
composition of the crude, both in terms of the quality of the 
crude and then also whether some of that should be in product 
stocks.
    And then in addition, the modernization efforts, I mean, 
we've seen just your state has been at the center of it, the 
dramatic changes in which the energy system in the U.S. has 
changed as a result of the shale revolution. The SPR was 
designed to deliver crude to Midwest refineries. It needs to do 
something different now if we want this oil to have an impact 
on the global market, like getting it on to the water or 
getting it to the East and West Coast. So that need requires 
infrastructure investments as well as just modernizing aging 
infrastructure. That's really important.
    Senator Hoeven. I think you ended up on a very important 
note. We need infrastructure, and we need to be able to build 
infrastructure for all energy whether it is traditional or 
renewable, whether it is pipelines or transmission lines. We 
have to be able to upgrade this infrastructure. So I think you 
really ended up on an important point.
    Thank you.
    The Chairman. Thank you, Senator Hoeven.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you.
    Let me follow up on that because I know there was a GAO 
report, I think it was in 2018, that talked about most of the 
critical infrastructure for moving SPR oil has exceeded its 
serviceable life which has led to increasing maintenance costs 
and decreasing system reliability. And I believe there was 
discussion about how we modernize our infrastructure there in 
the SPR with utilizing new technologies. I also understand the 
DOE had previously estimated the total cost for the SPR's 
modernization is up to $1.4 billion.
    I guess, Mr. Winberg, my question for you is are there 
concerns about this maintenance backlog? What are you doing? 
How are we using new technology or how far have we come in that 
modernization?
    Mr. Winberg. Yes, thank you, Senator.
    Let me start off with the money that is appropriated to us. 
It's about $200 million a year for maintenance and operation of 
the unit.
    And I can tell you that the crew, the staff at the SPRO, 
they're expert in what they do and so, they manage that very 
well and maintain the system.
    Now, having said that, it's over 40 years old so this will 
be the second life extension program that we're doing which 
will allow us to continue operating for the next 25 years or 
so. These are pipes, pumps, loaders. It's not terribly esoteric 
equipment, but it's very necessary equipment.
    And so, we will complete the project design at all four 
sites in FY20. We're currently budgeted at $1.4 billion. We 
have received approval for $82 million for some long lead time 
items, and we are on track to receive final DOE approval on 
another $98 million. And these are long lead time items that we 
need to get on the sites so that when we move into the life 
extension program, we have the equipment there necessary to 
move the LE2 program forward. We will begin construction in 
FY21-22, and we should complete in FY25.
    So I'm very confident that over the next year or so we're 
going to get to a point where we'll have a project baseline put 
together, and we will also have an independent cost estimate 
done prior to beginning the construction. So I think we're on 
track and we're going to be able to manage this LE2 program 
while we keep the system discharge ready.
    Senator Cortez Masto. Thank you, and I appreciate that. I 
would hope that whatever assistance that you need, that we play 
a role, that you would reach out to us.
    I also understand the Chairwoman has been on top of this 
issue for purposes of the modernization and making sure you 
have everything you need. So thank you for that.
    Let me jump back to another topic of conversation. 
Obviously this is something for when we have emergencies and 
drawdowns. That is not something you can plan or prepare for.
    I understand of the previous drawdowns, two of them are 
related to a foreign conflict, but one was based on a weather 
event and that was Hurricanes Katrina and Rita in 2005.
    Coming from Nevada, I also recognize we are having more and 
more extreme weather patterns, right? We are seeing more 
frequent rising threats of climate change.
    I guess my question for the panel is, what are we doing in 
preparation as we see these weather patterns changing? Should 
we be doing something or what can we do to ensure that we are 
planning for this in the future, particularly these extreme 
hurricanes that we are seeing coming through? And I am just 
curious, is this something that is a thought and part of the 
planning process to protect this infrastructure?
    Please.
    Mr. Winberg. The four sites that we have for SPRO are down 
in Texas and Louisiana, often called Hurricane Alley.
    Senator Cortez Masto. Yes.
    Mr. Winberg. So over the last 42 years, again, our staff is 
extremely proficient at preparing in the event of adverse 
weather.
    And by way of example, the Big Hill site, under Hurricane 
Harvey we had 60 inches of rainfall. We had our storm crew 
onsite, and it was discharge ready through all of that.
    We also had a Tropical Storm Imelda where we had somewhere 
between 30 and 40 inches. So with respect to the SPRO, because 
it's in an area that has traditionally gotten severe weather, 
the system was designed for that, the system is maintained for 
that. And most importantly, our people understand how to manage 
it and manage it safely.
    Senator Cortez Masto. Is there anything that we should be 
prepared for if we are having these consistent weather events? 
I mean, these were sporadic at one point in time, but now they 
are consistent and you are prepared for that or planning for 
that should they become these consistent weather events?
    In other words, listen, I come from Nevada, wildfires used 
to be an irregular pattern, now they are all the time. And so, 
I guess my question to you, is that what you are anticipating, 
these hurricanes or these weather events, extreme wet weather 
events, are happening all the time?
    Mr. Winberg. Well, again, down in that part of the country 
hurricanes are reasonably frequent so----
    Senator Cortez Masto. So you are prepared?
    Mr. Winberg. Yeah, we're prepared.
    Senator Cortez Masto. Perfect. That is all I need to hear. 
Thank you.
    Mr. Bordoff. May I comment?
    Senator Cortez Masto. Yes, please.
    Mr. Bordoff. I was just going to say, I think one question 
is how to make sure the SPR is resilient against severe weather 
events. The other is what I said which is the use case for the 
SPR and we are increasingly going to use the SPR, not only for 
global supply disruptions but for weather-related disruptions 
to the oil market which will increase with the impacts of 
climate change.
    I think, first of all, that means taking action to reduce 
those impacts and address climate change, build up resilience 
and adaptation. When we see those weather events it also is the 
case that we're often not tapping our own SPR, we're relying on 
the international agreement we have with countries with IEA 
partners and we're bringing those supplies in which help us. I 
think that's why the cooperation we have with those countries 
continues to be important.
    Senator Cortez Masto. Thank you.
    Please.
    Mr. Sadamori. Preparedness against the extreme weather 
events is now limited to, kind of, single fuel source. In the 
past cases the oil, the service stations became unfunctional, 
not because of the lack of oil, but because of the lack of 
electricity. So the overall electricity systems should be 
designed more in anticipation and the preparedness for this, 
the possible extreme weather events.
    Senator Cortez Masto. Thank you.
    Thank you, Madam Chair.
    The Chairman. Yes, that is a good reminder at the end. It 
is not just about having the resource, it is how do you get the 
resource to where it needs to be effective.
    This is where I want to go back to you, Mr. Winberg. I 
appreciate the update that you gave Senator Cortez Masto on the 
modernization, what is happening with the funding, the 
allocations, your estimate that you are going to commence the 
work, FY21-22 with completion in FY25.
    You have indicated in your comments this morning that we 
are at 100 percent drawdown ready. If the President says so, we 
are ready to go. You talked or walked Senator Manchin through 
the 13 days and what has to happen with all of that. Are you 
concerned at all as we move toward this modernization of your 
ability to be 100 percent drawdown ready? If you are in the 
midst of this life extension project, is that going to impact 
our drawdown readiness?
    Mr. Winberg. No ma'am, it will not.
    And that has been part of this planning process to do the 
life extension program to make sure that as we're replacing 
pumps and valves and pipes and so forth and control systems, 
that we're doing it in a way that the system still remains 100 
percent drawdown ready.
    The Chairman. Okay. That is part of your proposal moving 
forward there?
    Mr. Winberg. Absolutely.
    The Chairman. With the sales that we have seen or the 
drawdowns that we have recently had, have we been able to 
demonstrate what we advertise which is basically that we have a 
4.4 million daily drawdown capacity? Have we proved that out or 
is this just what we think we can do on paper?
    Mr. Winberg. We have not had the need recently to discharge 
4.4 million barrels a day, but we are, across the four sites, 
we have discharged through Congressionally-mandated sales. In 
fact, we have a 10 million barrel sale underway right now. And 
so, the equipment is being tested, if you will, it's being 
operated, it's being utilized. So our confidence level is quite 
high.
    Also, we take a look at this every year when we do an 
internal study to make sure that the systems are ready to 
operate as they're called on to do.
    The Chairman. Well, let me ask about the systems and then I 
would ask for feedback from others on this because it is not 
just, do we have the actual commodity in the reserve, it is how 
we move it. It, kind of, goes a little bit to what Senator 
Cortez Masto and what you, Mr. Sadamori, ended with in terms 
of, you have to have the electricity if you have an extreme 
weather event. It is not just having the reserves. It is how do 
you move it. And we know we have significant infrastructure 
limitations in many of these areas, whether it is port capacity 
to move the product or whether it is pipelines that are already 
at their full capacity that could affect the efficient 
drawdown. That is why I asked the question whether we have 
actually been able to demonstrate, because it is one thing to 
just theoretically turn the valve and say, okay, we are ready 
to go. It is another thing to see it move through the system.
    I would ask any of the rest of you to comment on this. Mr. 
Winberg is expressing a fair degree of confidence that we can 
do this but do we have, whether it is infrastructure, 
bottlenecks or other bottlenecks that cause, give you concern 
or pause in the representation that we are truly ready.
    I will let you go, Mr. Winberg, and then we will turn to 
the others.
    Mr. Winberg. Okay, thank you.
    I think there's two different issues here. One, is the 
equipment physically ready to start a drawdown?
    The Chairman. Right.
    Mr. Winberg. And that I have very high confidence about.
    The Chairman. Right.
    Mr. Winberg. You touched on another issue which is that 
with the significant increase in oil production in the United 
States taking us to a net exporter, the system which is the 
heart of it is down in the Gulf of Mexico. So the pipes and the 
terminals, they're full. Now some people would say, if you want 
to look at this negatively, you'd say, well if the system is 
full then the SPRO can't discharge. And that's true. However, 
if the system is full, the SPRO doesn't have to discharge. And 
as the system starts to become less full, as crude oil is moved 
either offshore to where it's needed or to refineries or around 
the world, then the SPRO can backfill to keep the system full.
    And so, when we had the attack in Saudi Arabia, that's one 
of the first things we looked at is how are we going to manage 
this if we're, the United States, now is starting to move crude 
oil to other parts of the world and what role does the SPRO 
play and the SPRO simply backfills and keeps the system full so 
it can continue to distribute.
    The Chairman. I appreciate that.
    Other comments?
    Mr. Bordoff.
    Mr. Bordoff. I'd just make one comment.
    The impact of the SPRO on restraining oil price spikes is 
not only because of the physical barrels that reach the market, 
it's because of the impact the SPR has on market perception and 
on the activities and behaviors of commercial and financial 
participants in the market. And that's why, I think, the 
question you're raising is so important.
    After the attack at Abqaiq, if you read the media 
reporting, you saw there was a huge amount of skepticism among 
market participants about whether we could actually get to 4.4 
million barrels a day. So I hope that we can. And I think it 
would be important to demonstrate that in order for the SPR to 
have its maximum potential impact.
    The Chairman. Mr. Sadamori, would you agree that that would 
be helpful if it was to be fully demonstrated or is it 
necessary?
    Mr. Sadamori. Of course, the market expectation is very 
important in terms of the impact on the market in the case of 
actual disruptions but, of course, I believe that it's up to 
the Department of Energy in terms of how to implement that.
    The Chairman. We appreciate that.
    Let me turn to Senator Lee.
    Senator Lee. Thank you very much, Madam Chair. It is a 
pleasure to be with all of you.
    I want to start with Mr. Brown, if possible.
    The conversation this morning, from what I have been 
informed, has been focused on arguments about the Strategic 
Petroleum Reserve's ability to serve as an effective deterrent 
against oil embargoes.
    That was the intent behind the SPR and its creation in the 
first place back in 1975. However, we cannot discuss the SPR 
without talking about how the Reserve has been abused by 
Congress as a, sort of, piggy bank to fund a variety of 
programs, a variety of programs completely unrelated to 
maintaining our country's energy security. How many times has 
Congress used the SPR as a pay-for in recent years?
    Mr. Brown. Senator, there have been seven bills since 2015 
that mandate the sale of crude oil.
    One of those, the Bipartisan Budget Act of 2015 also 
included a provision that authorizes up to $2 billion of crude 
oil sales from the SPR in order to pay for the modernization 
program. And right now, about $900 million of that has been 
sold and there is a bill that currently would allow another 
$450 million to be sold in Fiscal Year 2020.
    Senator Lee. So when you add all those up, you say that one 
of those alone, the bill in 2015 that you referenced, amounted 
to about $2 billion?
    Mr. Brown. That was one of two SPR-related provisions in 
the bill and it authorized up to $2 billion between Fiscal Year 
2017 and Fiscal Year 2020. And if the bill that has passed the 
House and has been cleared through Committee in the Senate, if 
that passes the full Senate and is enacted, the total sales 
will be around $1.4 billion. So it will be less than the $2 
billion authorized.
    Senator Lee. Okay.
    But how much overall, when you add up all these provisions, 
how much money has this amounted to?
    Mr. Brown. Let me see, I think I actually----
    Senator Lee. But we are talking about billions.
    Mr. Brown. Oh, yes, yes, it is.
    So in terms of the, you know, I actually don't have the 
dollar value for the mandated sales.
    Senator Lee. That is okay.
    Mr. Brown. We simply have the dollar value for the 
modernization sales.
    Senator Lee. Got it.
    Mr. Brown. But we can track that balance for you.
    Senator Lee. Would you say that this is on the increase, 
though? Has Congress been using it more frequently in recent 
years than it had in the past?
    Mr. Brown. It's a bit difficult to say. I mean, of the 
seven bills since 2015, three were in the 114th and four were 
in the 115th Congress.
    Senator Lee. Do you think Congress' use of the SPR as an 
unrelated pay-for has the ability to undermine the SPR and 
undermine the SPR's ability to play the role it was intended to 
play in foreign policy?
    Mr. Brown. Unfortunately, Senator, I'm not really able to 
comment on that particular question.
    The SPR has simply been, is being drawn down. One of the 
stated statutory objectives in the code is to provide or 
participate in the international energy program which is a net 
import metric and it's clearly covering that. But the other 
provision to protect from supply disruptions still remains. So 
there's still a reason or a statutory reason to have it. The 
optimal size and configuration is a bit unknown at this point.
    Senator Lee. Okay. I appreciate both your candor and your 
deference there.
    I will state for the record, my view is that if we are 
going to have the SPR, we need to use it as such. If the SPR is 
too big, if it is bigger than what we need, or if we don't need 
it at all, we, as a Congress, ought to make that determination. 
But to say that we need it and to have it set up in the way 
that it is, but then continually draw it down sends the 
opposite message.
    Mr. Winberg, it is my understanding that the SPR was 
created to protect the U.S. from foreign countries leveraging 
our need for imports against us. Is this correct?
    Mr. Winberg. Yes.
    Senator Lee. Of course, it is not 1975 anymore. Bell 
bottoms aren't popular. A lot of things have changed, including 
the fact that the U.S. is poised to become, if things continue 
the way we want them to, a net petroleum exporter. If the 1975 
assumptions that led to the creation of the SPR in the first 
place are no longer relevant, should Congress reconsider the 
need for an appropriate level of operations of the SPR?
    Mr. Winberg. I think that the appropriate level of the SPR 
is something that we, as a country, need to continually 
consider because, as you correctly pointed out, the world is 
changing. We are now a net exporter of oil.
    However, it's still a world oil market, and I think that 
the attacks on Saudi brought people back to that point. We 
didn't need to discharge from the SPRO but had the attack been 
more severe or longer lasting, we may very well have had to.
    Again, it's an insurance policy in some respects and it's 
hard to know exactly how much insurance you should buy, how 
many millions of barrels of oil we should be storing, but we 
have the asset and what I can tell you is that we are going to 
do everything we can to maximize the value of the asset to the 
taxpayer.
    Senator Lee. Madam Chair, could I ask one additional 
follow-up to Mr. Winberg?
    If you were emperor for a day and you could make the policy 
changes that you think need to be made, are there any 
particular changes you would make to the SPR or the way it is 
run if you were vested for a day with the authority to do that?
    Mr. Winberg. Well, that's a hypothetical question.
    If I was emperor for a day I would probably try and speed 
up the life extension program.
    Senator Lee. Okay.
    Mr. Winberg. Just so that we can get that completed.
    Senator Lee. Great.
    Thank you very much.
    Thank you, Madam Chair.
    The Chairman. Thank you.
    That is why I think it is important that we be engaged in 
monitoring how you are coming with that, making sure that it is 
appropriately resourced and that the proposal for the 
modernization proceed as we have all assumed that it would.
    I wanted to ask about the discussions about the SPRO 
locations that we always talk about being down in the Gulf. And 
Senator Cortez Masto pointed to the fact that with more extreme 
weather events you are seeing concern because you have these 
reserves, these strategic assets, that are located, oftentimes, 
right in the path of some of the worst of these events.
    We all know that there have been discussions about the 
opportunity for additional SPRO locations whether they be on 
the West Coast, the East Coast or elsewhere. Nobody has really 
mentioned that as part of today's discussion and whether or not 
in order to strengthen the SPRO to ensure for this level of 
security that we need to, kind of, spread the wealth around a 
little bit.
    If I can have any of you speak to your thoughts on whether 
or not that is an important part as we look to the future of 
the Strategic Petroleum Reserve.
    Mr. Winberg.
    Mr. Winberg. With respect to crude oil, the heart of 
petroleum production and shipping is in the Gulf of Mexico 
along the Gulf Coast there. So I think that the SPRO is 
positioned right where it needs to be positioned. Oil is 
flowing different directions than it was a dozen years ago, 
that's pretty clear, but the infrastructure is there, the pipes 
and the terminals. That's where it resides. And so, 
notwithstanding the fact that it's in Hurricane Alley, it has 
proven itself, the SPRO has proven itself to be worthy to the 
task, even under hurricane situations. So I do tend to think 
that it's positioned correctly. Also, because these caverns are 
built, the SPRO infrastructure is there, it's probably the 
least cost insurance----
    The Chairman. How about for refined products then, refined 
product storage capacity? It is a different issue.
    Mr. Winberg. It is, and we've got the Northeast gas reserve 
and that's a very expensive reserve for us to have.
    The Chairman. Are you suggesting that we don't need similar 
reserves in other areas?
    What is your view on----
    Mr. Winberg. I think we don't. I think we don't need 
product reserves in other areas and for this fairly simple 
reason--when a hurricane comes in or a tropical storm or other 
weather event, people are leaving. So the roads, just practical 
issues, start to emerge. Roads are one-way roads because people 
are leaving that area. When the storm subsides or it goes away, 
then we need to refill the retail tanks at the local 
convenience store and gasoline store. The gasoline is available 
to do that.
    What we're doing right now is we're leasing space, 
commercial space, for these gasoline reserves. So that space 
would be filled with gasoline in any event, whether the 
government was doing it or not. So I tend to think that the 
crude oil is, that's the pinch point. Refined products, 
generally, we're in pretty good shape there. That's my view.
    The Chairman. Other views or comments on the regional 
aspect?
    Mr. Bordoff.
    Mr. Bordoff. I'd just say on your first question about the 
location, I think that is a part of it. We are trying--in order 
for the SPR to be effective, we want those barrels to get into 
the global market and on to the water. I think I agree with 
Assistant Secretary Winberg, the Gulf makes sense. That's why 
we need to make sure the port capacity and the infrastructure 
and the modernization exist.
    The second thing I would say is that in order for it to 
be--we should always remember that the SPR is not just a U.S. 
tool, it is an internationally-coordinated tool and that's when 
it works best, especially when we're trying to respond to 
something like hurricanes.
    I was in the Administration when we released during Libya, 
and that took a long time. The Libyan oil outage was in 
February. We didn't release until June because it took a really 
long time to coordinate with the other IEA partners. I think if 
you can do more diplomacy and more work in advance, so that 
happens quicker, that will make the SPR a more effective tool.
    On the question of refined product reserves, I think the 
answer really is very location specific. There was a DOE draft 
study in 2011 that found net benefits from it, looking along 
the southeast where you have pipelines going up from the Gulf 
and several regions that, you know, were hit very hard when 
there was an incident in the Gulf, you could line up stocks 
along that pipeline.
    But as we heard Mr. Sadamori say, these are only effective 
if the electricity is there. I mean, it really just depends on 
the location that you're talking about. It's a higher cost 
proposition to hold them and it potentially crowds out more 
private stocks than crude stocks do. So we need to look very 
specifically at where it might make sense and where it might 
not.
    The Chairman. Yes. Mr. Sadamori, can you comment to Mr. 
Bordoff's point there about the ability to work with our 
international partners to make this more effective?
    Mr. Sadamori. And so, our, the IEA system is based on the 
concept of solidarity in case of emergencies and the many 
countries have different set mixes of reserves. Some countries 
obligate the industry to hold both the crude and products and 
the, kind of, system, the system requirement depends on the 
shape of the whole oil supply chain.
    So if a country believes that their refining capacity is 
robust and the crude is the best way to keep it, then I think 
that's, kind of, a reasonable judgment. But some of the 
European countries, in particular, some, if you take a look at 
the specific countries, there are countries without the 
substantial capacity of refining, and for those countries, they 
need to keep oil in the form of products, not in the form of 
crude.
    And also, it depends upon the, how the environment changes. 
So, for instance, Japan experienced a very, a difficult 
situation with lack of products because their refining capacity 
also went down with the earthquake. And based on that 
experience, they started rather limited product reserves 
controlled by the country. So I think that it all depends upon 
the requirement based on the shape of the supply chains.
    The Chairman. That somewhat begs the question then about 
how much coordination.
    You said that really the strength of the model here is the 
solidarity, everybody understanding, kind of, what the needs 
would be and how then you are best able to respond. Do we have 
that? Do we share fully the information from country to 
country? I mean, obviously, the issue of what is the real spare 
capacity out there. We know with some countries they are not 
necessarily an open book on that, but for the most part, do you 
believe that we have this level of transparency so that we are 
as effective as we can be?
    Mr. Sadamori. At least as far as the IEA members are 
concerned, we fully share the relevant data among the member 
countries.
    So in the case of the actual disruptions, we can work 
together looking at what kind of reserves exist in terms of the 
qualities or the amount.
    But the question is the share of the IEA member countries 
in the global market has been going down----
    The Chairman. Right.
    Mr. Sadamori. ----and that's the reason why we are trying 
to reach out to non-member countries and they would like to 
get, kind of, more involvement cooperation with them. But 
there's, of course, kind of, a difficulty, in terms of the 
information sharing with non-members.
    The Chairman. Can you expand a little bit on that in terms 
of the efforts to grow this membership? Are you being 
successful? Is there interest by these other countries to be a 
participant?
    Mr. Sadamori. Well, in 2015 at the IEA Ministerial Meeting, 
we started the status of what is called the association 
countries and that's based on the initiative of the current, 
the Executive Director, of what he calls the opening doors of 
the IEA to major emerging economies. And right now, there are 
eight association countries like China, Indonesia, India, 
Brazil and South Africa, you know, those major emerging 
countries are part of the IEA's family, the association. But of 
course, they're not the members, so we have been trying to 
evolve them in terms of the emergency response exercises and 
also undertaking the capacity building initiatives so that they 
have an understanding of the need of the systems and how they 
should work. Of course, this is not easy. This is very 
challenging. But we are trying to get them more involved.
    For instance, in case of the actual disruption and at the 
time of the joint strike release, we hope that the association 
countries, at least, take a somewhat, kind of, consistent 
actions. So they may not be able to actually contribute the 
oil, but they can start building up or buying up the oil in the 
market. So we are trying to enhance this, kind of, the 
cooperative relationship with the non-member countries as well.
    Thank you.
    The Chairman. I appreciate that.
    I want to end my questions with going back to a little bit 
of the conversation we had about metrics and different ways to 
measure supply security. I guess just an open question to any 
of you is whether, through the Department or whether EIA should 
be assessing supply security vis-a-vis the SPRO and given that 
we are moving considerably in this direction as an energy 
exporter, the IEA reserve requirements really are not, 
technically, applicable. Several of you have mentioned that. 
Are there other alternatives in terms of measurements that we 
should be focusing on?
    Dr. Capuano. We're always--EIA will always entertain data 
that would be helpful.
    Right now, we measure production. We know the pipeline 
capacities so we know where the production is moving into the 
pipelines. So we can provide that data to DOE to calculations 
and understand how to respond in the event of a disruption.
    So we keep track of the available data in the United States 
plus we have a partnership with, as a member of IEA, we 
exchange data with them, provide them our data and they provide 
us the data they get, but we also go to independent sources to 
be able to verify and validate what's going on. So we're very 
active.
    I don't have something on the table that we want to ask 
for, but I'm very open to any suggestions from this group.
    The Chairman. I guess it is, metrics are those, as you have 
outlined, the hard numbers, what is the production, what is the 
volume?
    I am just wondering if we factor in less tangible matters 
like the political climate, some of the things that are really 
far more difficult to measure, but clearly have an impact on 
what is happening with world oil supply?
    Mr. Bordoff. I would just say I think the reason maybe 
we're struggling to answer, at least I am, is because it does 
tie back to a comment I made earlier about first understanding 
what we want the SPR to do. And if you intend the SPR to 
mitigate against, you know, a few days or a week of a weather-
related disruption, you probably don't need 700 million 
barrels. If you want to deal with the Strait of Hormuz being 
blocked for a few months, you need a lot. It's either way too 
big or way too small, depending on what we want it to do and we 
need to think about it in an internationally coordinated 
context.
    I think that's why I, sort of, tried to frame it by saying 
I think the burden of proof is on those who want to sell this 
down that we've held for a long time.
    I think I, to Assistant Secretary Winberg's point, think of 
it as an insurance policy and I try to place a little bit 
higher premium on that and would be a little more risk averse 
and cautious, accounting also for the amount of uncertainty we 
have today about what the future is going to look like in terms 
of U.S. production or geopolitical risk, I think, and the 
amount of economic harm we're willing to absorb.
    Of course, markets will respond to disruptions. So the 
question we have to ask ourselves is are we okay with consumers 
bearing that cost for weeks or however long it takes for the 
private sector to respond, and I think that's a collective 
decision we need to make. And I think, for me, a larger buffer 
probably makes more sense, but there's no quantitative way to 
precisely assess that.
    The Chairman. I think this is part of our problem because 
people that do not sit on this Committee do not really pay much 
attention to the SPRO other than that they know that it is this 
reserve that we have back there. It is basically liquid money 
in the bank, so to speak. And since we are reducing our 
reliance on oil, globally, or at least, we are not doing it 
globally, but here in this country, okay, we don't need so much 
or we don't need to have an insurance policy that is as big as 
we have. So it is always a challenge for us.
    Whether it is fending off other lawmakers who are looking 
to utilize it as a pay-for, for very valid causes, curing 
cancer, or whether it is an Administration that is trying to 
take some of the political sting out of rising prices at the 
pump, we who are informed about this need to have something 
that we can, kind of, cite to, to say no, this is a dangerous 
direction to go.
    In Senator Lee's query to you, Mr. Brown, about how much 
have we seen drawn down of recent years and isn't that more 
than we used to do? I think your analysis, of course, is 
correct in terms of what we have seen since 2015, but there was 
a time when we left things alone and didn't think about it as a 
pay-for for something totally unrelated.
    I think, as policymakers, we go down a dangerous path 
assuming that we still need this, assuming that we still view 
this as a security asset for this country. And if we do, then 
we better treat that asset respectfully. If we don't think we 
need it anymore, then we should do what Senator Manchin is 
proposing and make sure we sell it off at a time that we can 
make the most money possible. I am not suggesting that, by the 
way, just to make clear.
    But I think as we think about the metric or the metrics and 
what goes into it, it is part of a broader conversation and 
it's not as easy as people would think. All you need is the 90-
day supply and we are fine, we are good.
    I appreciate that you have outlined, Mr. Bordoff, a few 
things that we should be looking at. I know that those were 
your ideas, if you were king and could direct the SPRO as you 
would, but making sure it is fit for purpose, the guidance on 
the use, the composition of the crude and the whole 
modernization issues.
    I do think that guidance for use is something that has been 
as clear as mud, in my view. It gives great discretion and, in 
fairness, I want the President to be able to utilize that in 
event of an emergency and I think we were prepared, he was 
prepared rightly after the target hit in Abqaiq. I think that 
the response that we saw demonstrated exactly why it was so 
important to make sure that we have a viable SPRO. And it was 
interesting because some of my colleagues in comments to the 
press suggested this is exactly why we need to repeal the oil 
export ban. I am still muddling over that as a suggestion. But 
I think what we saw was others viewed the capability of the 
United States to respond as real. It was meaningful and that is 
a significant and, I think, an important message from a 
security perspective.
    I know we haven't spelled out, okay, what the new metric 
is, but I think we have, again, raised the issue of the SPRO 
and why it continues to be relevant today. I would challenge 
those who think that well, because of climate change and the 
push to move ourselves off of fossil fuel, we don't need a 
SPRO. Probably until my lifetime has come and gone, I think, we 
are still going to be in that position where we will need it 
and we will want it.
    So I thank you for your contributions to the discussion. I 
do take very seriously the life extension project that is 
underway, the modernization, as we call it here, I think that 
is an important part of what has to happen. And I did think 
that was one of those areas where it made sense to sell that 
off in order to address what we know is an aging infrastructure 
and making sure that it functions.
    I still worry about our ability to actually demonstrate it 
throughout the full stream because we never know when we are 
really, truly going to need it and we definitely want to be 
able to demonstrate that it works, the efficacy.
    So thank you for contributing. If you have additional 
insights that you would like to share with us, we would 
certainly appreciate it.
    Know that this is something that this Committee is going to 
continue to be following and monitoring very, very carefully.
    We appreciate your attendance and your thoughtful words 
this morning.
    With that, the Committee stands adjourned.
    [Whereupon, at 12:20 p.m. the hearing was adjourned.]

                      APPENDIX MATERIAL SUBMITTED

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