UPDATE 2-U.S. says capacity issues hindering Strategic Petroleum Reserve

Tue Jul 15, 2014 4:01pm EDT

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(Adds comment from former SPR official)

WASHINGTON, July 15 (Reuters) - Delayed maintenance at storage facilities has dogged the U.S. Strategic Petroleum Reserve limiting the government's ability to quickly draw down the emergency stockpile, a report by the Energy Department's inspector general said on Tuesday.

The SPR is unable to achieve its required 90-day drawdown rate of 4.415 million barrels per day, and fell about 165,000 bpd short of that mark in March, the report said.

Natural geological forces gradually shrink the salt caverns used to store oil for the emergency reserve. This shrinkage can be reduced by injecting water into the caverns, but budget cuts have forced the government to put this routine maintenance on hold.

The SPR, designed to store 727 million barrels of oil in 62 caverns, currently holds about 691 million barrels in Louisiana and Texas, according to the report.

"Our analysis indicates that the Reserve would be unable to replace the more than 35 million barrels of oil sold since 2011, without compromising capacity maintenance activities," it said.

The SPR was last tapped in March when the Energy Department held a test sale of 5 million barrels, the first such test sale since 1990.

The Energy Department said it has set up two working groups to investigate the challenges outlined in the report and has "identified ways to implement recommendations for meeting the full performance criteria" for the reserve.

The issues identified in the report do not pose a critical threat to the operation of the reserve since the nation has never had to draw down more than 30 million barrels of oil in a month, said John Shages, who oversaw the stockpile during the Clinton and second Bush administrations.

"The idea that you have something lurking that would require you to draw down in excess of 120 million barrels in a month, that was really for a different time," Shages said.

With U.S. oil production spiking, Shages said the government should do a comprehensive study of how much oil the nation needs to store for emergencies under current conditions.

In 2011, the United States sold 30 million barrels from the SPR as part of an international response to civil war in Libya. (Reporting by Patrick Rucker, Timothy Gardner and Ayesha Rascoe; Editing by Susan Heavey and Diane Craft)

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