Protecting oil supplies in a crisis

The US last called on emergency reserves during the Gulf War

With oil prices riding at 10-year highs and commercial stocks of crude and heating oil remaining dangerously low ahead of winter, politicians in the United States have been debating their next move.

Action had centred on pressuring the Organisation of Petroleum Exporting Countries (Opec) to release extra supplies to the market in the hope that more oil would drive down prices.

But another option, urged by vice-president Al Gore, has now been given the go-ahead by President Clinton - the government is releasing crude oil supplies from its own emergency stores.

First mooted during World War II, the US Strategic Petroleum Reserve was established in the 1970s after the first oil price shock, as a means of defending the world's largest oil consumer against interruptions in supplies.

Vast caverns

At the end of 1999, the reserve contained about 570m barrels of crude oil stored in vast underground caverns.

This was equivalent to 31 days of US consumption or about 58 days-worth of imports.

US Strategic Petroleum Reserve

1975: Plans for the reserve announced by President Ford

1977: First delivery to reserve

Total capacity: 700m barrels

Current stock: 570m barrels

Value of oil and cost of construction: $20bn

Each storage cavern holds about 10m barrels

Reserve has been tapped only once - during the 1991 Gulf War

A small number of other countries, including the world's largest oil producer and exporter Saudi Arabia, also maintain strategic reserves but the US' emergency stockpile is the world's largest.

The cost of constructing the reserve and the value of the oil it contains are conservatively estimated at $20bn.

The storage caverns were dug out of salt domes along the Texas and Louisiana coastlines and are linked by pipeline to refineries and other facilities along the Gulf of Mexico coast.

Each store would commonly be about the size of New York's World Trade Center and hold about 10 million barrels of oil.

Gulf War drawdown

Until now, the reserve had been drawn down on only once before - during the Gulf War in 1991 when supplies from the Middle East were interrupted and prices were sent spiralling upwards.

At that time, President Bush ordered the release of 17 million barrels.

The reserves can be drawn down at a maximum rate of about 4.1 million barrels a day although this rate declines as the caverns empty.

According to the US Department of Energy, the reserve has capacity to release 1 million barrels a day to the market every day for nearly 18 months.

Although the reserve's main function is to protect the US against major supply interruptions, US refiners can also 'borrow' from it at times of temporary shortages.

The reserves are stored at:

Bryan Mound near Freeport, Texas

Big Hill near Winnie, Texas

West Hackberry in Cameron Parish, Louisiana

Bayou Choctaw in Iberville Parish, Louisiana.

Most recently, US Energy Secretary Bill Richardson in June ordered a limited release to a Louisiana refinery because blocked shipping lanes were threatening gasoline supplies.

Such arrangements require the borrower to resupply the reserve when its supplies are restored to normal.

Symbolic act

Supplies from the reserve take about 15 days to enter the market from the time of a presidential decision, although the effect on oil prices could be almost immediate.

Those in favour of releasing supplies have said the markets would draw much-needed confidence from such a move. While the additional supplies would be welcome, the symbolic nature of the act would also drive prices even lower than was warranted by the volumes, they said.

Those against the idea contend that opening the reserves will set a dangerous precedent, send the wrong signals to Opec and have no guarantee of bringing down prices anyway.

They say the reserve should only be tapped at times of severe national emergency and should not be used as a political tool to influence commodity prices or voters.