Bush Budget: $168M to Begin SPR Capacity Expansion

Feb. 5, 2007 (Dow Jones Newswires)

U.S. President George W. Bush on Monday proposed to spend $168 million in his 2008 budget primarily for administrative costs relating to the expansion of the nation's Strategic Petroleum Reserve from its current capacity of 727 million barrels to 1.5 billion barrels by 2027.

As previously announced, the president separately proposed to authorize the filling up current capacity, from its current 691 million barrel level, through 2007 and 2008 using federal royalty oil.

The expansion and fill is part of the administration's plan to reduce the vulnerability of the U.S. to energy supply disruptions, such as those caused by hurricanes, embargoes or other geopolitical problems.

In September 2005, funds were transferred from the SPR Facilities Account to finance drawdown operations associated with Hurricane Katrina. The funds were returned to the SPR Facilities Account in 2006. In response to the hurricane, the DOE loaned 9.8 million barrels of oil to refiners and sold 11 million barrels from the SPR. The administration said in 2007 that DOE will use balances in the account to purchase oil.

Including both 2007 and 2008, it planned to spend a total of $332 million for SPR activities. Expenditures, it said, would provide for existing storage site operations and maintenance activities, planning activities, drawdown testing and readiness of the SPR, planning studies, and program administration.

Earlier in January, the Department said it would begin filling existing crude storage space, with average daily crude purchases of about 100,000 barrels a day starting sometime in March. Oil prices jumped nearly 5% on the news, and have since factored in the fill.

The SPR will expand from 727 million to 1 billion barrels only after 2011, when a new site will be completed near Richton, Miss., DOE officials have said.

The administration has also previously said the new SPR sites could be located on either the West or East coast, far from current SPR sites along the Gulf Coast. The DOE said salt caverns in the Southwest could be well-suited to act as reserve sites, as they would be able to supply California refineries without being subject to the state's strict emissions laws.

Copyright (c) 2007 Dow Jones & Company, Inc.

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