Salt of the Earth: The U.S. Strategic Petroleum Reserve

This article was ghostwritten for the editor of Oilman Magazine.

The U.S. SPR (Strategic Petroleum Reserve) is an oil reserve created in response to the 1973-1974 oil embargo. America’s dependence on OPEC (Organization of the Petroleum Exporting Countries) revealed the extent to which those countries could potentially influence United States foreign policy. Over the decades, U.S. energy consumption and production has changed. Today, the reasons the United States uses the SPR has also changed.

The Embargo

In October 1973, Arab oil producers within OPEC retaliated against the United States’ support of Israel during the Yom Kippur War, when Egypt and Syria attacked Israel. They placed an embargo on oil. This prohibited the OPEC members from exporting oil to the U.S. OPEC also threatened to cut oil production by 25 percent. Their goal was two-fold: 1. To leverage America’s dependence on foreign oil to weaken U.S. support of Israel and 2. To raise the price of oil. One goal was achieved: By December, the price of oil increased 400 percent. But, long lines at America’s gas pumps did not change the Nixon administration’s strong support of Israel.

The Promise of Peace

The Nixon administration and Secretary of State Henry Kissinger simultaneously held negotiations for peace and an end to the oil embargo. The First Egyptian-Israeli Disengagement Agreement reached by the parties in early 1974 was enough to get the Arab members of OPEC to lift the embargo. Unfortunately, the peace deal was never finalized.

Strategic Storage

At the end of 1975, President Ford signed the EPCA (Energy Policy & Conservation Act). This created an emergency petroleum reserve. In April of 1977, The U.S. government bought salt caverns on the Gulf Coast to store the petroleum. Construction of the storage facilities began in June of 1977. By July, 412,000 barrels of Saudi Arabian light crude were delivered. The act approved up to 1 billion barrels of oil for storage. However, as of September of 2018, the maximum capacity of the SPR is 713.5 million barrels.

Salt of the Earth

Storing the reserve oil in salt mines costs a lot less than building and maintaining above-ground storage. The oil is connected to the commercial oil transport network through interstate pipelines. This reaches about half of the U.S. oil refineries. The oil can also be transported by ship or barge to other refineries.

There are 60 caverns in the SPR distributed between four locations along the Gulf Coast. There are two facilities in Louisiana (Bayou Choctaw and West Hackberry) and two in Texas (Big Hill and Bryan Mound). Each cavern can hold from 6 million to 35 million barrels. The typical cavern is 200 feet in diameter and 2,000 feet high. Enough to store 10 million barrels.

Self-Healing

The caverns are created by drilling a well into a salt formation and dissolving the salt by injecting huge amounts of fresh water. This process of solution mining requires seven gallons of water to carve out space for each barrel of oil.

At depths of 2,000 to 4,000 feet, extreme geologic pressures make the salt walls of a cavern hard as rock. If any cracks develop, they will close on their own. In addition to the ability to heal itself, the subsurface temperature differential keeps the crude circulating. This maintains the quality of the oil.

It Takes Another War

Only the president can order the drawdown of the SPR. President George H. W. Bush was the first to use the SPR to stabilize world oil markets during the Persian Gulf War on January 16, 1991. 17.3 million barrels were sold to 13 different companies.

Use of the SPR is defined in the EPCA. Three types of drawdowns were anticipated:

Full Drawdown. A full drawdown of the petroleum reserves may be ordered by the president in several scenarios, including shortages that are likely to negatively impact the nation’s safety or economy.
Limited drawdown. A partial drawdown of under 30 million barrels. This is limited to 60 days. However, there must be more than 500 million barrels still left in reserve.
Test Sale or Exchange. Drawdowns and distribution of crude oil up to 5 million barrels may be carried out by the Secretary of Energy.

Safety Net

Test sales are periodically conducted to ensure that the SPR is ready to react to a drawdown in the event of an emergency. Exchange contracts are typically used after a natural disaster. It is similar to a loan. The recipient agrees to return the same type and amount of crude – plus additional premium barrels by a certain date. The additional barrels are similar to paying interest. For example, refineries entered into exchange contracts after Hurricane Harvey impacted their operations in 2017.

For the first time, the SPR will be used as a way to pay the bills. The 2018 budget deal signed by President Trump mandates that 100 million barrels of oil be sold by 2027. The proceeds will be used to help reduce the deficit.

An Abundance of Oil

America’s dependence on foreign oil has reduced considerably since the 1970s. Consumption is generally stable and U.S. crude oil production has been increasing since 2008. In 2005, net imports were 12 million barrels a day. By 2017, that number was only 4 million. A whopping 67 percent decrease. It is expected that net imports of U.S. crude oil and petroleum products will decline to zero in the late 2020s. Soon after, the U.S. will become a net exporter of these products. A 90-day reserve is still required to respond to supply disruptions. Particularly since the projection is for the U.S. to again be a net importer of crude oil between 2040 and 2050.

Risk Mitigation

Although it didn’t result in a Middle East peace agreement, the 1973-1974 oil embargo was in some ways a blessing. It forced the U.S. to mitigate the risks associated with an oil shortage and to find ways to increase domestic oil production. The development of the Strategic Petroleum Reserve has kept the U.S. more secure during wars and natural disasters. The life blood thousands of feet below the Earth’s surface.

Winds of Change: How Big Oil Will Profit From Offshore Wind

Ghostwritten article for Oilman Magazine editor.

This article was ghost written for the editor of Oilman Magazine. It required a lot of research about a subject I knew absolutely nothing about. I love learning about new stuff. (The client gave me a glowing 5-star review for this one and more work.)

WINDS OF CHANGE: HOW BIG OIL WILL PROFIT FROM OFFSHORE WIND

Offshore wind is new to the energy party. The first offshore wind farm was installed off the coast of Denmark in 1991. Less than three decades later, the industry is making big waves – and starting to turn big profits.

Capacity is ramping up quickly and cost is dropping fast. Europe increased offshore wind capacity by 18 percent in 2018 alone. Cost per MW (Megawatt) has dropped 75 percent since 2014. The offshore wind farms are getting bigger and more prevalent. Partnerships big and small are transforming the industry. It’s no longer a question of if and when offshore wind will become viable. It’s viable now.

Europe Leads the Way

It is Danish company Ørsted that is the model for oil and gas companies. In 2010, Ørsted (formerly DONG Energy) made the decision to transition to renewable energy. Now 70 percent of its generation is from renewables. Its goal is to increase renewables to 90 percent by 2020. This is not pie-in-the-sky: They now own 50 percent of the largest offshore wind farm in the world. Walney Extension can generate up to 659 MW with 87 turbines located in the Irish Sea. Nearly 600,000 U.K. homes are powered by Walney.

United States is The Next Big Thing

The first offshore wind farm in America, Block Island, proved that it’s worth investing in offshore wind in the United States. Three European companies each shelled out $135 million for offshore leases 20 miles off the coast of Nantucket in Massachusetts. One of the winners, Norwegian company Equinor, is a major oil and gas company who changed their name from Statoil last year. In fact, it was Equinor who bested itself: It had paid the then record amount of $42 million for 80,000 acres off New York’s coastline just two years’ prior.

Massachusetts has a goal of 1.6 GW (Gigawatts) by 2027. However, the American Wind Energy Association believes that the three leases will ultimately provide at least 2.4 GW of wind power. Construction on the wind farms is a decade away.

New York also has an ambitious goal: The state is targeting 2.4 GW by 2030. But they are also tasked with lowering the cost of offshore wind for the whole country. The U.S. DOE (Department of Energy) selected New York to head up a consortium focused on offshore wind. They will allocate research and development funds to projects that move the United States toward responsible and affordable offshore wind generation.

RCEA (Redwood Coast Energy Authority) and Castle Wind, have proposed floating wind projects in California. The state’s goal is to derive its energy from 100 percent carbon-free sources. “California’s coast offers some of the highest wind resource potential in the country, and offshore wind could produce more than 1.5 times the electricity the state currently uses in one year,” said Arne Jacobson, Director of the Schatz Energy Research Center.

World Affairs

Offshore wind is being harnessed around the world. Many countries, including South Korea, Japan, China, and India are implementing or researching offshore wind projects.

Equinor is working with Korea National Oil Corp (KNOC) to evaluate offshore wind in South Korea. Their goal is to increase the country’s renewable power to 20 percent of total generation by 2030.

Japan has a more pressing problem. Since the 2011 Fukushima Daiichi Nuclear Power Plant disaster, only nine of the country’s 40 nuclear power plants are online. To help bridge the impending energy gap, Tokyo Electric Power Company has signed a Memorandum of Understanding (MoU) with Ørsted to develop offshore wind projects. Energy analysts Woods Mackenzie estimate up to 4 GW online by 2028.

China’s top oil exploration company, CNOOC Ltd., signed on at the beginning of this year to develop its first offshore wind project in Jiangsu province.

India wants to generate 5,000 MW of energy from offshore wind by 2022 and ramp up to 30,000 MW by 2030. Ecological concerns could thwart their plans.

Built-in Expertise

Offshore wind is benefitting greatly from the myriad of experts in the oil and gas industry.

ExxonMobil’s industrial division offers lubrication products and maintenance services for floating wind turbines.
Zentech and Renewable Resources International partnered to design a marine vessel that does double duty – it installs wind turbines and decommissions oil and gas rigs.
Aker Solutions is leveraging 40 years of offshore oil rig experience to provide full lifecycle services to offshore wind farms. Aker has also partnered with Principle Power to include WindFloat®, a floating foundation for offshore wind turbines, in their projects.
Gulf Island Fabrication manufactured foundations modeled after oil platforms for the Block Island Wind Farm.

New Frontier

The Gulf of Mexico has the potential to generate a massive amount of offshore wind energy.

Gulf states could generate up to 961 TW (Terawatt) hours of electricity per year. Texas, Louisiana, and Florida are most promising. Winds are mild, but very steady. Shallow waters would make turbine installation and maintenance easier, but must be built to withstand hurricanes. The infrastructure and supply chain already in place for oil and gas could possibly be leveraged for offshore wind.

Offshore wind in the Gulf could become a reality with the help of non-profits like the Business Network for Offshore Wind. Their mission is to work with U.S. companies and talent pulled from the oil and gas industry to build a new supply chain for offshore wind energy.

Green Investment

It’s not just the federal government who wants to invest in offshore wind. Wall Street saw the value of investing in renewable energy long before talk of the “Green New Deal.” Sustainable investment is a $12 trillion market in the U.S. $600 billion green bonds were issued last year.

Winds of Change

Offshore wind development is taking off in the United States and around the globe. The money, the talent, and the will to make it happen are in place. Even those companies that lagged behind are picking up the pace and the oil and gas industry will ride the winds of change to big profits.

Salt of the Earth: The U.S. Strategic Petroleum Reserve

Winds of Change: How Big Oil Will Profit From Offshore Wind

WINDS OF CHANGE: HOW BIG OIL WILL PROFIT FROM OFFSHORE WIND

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