Bush seeks to trim SPR budget despite mandate to expand reserve

Washington (Platts)--6Feb2006

The Bush Administration Monday proposed to trim the amount of money it
spends on operation and maintenance of the US Strategic Petroleum Reserve by
25%, to $155.4-mil, in fiscal year 2007, despite a mandate by Congress that
the SPR be expanded to 1-bil bbl.

     US Energy Secretary Samuel Bodman told reporters that the decision not to
seek additional funds to expand the reserve was because the department had not
yet completed its design for the SPR expansion. "We are trying to stage the
funding with the needs of that funding. Right now we are obliged to do the
homework, the analysis," Bodman said, adding that current funding for that
stage of the work was adequate.

     Under the new energy policy law enacted in last August, DOE has to expand
the SPR from its current 727-mil bbl capacity to 1-bil bbl capacity, and fill
the expanded reserve as quickly as possible without incurring "excessive
costs" or "appreciably" lifting the price of gasoline or heating oil to
consumers. The department has until August 2007 to select the sites necessary
for the SPR expansion.

     Once those sites are selected, DOE will likely use royalty-in-kind oil to
fill the reserve to keep outlays lower, Bodman said. "We expect, as it has
been in the past, that royalty in kind" oil will be used to fill the expanded
reserve, he said.

     During 2005, the SPR reached its highest crude oil inventory level, at
over 700-mil bbl. In the aftermath of hurricanes Katrina and Rita, DOE loaned
9.8-mil bbl of crude via exchanges and sold 11-mil bbl.

     At the end of fiscal year 2005, the reserve's inventory was 693.7-mil
bbl, DOE said. During the current budget year, inventories will be restored by
10.3-mil bbl as the oil loaned, plus 500,000 bbl of additional barrels, are
returned. "The department will repurchase the oil that was sold in FY2006 in
manner that will not impact the supply or price of crude oil," DOE said in its
budget.

		--Cathy Landry, cathy_landry@platts.com

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