 Okay, good afternoon, thanks everybody for joining us today. My name is Sarah Ladisla, I direct the Energy and National Security Program here at CSIF. We're very pleased to have all of you for today's event on the future of the Strategic Petroleum Reserve. This for any of you who haven't been at some of our previous events is part of a series that we're running based on a project that we researched and wrote and put out earlier this year called Delivering the Goods, which tries to focus on some of the portions of U.S. energy policy that we think are relevant in the debate as a sort of response to what's happening with U.S. oil production and the infrastructure in the United States and actually North America in general and how to respond to some of those changes. And so we brought the Strategic Petroleum Reserve up as part of that conversation for both some of the sort of operational and maintenance and sort of tactical issues that you see arise from the changing nature of the infrastructure in place and what's happening with infrastructure both sort of directionally and new infrastructure here in the United States, but also from the broader context of the changing global oil markets and what we would want a Strategic Petroleum Reserve for. How would we want it to act? How would we like it to act differently than it does today? And so we note that this was a major feature of the Quadrennial Energy Review as well as we've seen sort of more and more sort of policy discussions both on the Hill and within the administration sort of discussing this issue. And so we're very pleased to have all of our panelists here today at what just very quickly our safety moment, if there is an incident or an event unplanned in emergency where you need to evacuate the building, you guys are in great shape because you have a line of sight as to get out of the building just sort of go down the stairs out of the front door where you came from and please congregate on the green space across the street. If that area is not available just sort of go out the door to the back and then there's exit pathways that lead to an alleyway and similarly you can go out the front. So we don't plan that to happen, but I want you all to be safe. Today's event is being webcast and so very much on the record. We're really, really pleased to have Chris Smith, the Assistant Secretary for Fossil Energy here today to talk a little bit about his perspective on the Strategic Petroleum Reserve, the work that they're doing to evaluate the Strategic Petroleum Reserve in this broader strategic context and we'll start with some comments from him and then have Q&A and then a bit of a panel discussion to evaluate some of these other aspects that I talked about a little bit earlier. So, Chris, thanks very much, welcome. So, thanks so much, Sarah, for that kind introduction. I've actually been here to a CSIS, I think, three times over the last four or five weeks, so this is feeling like my home away from home, but this is always just a great gathering of decision makers and subject matter experts and I see just lots and lots of familiar faces in the room. So, thanks for coming and talking to what we think is a really important, really important issue. I'm also really thrilled to be joined by such a great group of panelists and will be followed by Bob Corbin, who runs our Strategic Petroleum Reserve as our Deputy Assistant Secretary. He's going to provide some more detailed comments to follow up on some of the higher level things I'll talk about. Also, will be followed by Martin Talant from NCIS Energy, from Martin Young, from the IEA, and from the very talented Kevin Book, who writes about our program. So, that's who will be following us up here. So, just I guess a couple of comments on the big picture. The Strategic Petroleum Reserve was created back in the 70s in response to some very specific physical disruptions of oil supply coming to the United States or coming out of the Arab oil embargo. So, a lot of the commentary that I'll make here today and that I think you'll hear from your panelists is an observation that since the early 70s, the world certainly has changed a lot. And in that the world's changed, we have to constantly be constantly being reevaluating Sprow's mission, its purpose, our vision for what it can accomplish. And what comes along with that are the investments that you have to make within the reserve on an ongoing basis to make sure it remains relevant. Not only physical infrastructure, but also the legislative authority that allows you to use the Strategic Petroleum Reserve in a way that's effective. So, this is a timely topic. We've been kind of in the news here. Recently, I was just testified before the House Energy and Commerce Committee on this very topic. I think of all the issues that we deal with with Congress with all of our various issues within the Office of False Energy, this is an area in which I think there's some consistent thought between our office and that particular congressional committee on doing some studies to make sure that we are staying up to date and staying relevant. So, I think there's some points of agreement there. We also recently awarded contracts to repurchase 4.2 million barrels of oil, which should be back in the reserve by the end of July. And this is repurchasing essentially oil that we had sold in our recent test sale that we executed in order to ensure that we are exercising not only the physical capabilities of the Strategic Petroleum Reserve, but also all the commercial processes that surround our ability to withdraw the oil. So, on that test sale, we sold 5 million barrels out of the reserve, brought in $468 million of receipts. And it taught us something about the capabilities of the facilities. First of all, I mentioned that the world's changed since this reserve was first put in place. First of all, we're producing more oil now, certainly than we were producing in recent years past. For the first time in decades, we are producing more barrels domestically here in the United States than we're importing from other countries, which I think is an enormously positive thing for energy security, for job creation, for all the things that we care about within the Department of Energy. What it's also done is caused some of the pipeline that used to run from south to north and carry potentially oil from the Westboro to areas in which the oil would be needed. Those pipes now run from north to south. There are pipes that used to run from east to west that wouldn't now run from west to east. The makeup of the refineries in terms of the barrels that they use for the refining operations has changed over time. It's gotten progressively heavier. And indeed, those refiners have spent billions of dollars to upgrade refineries so that they're ready to use different suites of crude. At the same time, we've got a lighter and lighter portfolio of oil that would potentially be going into those refineries as we're producing more light-sweet crude in south Texas out of the EcoFord field and out of the Bakkenfield in North Dakota. So a lot of things have changed since over the last past few years. And the test sale taught us a number of things. First, we identified some challenges and some bottlenecks and in our most recent budget that the President has submitted in our congressional justification, we've requested an additional $57 million of funds that would be dedicated to covering some of that deferred maintenance and also fixing some of those bottlenecks that we observed, which we think is really important work for us to tackle. And Bob will be talking about that in a bit more detail when he gets up here on stage. Subsequent to the sale, we created a one million barrel refined product reserve in the northeast. And this was largely in response to challenges that we saw in the aftermath of Superstorm Sandy. And so we created, we've got four different locations and three different sites, one million barrels of gasoline that's in place in case of future disruptions. So on the sprow in the Gulf of Mexico, this is a complex operation. I periodically get to engage in different types of exercises where we look at potential disruption scenarios coming out of various cases of unrest around the world and we get to participate in those and show how the sprow might lead towards our being able to ensure energy security. And those are always interesting exercises for me because for folks who don't work with the Strategic Petroleum Reserve on a day-by-day basis, there's this idea that it's this enormous bathtub full of oil and you push a big red button and all the oil comes out into the market and the market's supplied. It's actually a whole lot more complicated than that. There's lots of infrastructure. There's caverns to maintain. There's pumps to maintain. These are very, very, very complex facilities. And you have to make sure that on-going basis that you're thinking about what the subsurface looks like. You're thinking about the wellbores that you use to produce oil and to push brine down into the caverns that you're taking care of all your surface infrastructure and that's a critical thing today. When I was testifying before House Energy and Commerce Committee just a few days ago, at one point Chairman Woodfield made a comment about needing to keep up with maintenance and I think referred to the sprow as being in a state of disrepair. And I could just see our deputy assistant secretary leaping through the screen when he made that comment because to make clear that we are keeping those facilities up and running using the capabilities that we have and the budgetary authority that we have in place right now. So that certainly does not accurately characterize I think the state of operation there. In fact, we've got a tremendous team down the Gulf of Mexico that's doing wonderful work. And every time we've had a drawdown, every time we've had a test sale, we've been able to accomplish the mission. So we're thinking about staying mission focused and being able to accomplish the things that we need to accomplish. But at the same time, the world has changed and some of this infrastructure has aged. There are things that we have to do on an ongoing basis and we are going to be accomplishing a review to think about what are the specific tasks that we need to accomplish to make sure that not only are we taking care of any deferred maintenance that we have in place, but also that we're making relevant and we're making appropriate changes to meet the mission in the future. So most of you are aware that the White House just released its first quadrennial energy review, or QER, this rolls off the tongue a little more easily. So our first QER that looks at energy issues across the board from policy to infrastructure. And the QER did talk specifically about challenges within the SPRO and made some very specific recommendations about things we need to do going forward. Amongst those recommendations were recommendations that had to do with infrastructure, with the facilities, and also recommendations that have to do with the legislative authority that we have for releases. So I'll talk very briefly about each of those and turn happy to field some questions and then Bob will talk in more detail about some of the facilities and some of the challenges and opportunities we have to make targeted strategic investments for facilities. First, when we think about new facilities, when we think about new investments, we kind of split those up into two broad categories. The first is the category of life extension. The last life extension process that we went through began back in the mid 90s and was completed some 15 years ago. That life extension, the focus on that was on standardization. It was not on replacement of facilities. And so some of the equipment that we have in place, although we're doing everything we can to make sure that using the funds that we have to add our disposal or we're keeping it mission ready. But some of that stuff is 10 years past its shelf life. There is a fair amount of work that we'd have to do in terms of replacements of various surface equipment that we have on site to ensure that we extend the life of the strategic patrol and reserve to its next period. The second series of investments that the QER envisions are investments that would have to do with distribution capability. We talk in terms of how many barrels we can push out of the spro out of the strategic patrol and reserve which is really a function of pipes and pumps and well bore capacity, how much you can actually push out of these salt caverns. There is a entirely separate discussion about how many incremental barrels that you can put on the market, which is more of an issue about infrastructure that gets the oil from its caverns at our four different sites and into global markets and how can you do that in a way that does not disrupt domestic production so that when you have a release of the spro, you're not actually backing in those barrels that you would otherwise be producing already here domestic in the United States. And you don't want an outcome in which you have a release that backs in barrels that would be coming from domestic fields anyway. So that would be and certainly an undesirable outcome. And there's a look that we'll be doing at what facilities need to be in place to ensure that the capability of getting incremental barrels to the market is consistent with our capability of pushing oil out of the caverns themselves. And so that's two different questions. And so that issue of increased distribution capacities is the second issue that we look at within the QER. And last, there's an issue about the caverns themselves. Caverns we lose capacity both naturally over time because these salt dorms do move over time in relation to the cap rock that holds them in place. You do lose capacity through creep every year and you also lose capacity through the operations of the field through well workovers when you depressurize these caverns, you create a phenomenon by which you lose some of that capacity because the caverns actually change shape and their geometry over time. So both natural induced creep are things that we're concerned about. So we have to think about what is the future of investments we have to make over time to ensure that we maintain the capacity that we need to have in place. Lastly, the QER does also talk about the authorities that we have to release oil. The initial authorities that govern what we can do within Sprower are dictated by EPCA. And what we've seen since over the past decades is a number of changes, a number of amendments, a number of other type of adjustments to our authorities such that now you don't have a single clear, transparent, unambiguous set of authorities that are suited to the challenges of today. And what you do is you have a packed work of changes that came from the environment of the 70s that may or may not match what we need to do right now, today in 2015. Of particular note are there is, we now have the crude reserve in the Gulf of Mexico, we also have product reserves on the East Coast. The way that you would use crude in an emergency differs from the way that you would use product and those differences need to be clear and well expressed. The SPRO is a national resource that deals with global markets whereas the Northeast reserves, product reserves are regional reserves and so there's a difference between national interest and regional interest and that needs to be covered in the legislation in our authorities. And lastly, we think that we need to have the authority to act, the unambiguous authority to act preemptively so that we can act ahead of events that might impact our energy security in our economy. And so those are the broad category of issues that are addressed in the QER that we think are important. So we've already kicked off a comprehensive review of this SPRO, not only the fiscal infrastructure and investments we need to make in infrastructure but also issues of authorities, release authorities. It's our view that that will take us somewhere in the order magnitude of a year to accomplish. It's something we're already working on and I had the opportunity to discuss that with the House Energy and Commerce Committee a few days ago and so I think there's alignment there on the need to do that type of look. So with that, that's kind of an overview of what I think we wanted to cover in terms of what we think the important issues are for the SPRO going forward, both technically and strategically and without it, I'd be happy to take a moment and take some questions. Yeah, you want to come back and take a moment. Thanks very much, Chris, for the overview and I think that sort of the combination of the changes that have happened in the last year or so or more with some of the recommendations in the QR is precisely what we sort of wanted to get to today so I do appreciate it. Maybe if I could start with a question and then I'd like to invite the audience to ask a question as well. If you do, please just sort of raise your hand and then wait for a microphone, that would be helpful. One of the things I was particularly curious about and this gets a little bit into the political elements of it which is unambiguous authority to preemptively release from the SPRO seems like a very interesting construct, right? And so I think the SPR is a couple of different things, right? It's a very useful tool that was designed for a particular purpose but over its history perhaps it's never been used for the purpose it was designed for, right? But it has been used in a number of other instances and I remember when I was working at the Department of Energy some fairly robust conversations about the ability or the desirability of using the SPR for price-related supply disruptions, right? So supply disruptions sort of characterized by scarcity versus supply disruptions characterized by sort of a price impact, right? Is this, I mean is this a very direct signal that we are now thinking about using the SPR as a more sophisticated price intervention type of tool or is it really just to sort of put on the table that we have an ability to see supply disruptions or an advanced understanding of them and need authority sooner? All right, well that's actually a great question and actually a pretty complicated one. So I won't endeavor to thread too many careful legal needles here in my response because one of the things I brought up in my discussion was that when you look at the legislation it's now this patchwork of fixes and amendments that have happened since EPCA was first put in place and if you've got three really smart, well-informed lawyers sitting up here on this panel and you had them all give their view on what exactly you can do and when you get a number of responses. So I'm going to duck part of that, right? Because I don't want to pick one particular interpretation but certainly what I will say is that the world of today is different than the world of the 70s in which the primary concern was you can't get this barrel to the Gulf of Mexico therefore you need a barrel in the Gulf of Mexico waiting to send to that refinery to replace that barrel that's not coming because somebody blocked it. The world looks a little bit different now. We're still focused on disruptions and there's lots of discussion on what a disruption is and what it means and when is disruption a disruption. But certainly I think our view is that the way that the law needs to be written needs to take away some of this ambiguity. It does need to be clearer and I think we do need to have a clearer shared view about how we would use these authorities and what it is for. So the fact that a bunch of people could answer that question in a bunch of different ways I think is indicative of the fact that we need to have this discussion about what exactly does it mean and when can you use it and that will help us to be more flexible but also I think we'll make it a more effective tool for all the things we do care about. Let's see, right here. Just wait for the microphone please. State name and affiliation and if your question can be in the form of a question that would be excellent. Hi, Emily Meredith from Energy Intelligence. And the question is related and that is how is the DOE thinking about the inevitable questions of the role of potential manipulation and pricing speculation in price triggers if you're talking about using a price trigger to release additional barrels. All right. So I certainly didn't say anything as specific as a price trigger that we're envisioning a specific price trigger. So that's not the message I want to say. This is still a focus on disruptions and what disruptions might mean to the U.S. economy. It's, you know, one would observe however that just having these barrels and having them in place to be able to move into the market does help us to send signals that protect the U.S. economy. So in that disruption can impact the price of the U.S. economy, we want to make sure that we've got an effective way to respond and protect national security, protect energy security, protect our economic interests. Now how that would operate I think is actually the very subject of the discussion because right now there are some ambiguities in the way that the legislation's written in that it is, you know, again, over time a patchwork of fixes that have been put in place since the sprow was initially created. So, you know, part of the answer to that question will come out in the review that we're doing and making the recommendations more specific. Bob McNally with the rapid end group. I'm gonna pursue the same line of questioning if you don't mind and thank you for a great talk and for convening. While your point that the oil market and our position in it is very different is well taken, I think it's also true that few things still terrify a politician more than a rising price at the pump. And so as you think about what I understand to be not only clarifying but sort of giving more discretion to any administration as to when to use the SPR, are you open to and thinking about mechanisms such as price triggers or some other mechanism so that we don't have politicized use of SPR to attempt to smooth price fluctuations that can sometimes be a volatile global oil market. All right, so again, certainly I've only said the word price triggers in response to price trigger being used in a question, right? So in that I've even used those two words, it's because I'm referring to the words that haven't been used by someone who's asked me a question. So that was not part of my of, yeah. Now that was not part of the way that that characterizes. So again, not a, the thing that we wanna accomplish is to take what we think is a, again, a messy patchwork set of fixes and turn it into something that's more elegant. What that means in terms of how it operates would be the subject of the review that we're making itself, but this is not a pivot that we're sickling that you're gonna have any sort of more activist policy. I mean, that's not what we're saying. We think that this is an important insurance policy for the United States. We think it's a critically important resource. If you look at oil prices now, you see the markets are very well supplied, right? But it is a period of great uncertainty in a lot of areas. I mean, you throw a dart at the map and you're gonna land somewhere that might impact the energy security in the future. So we have to make sure that we're able to use this resource in a way that's effective, that gives us the flexibility to, I mean, this is the one thing that we have that we can use to ensure that we can respond to issues of energy scarcity. So that's what we're trying to accomplish and nothing as specific as some sort of market trading mechanism that's not what we're proposing. Doug Hengel, the German Marshall Fund. Does your review include a look at the size of the SPR given the increased production in the United States and corresponding decline in imports? Maybe we don't need as large an SPR as we have now? So thanks, Doug, great question. So indeed the review will look at the size of the SPR, how big it is, so yes. So size, quality, composition, strategic relevance, all that? Indeed, right. So I mean, the review will look at how the SPR is configured, sweet versus sour, how many barrels we should have, what sort of infrastructure we need to have in place. It could be a comprehensive review that looks at facilities, what's in the facilities and what's the legislation allows us to get stuff in the facilities, out of the facilities and out into the global market. So it is gonna be a comprehensive review. Well, I know we've had you here four times in the last not too recent past, talking about Africa, talking about the Arctic, talking about a lot of different things. So we appreciate your time and I know you've got a bit of a stop, but I just wanted to ask, we're gonna ask this of Kevin, Kevin a little bit later on the panel, but you obviously, you know, the Secretary's come out, QERA stated you need congressional support and assistance for this. You've mentioned working with Congress. What are your early signals and your own level of optimism for, you know, what's the appetite for reforming the SPR, right? I mean, there's the stewardship issue, there's the functionality issue, and then there's do we need something that's completely new and different and out of the box? I mean, what kind of aptitude for that kind of thinking are you receiving in your conversations? Well, I'm interested to see what Kevin thinks about the hearing. But overall, I mean, I thought it was a fairly constructive discussion. I mean, there's interest in the review, and I mean, this is one of the cases where I'm preparing for this committee, they want us to do a strategic review of the reserve, and we've already started a strategic review of the reserve and we could talk a lot about, well, here's what's gonna be included and that was that lined up with, I think, what the interest is. Now, the devil's in the details, you know, once we get the review done and there's gonna be a point of what do you do next? I mean, we've got a, we have a very strong view on things that we need to be doing now in this President's budget that we requested an additional $57 million for deferred maintenance, we think that's important. Throughout the, so the foster energy budget, so I run the Office of Foster Energy at the Department of Energy, we had an increase in the requests that we had this year over previous years. It was close to what was funded in the Omnibus bill. We think this is an area of, I think, a potential agreement between the administration and Congress. We're gonna advocate very forcefully, I think, for the budget requests that we made. We think it's appropriate. We think it's consistent with what the nation needs and indeed, it's consistent with some of the signals that we've already gotten from Congress. So, this bill is a big asset. You know, it's an important insurance policy. There's a cost to running it and it's, with all these things, you can agree on everything except for the price sometimes. And so that's often a point of discussion. But overall, at least at this point, when we're thinking strategically about the importance of the reserve, it's my hope that we're able to communicate how important we feel this is and that we'll get some concurrence and we'll agree that we need to do the things we need to do in order to make sure that this is the asset of the future, the resource of the future that it's consistent with the challenges that we face now and not the challenges that we face back in the 70s. Well, Chris, thanks so much. We really appreciate it. We hope when you're done with your review, you'll come back and share some of your findings and what the landscape looks like then. But please join me in thanking Chris for joining us today. And if you're able to go on. Okay. I'll actually. You will? Great, okay. I'd like to invite the rest of the panelists up for the rest of the conversation that will get started. When we were, come on up. When we were thinking about how to approach the discussion today, we thought we would take a step back and do a little bit of one-on-one on what the Strategic Petroleum Reserve actually is and how it functions. And I couldn't think of a better person than Bob Corbin, who's the Deputy Assistant Secretary for the Office of Petroleum Reserves at USDOE, who is the one who explains all this stuff to me. So I thought it would be helpful to bring him here and talk a little bit about what the SPR is and how it functions from all the work that he's doing and how it's being maintained. He can go on and on and talk more in depth on all of the different attributes of what he's going to talk about. But we asked him to sort of keep it to a high level, though a useful overview. And then we've invited Martin Young, who is the Head of Emergency Policy Division at the International Energy Agency, to do something a little bit similar, a hybrid of what the strategic stock systems is. And then talk a little bit about how they're thinking about the challenges of a changing global oil market and environment and the strategic stocks in light of that. And then we've invited Martin Tallett back, who's the President and Founder of NSIS Energy. He was actually just here at the last one of these. But one of the conversations we had after that was about all of the work that NSIS has done on looking at the SPR and in a strategic context. So the work that they've done over many decades to look at the SPR's ability to respond to a variety of oil supply disruptions and how we might think about that challenge that Chris and his team and all the folks over at DOE are grappling with about thinking about that going forward. And then much already reviewed Kevin Book, who is a partner at Clearview Energy and an associate here at CSIS. His energy program is gonna talk about the politics of all this and what are the key questions that people who have authority to change these things might be thinking about and what the political dynamics of that are. So without further ado, Bob will get started with your presentation and then move on. Do you wanna speak? Well, thank you very much, Sarah. And thank you, ladies and gentlemen for attending this event today. I appreciate the opportunity to talk. In the interest of time, we were asked to sort of condense our presentation. So I'm gonna give a very brief overview of the SPR, I'll call it an SPR 101. For some of you, this may be stuff that you already know for others. It may help you out a lot. Certainly during the question and answer period, I'd be happy to take any questions that are perhaps in more detail than what I'm gonna cover here. Okay, so as Chris Smith mentioned, the SPR was established back in 1975 as a direct result of the Arab oil embargo of 1973. It was established by the Energy Policy and Conservation Act of 1975. And its mission is to ensure U.S. energy security through the reduction of impacts of supply disruptions and also to carry out U.S. obligations under the International Energy Program. I guess the key point with this is you need to think of the SPR, it's a national insurance policy. Like any insurance policy, you hope you never have to use it, but if you need it, it's there for you. With regard to release authorities, there's essentially four ways that oil can move out of the SPR by statute. Two of those require a presidential finding. In other words, there has to be a written finding from the President of the United States. And two of the authorities can actually come from the Secretary of Energy. From the president, you can have a full drawdown authority under section 161D of EPCA. And it's basically to address a severe petroleum supply interruption. And then when you go into the law itself, there's a sub-definition of what constitutes that. And it goes back to one of the points that was asked of Chris Smith before with regards to the need to change some of the authorities. And one of the keys to that is if you note under the severe energy supply interruption, it talks about a severe increase in price of petroleum products has already resulted from such an emergency situation. So in other words, something has to have already occurred. And this is probably one of the biggest areas of concern when you look at this. The second authority, it's a limited drawdown. It requires a presidential finding. It's limited in the sense that it's a maximum of 30 million barrels and no more than 60 days of the release authority. And it also is limited if the SPR actually has less than 500 million barrels of inventory, you cannot use this authority. On the secretary side, the secretary has authority to issue a release in the event of conducting a test sale or drawdown. And also for an oil exchange, an exchange can be used to either acquire oil or to alter the mix of oil in the SPR. This authority has been used historically when there are emergency situations, think hurricanes in the Gulf of Mexico that have taken out infrastructure and have not allowed refineries to actually maintain their inventory level. So on an emergency basis, the SPR can provide oil to these refineries and then we get our oil back over time plus premium barrels. Very quickly, this slide just shows all of the different oil releases that the SPR has had over its existence. We have had three drawdown actions, all of which were IEA collective actions, three test sales, including the test sale in the spring of 2014. And then a total of eight exchanges, seven of which were related to emergency requests. This slide just wanted to show people where our different field sites are located. The SPR actually has four storage and distribution sites located along the Gulf Coast, two in Texas, two in Louisiana. We also have a project management office in New Orleans that actually oversees the day-to-day operations of our field sites. Some site information, four field sites, storage and distribution facilities. We have a total of 60 operational caverns, our design capacity is 713.5 million barrels. We currently have an inventory of just about 691 million barrels, we'll add 4.2 million barrels more with the coming oil purchase. And our drawdown rates from our facilities, maximum drawdown rates design-wise are 4.4 million barrels per day. And as Chris pointed out, that's the rate at which we can push oil out of our caverns. And then we get into the entire distribution issue, which is very, very different. With regard to storage, I'm sure most of you know, all of our crude oil is stored underground in salt caverns. These are essentially caverns that have been dug out of salt, dug leached out with fresh water from salt bones. The cavern shape that you see in this diagram is a typical cavern shape for a DOE design cavern. We do have a number of caverns that were originally acquired when the SPR was established. We call those our Orally Storage Reserve caverns. The shapes are very, very different. On DOE design caverns, this particular shape, from the surface to the top of the cavern, typically 2,200 feet down, the cavern depth itself is about 2,000 feet, about 200 feet in diameter. These caverns typically hold about 12 million barrels of oil. They're shaped like cylinders. In some of the early storage reserve caverns, the shapes are very different. We have one cavern, we call it the Flying Saucer cavern, because its shape, if you looked at a plan view of it, looks exactly like a Flying Saucer. We have other very odd shapes. Our largest cavern, which was one of the early storage reserve caverns acquired, holds 37 million barrels of crude oil. The other point that I'll make is the operating costs for underground cavern storage are less than 25 cents per barrel per year. We annually benchmark our costs against 14 international countries at an international benchmarking event, and our costs are actually the lowest costs per barrel per year out in the industry. Purposes slide, I just wanted to explain to some people basically how we move our oil. Essentially, if you look at the caverns itself inside the salt dome, the black is the oil, sits on top of the green is brine. It's basically saturated salt water. When we want to pump oil out of the caverns, we actually use raw water injection pumps, and we pull raw water from a freshwater source, and we pump it down into the bottom of the caverns. The raw water essentially then pushes or displaces the oil up out of the oil well bore, and then from there it goes into our crude oil pumps where we get it up to pipeline pressure, we get it out, and then we can distribute it out through our distribution networks. If we are filling our caverns with oil like we will be doing with the purchase, it's just the opposite. Our oil goes back into the caverns, it displaces the brine that's in the bottom of the cavern. The brine then goes out and goes to a settling pond to skim off any oil from the interface to let solids settle out, and then from there it is either pumped out to the Gulf of Mexico for two of our sites or it gets disposed of in underground injection wells at two of our other sites, and all of our brine that goes out is subject to EPA permitting requirements and testing. This slide is just a very broad view of our distribution groups. Within the SPR we actually have three separate distribution groups. The one farthest to the west is the Seaway Group, the middle group is the Texoma Group, and the one farthest to the east is the Kaplan Group. Within these distribution groups, we have a total of 17 sales points that we can sell our oil from. Out of those 17 points, five of them are at marine terminals and 12 of them are pipeline connection points. During a drawdown, when we issue a notice of sale, the notice of sale actually tells potential purchasers which sites and which sale points we would sell our oil from. However, what many people don't know is once the purchasers have been identified and the sale is completed, it is actually the purchasers' responsibility for making their own transportation arrangements. So in other words, they bid on the oil, they bid on the delivery point that they wanna pick the oil up at, and they make the decision whether they wanna move the oil via pipeline or via marine vessel. With regards to the test sale, the test sale was actually conducted within the Texoma Distribution Group. That was the group that we had the most concerns about with changes in infrastructure and the additional domestic production. And in our test sale report to Congress that we turned in after the sale, we had a number of lessons learned there, including the need to enhance our distribution infrastructure. All right, final slide with regard to current initiatives that we've got going on in the SPR right now. The crude oil purchase, as Chris Smith already mentioned, and I touched upon, this buyback of oil required by law when you do a test sale, and to the extent funds are available in the SPR petroleum account, we have to buy back petroleum products, which can include crude oil. In this particular case, we had sufficient funds left where with the price of crude, we're able to buy back just about 4.2 million barrels of crude oil. It's all sweet oil and it's all going to our Brian Mann site. And in fact, our first deliveries are scheduled for this week. With our long-term strategic review, again, the idea is to position the SPR to address potential oil market vulnerabilities over the next 25 years. In order to do this, there are a number of topical areas that we need to cover. We have to look at the evolving oil market vulnerabilities. We need to look at things such as the size, the composition, and the geography of the reserve. And when we say composition, that also looks at talking about looking at the potential need for additional product reserves. We need to look at our infrastructure, our storage, and our distribution requirements. As Chris mentioned, our infrastructure is aging. In many cases, we have equipment that was original equipment when the SPR was established back in the late 70s. It is, in certain cases, in need of replacement. Our caverns, some of which the original early storage reserve caverns that were acquired date back, in some cases, almost 60 years old, including their well bores. Distribution-wise, we did the test sale. We noticed that we need to enhance our distribution system. And then mixed in with that is then you look at also the resource requirements that affect all these changes affect. So these are gonna be the general topics that we would be covering in this strategic review. And as Chris mentioned, it'll probably take us about a year to do this. It's gonna be fairly comprehensive. Refined Petroleum Product Reserve Studies. We've got two separate studies that we're looking at right now. We've initiated a review in conjunction with our Energy Policy and Systems Analysis Office and DOE to determine the need potentially for a Refined Petroleum Product Reserve in Pad 5. For those of you who do not know Pad 5, that's the three West Coast States, Oregon, Washington, California, Nevada, Arizona, Alaska, and Hawaii. In addition to that, we are ready to initiate a revalidation of a 2010 internal study that was done by DOE that looked at the need for an RPPR in the Southeast United States. And we anticipate that that revalidation will commence sometime later this summer. In addition to that, our office is also doing some work regarding an analysis to look at feasibility for enhancing our marine distribution capability in all three of our distribution groups, looking at options potentially to enhance our terminal capabilities either through new terminals or connecting up with existing terminals. With that, I thank you very much. And once the other panelists are done, I will be happy to take any questions that you have. Thank you very much. Okay, so Martin's gonna take us into sort of the transition to the global strategic stock system, a little bit of an introduction to it too. Thank you. And I'm delighted to be able to be here, to be able to talk, give a little bit of perspective from the IA's viewpoint. Just to get a little bit of an overview, I'm gonna provide a little bit of context the way that we see things, then to answer the three areas that Sarah raised on when putting this workshop together about the structure and function, possible reforms, and the role in the global energy system. First of all, from an IA perspective, we don't just look purely at the US SPR, we're actually seeing total US stocks, so including industry stocks. So at the moment, our latest data, at the end of January, is that US has got 1.9 billion barrels. Within the total IA system, we've got, of all our member country stocks, some 4.1 billion barrels. So US stocks, as part of that, are some 46%. One particular important issue that I think there's a little bit of what you might term, what lawyers might term as loose language. Lots of people consider that all IA members have a strategic petroleum reserve like the US. That ain't the case. There are six countries which have government reserves, but very of those, I'd say that the only ones that are vaguely like the SPR is actually the Korean and the Japanese versions. The Czech one also is perhaps a little bit similar, but also holds product. And the New Zealand one is nothing like it at all. It's just holds options to buy product stocks. There's a wide diversity of different models across the IA membership. There's been a lot of move to agency stocks. These can be government-owned operated, but they can also be industry-owned and operated. And they tend to focus a lot more on product stocks. And we also have industry stocks where obligations are placed on industry operators. And the diagram shows we have a combination of various models in between. And beneath that, we also have the commercial and operational stocks. One interesting point to note, and I'm sure you're probably well aware, is that there are two countries which are developing SPRs very similar to the US version. That's China and India. So onto the structure and function. As has clearly been mentioned, the SPR was set up to be an insurance policy in the event of serious or supply disruptions. It retains this functionality, but it needs to adjust to the new market realities. From an IA perspective, we welcome the QER. And we also welcome the test sale, because that's checking to make sure that the SPR can function the way it's supposed to. One comment here is that the IA has previously encouraged the US administration to consider holding product stocks as part of the SPR near key demand centers. So we very much welcome the studies that are going to be done as part of the QER. Moving on to the possible reforms. We also very much welcome the broader definition that the QER mentions about energy security. This very much aligns with the IA, I think, and the energy security is much broader than just oil. It's already being touched upon in some of the comments. We support the flexible wording in the EPCA for the perspective of global disruptions and the anticipatory action. Again, flagging some of the points that have actually already been raised, there is a concern that price in of itself should not be a trigger for an SPR release. There should be a clear link to an actual or physical disruption. That's a standard viewpoint that the IA has expressed for a long period of time. I think there's the perception that you'll be disrupting normal market signals that will discourage investment in production and that could make the longer term supply and demand balance worse. It can also reduce your actual stocks when you do have a physical disruption. And for some of our members, actually releasing stocks solely on price is illegal in their legislation. The recommendation on optimizing the SPR's emergency response capability, we see as business as usual and just making sure it retains operational effectiveness. And as Khalid said, we support the work on the product reserves, but very much like the idea about trying to align the release processes. So moving on to the global energy system, it's also being touched upon that one of the reasons for the SPR's creation was to comply with the U.S.'s commitment to the International Energy Program, the founding treaty for the IA. The U.S. and the SPR are part of that global oil supply system that's coordinated by the IA. Clearly, the stocks are there to prevent economic harm, not just the U.S., but also for our member countries. And we got together because it was realized that coordinated action together is more effective than individual uncoordinated action. I'd also make the point here that in the IEP, it was a very clear aim that the emergency stocks are there to try and stop the use of oil supply as a political weapon, and arguably you could say that they have been effective in this approach. Bob's already touched upon the three collective actions that we've had, so I won't go any further on those, but I will highlight the fundamental question that we have is, will the system continue to remain effective? A lot of things have changed since 1974. At that point, OECD countries are responsible three quarters of demand. We're actually at the crossover point now. It's 50-50 between OECD and non-OECD, and going forward to 2035, OECD countries are going to be in a minority. We need to update this middle chart, but it's trying to show the coverage that the IA stocks have. Back in 1980, the total stocks covered about 55 days of global supply demand. That's coming down. The three additional bits are supposed to show China, India, and ASEAN countries. There's clearly a need to work with these countries going forward, and so we very much welcome things like the recent US-China agreement where there has been sharing of experience between the SPR as if China and the US. Thank you after that. Thank you. So good afternoon. It's a pleasure to be back, and it's time to be talking about the SPR. So just by the way of introduction, I'll carry on until the slides come up. At the end, since we've spent about the last... Just in advance. They're all there? Yes. Okay. So just by way of introduction, we spent the last 30-odd years focusing on a global integrated analysis of the petroleum downstream system, and one of the things that start apart from bringing to us a wide array of clients is to lead us to a history where we've worked on over half a dozen studies for the DOE of both actual and hypothetical disruptions, examining the market impacts of different levels of SPR draw or different mixes in the crude and so on. And while today, we've spent a lot of our time focusing on the major developments here in North America, one thing I'd like to do is to drop back, actually, and draw on our experience in general. But in fact, one study in particular in 2005 that we undertook of hypothetical disruptions that we were anticipating could occur in guess what, 2015. And to use that as a way of gauging just how much things have changed. So this is a lot of numbers on this chart, but these were the scenarios that we looked at in 2005. And a couple of important things is across the top, the labelings of the scenarios, a major Persian Gulf-wide disruption with a military component to it that sounds kind of ominously familiar. A somewhat step-down version of that, Saudi, West Africa, Venezuela, Gulf Coast offshore hurricane. All of these, I think, are still the kinds of scenarios that if we were doing the exercise today, we would select. They're still very much out there and probably the scale is very much similar to what we were anticipating about 10 years ago. All the numbers represent the fact that while we focus a lot on the US SPR draw, as Martin just mentioned, in examining a disruption, that's really just one component of the whole thing. You've got the crude loss, but then you typically have maybe NGLs and other streams that are lost as well from the supply. You have the SPR crude oil draw, but that can be part of a total IEA draw. And these days could also include draws from, say, China and India. Again, as Martin mentioned, on the supply, on the demand side, there's a military component. You're going to get changes in the demand mix, more military fuel required. The losses and demand are going to be worse in the disrupted regions, but spread across the rest of the world, maybe partially offset by product draws from, say, some of the IEA members. And then at the bottom, too, refining capacity, really a key component that can be major refining losses depending on what the disruption is. So these are the kinds of factors that one has to put together in considering an overall disruption scenario and how it might play out. But before you can do that, you have to consider what the business as usual outlook could be. And looking back to what we did in 2005, this was the base that we projected, it was really the EIA, so I can blame the EIA. But in the EIA's outlook, they were looking at 2015 as having about 5.5 million barrels a day of U.S. oil production, crude oil production. That was where we were in about 2007, 2008. Significant demand growth, and so higher refining throughputs, over 18 million barrels a day, so roughly 3 million barrels a day higher than actual. And also, I think probably, we were assuming less biofuels. And so when you add all of those together, we were looking at a situation where we could have anything up to close to 13 million barrels a day of crude oil imports here in 2015, whereas, in fact, the number is a little bit over half that, about something around 7 in 2014. So this is a much better position that we are in than that we thought we'd be in. And when you look at this on a regional basis, Pad 2, the Midwest, again, a few years ago, we thought that was still going to be vulnerable. If you take vulnerability here, I'm just using Africa plus Middle East plus Venezuelan crude oil imports. The Midwest, Pad 2 could be vulnerable. That vulnerability is gone, thanks to Canadian crude oil growth and to domestic light-tight oil. Pad 1 and 3, that's the East Coast and the Gulf Coast, very much reduced in terms of vulnerability. The one region that has increased in vulnerability is Pad 5, the West Coast, and that's because there, the reductions in regional crude production have been offset by increases in Middle East crude oil imports. So these have some pretty far-reaching implications, though. You could look at this picture and say, well, everything is great. We're in a much better position than we thought we were going to be, and so there's nothing to do. There's no problems, no issues or challenges. But I think there are. As previous speakers have touched on, the first one is logistics. If you have a big SPR draw now, say four million barrels a day, you're feeding that crude into an already pretty crowded Gulf Coast market. So it's incremental crude oil movements on top of what's already there. And so, in addition, a significant part of that crude, maybe 30 or 40%, could have to be moved to Pads 1 and Pads 5, which means getting onto the water. And so that has significant implications for the infrastructure needed. And then there's a question of volume, because when we look at those numbers, we're now down below about 2.8 million barrels a day of, quote, vulnerable crude oil imports. And if we had a four million barrel a day SPR draw as part of a coordinated response to a major international disruption, we would have backed out possibly 2.8 million. We'd have another 1.2 or more left available. And the question is, if you're trying to get that onto international markets in order to have an impact, how do you achieve that? And the first thought is, well, then you could displace the non-disrupted imports that were still coming in. But if you look at that, the issue is that the bulk of the imports are still coming into Pads 3, secondarily Pads 5 and Pads 1, but particularly into Pads 3 and 5, those imports are predominantly heavy crude oils. The Middle East crude oil is about 30 API gravity. So if you look at the other crude oil, so typically in the 15 to 25 API range, heavy, sour, a lot of them are acidic. Those are not crude that can readily be reallocated to refineries elsewhere in the world. So they're likely to stay put. So then if you add to that the fact that nearly 40% of the reserves in the SPR are relatively light, sweet crude oils, a North Sea-type crude oil, reflecting the history going back to the 70s and the 80s, then the question becomes, well, given the abundance we have today of light-sweet crude being produced here in the country, it's difficult to see where there'd be a market for that SPR suite within the USA. In fact, those crude are much better fit, really, with European and Asian refineries. And so the implication for that is, it's difficult to budge the remaining heavy crude imports that in order to, again, get, say, four million barrels a day fully into international markets, you'd have to do it directly by exporting the sweet crude from the SPR, which brings us right into the overall crude oil export debate. Some thoughts about the SPR size and draw, rate, and make-up. And, you know, given this situation, this much improved situation, one could say, and obviously the question is being asked, which is, do we need an SPR of the current size and draw, rate? And certainly a lot of the studies that we did, the emphasis was on replacing physical oil, but it was also on recognition that drawing the SPR down had the impact of reducing international oil prices and thereby reducing harm to the U.S. economy, and one must also say to a lot of other economies around the world as well. So clearly there are substantial costs to maintaining the SPR at its current size, but one could argue that because of the scale of the world economy, the U.S. trade with other nations, the extent, the height of the oil price spikes that we see these days, that there is at least an argument for maintaining that capability at its current level. As long, though, of course, as you've got the logistics and regulatory frameworks to get the crews out into the markets that can take advantage of them. And just a final point about the composition of the SPR, and it's been touched on earlier, clearly we know we're going to get big hurricanes and damage in the Gulf Coast region and even up the East Coast, and that can really knock out refining capacity, and so even if you don't lose any crude supply, you really need product. Bob commented on that earlier. Another example is the U.S. West Coast. If a big disruption starts, by the time there's been an authorization, purchase, shipping round to the West Coast, processing through refineries there and getting out onto the market, you could be talking six plus weeks. That's a long time to wait. And so, again, that indicates an argument for considering product reserve on the West Coast. And the final point is that we always focus in on the Middle East as the sort of primary vulnerable area, and traditionally there, it was predominantly crude oils that that region exported. What's happening there today is there's construction going on of literally millions of barrels a day of refining capacity, so increasingly that region is exporting a mix of crude oils and products, and so our vulnerability or dependency, if you will, is more to that mix. So when you put those together, I think, again, this can sort of reinforce the idea that what is in the SPR needs examination or whether additional regional SPRs are needed also needs examination. So, again, compared to where we thought we were going to be, we're in a way better position, courtesy of growth in U.S. production, but there are arguably quite a few challenges or questions that are outstanding. Thank you. Okay, Kevin's going to wrap us up with summarizing a bunch of this and look at the politics. Please help. Stop. Don't do that. Okay. Thanks. Thank you, Sarah, for the introduction. Thanks for the big build up. I'll try not to let you down as your last speaker in a long series. It's good to see a lot of friends and familiar faces in the crowd. The questions I'll be discussing today are a quick thought exercise about what trying to guess the right level of insurance might be worth, a bit of a discussion about what Congress might be thinking based on recent events. I think you have a preview of it right there. And products reserves. Really, there's two dimensions to the discussion that are happening very much in public right now. One is the size question that's come up over and over again, but the second is the composition question. So, let's start with the insurance point. Days of demand cover is simply looking at the number of barrels in the spro and dividing by the net imports of petroleum products the U.S. is bringing in. And the notional 90-day obligation for demand cover, import cover under the IEA is a good baseline to sort of ask what does it mean if we're at 140 plus on a trailing 12-month basis? Are we overinsured? One might argue that, yes, we're overinsured for the world we have today. That's an argument that we've been hearing not just in the last year, but I can recall at least twice in the last five or six years being on the Hill listening to members of Congress talk about the very notion of reducing the size of the spro. Which is interesting because I can also remember about 10 years ago being on the Hill legislation that emerged from the Hill saying that it should be expeditiously increased to its full bullion barrel size. So, this again, back to the question of are you sure you're timing it right? One other way to think about the insurance. If you're paying the same amount and your coverage has increased is that a good deal? Did the deal just get better? Something to think about. Okay, thought experiment number one, let's look from 85 forward shortly after the full fill of the spro relative to sort of the historical levels. And let's ask if on any given month we sold when we were below or sold when we were above 90 days of net import cover and bought when we were below and we inflate the dollars to the purchase into real dollars. On average, was that a winning or a losing proposition? The answer is no, it was a losing proposition. You lost $7 billion on average over the series. But if I look for the last 60 months that's a different story. I'm $5 billion ahead. Now, I'm not suggesting that we want to trade our security blanket. Lord knows that there are traders who have more sophisticated tools than the US government most of the time. But the point is that the current thinking may be that based on the last five years congressional sentiment which is we know very far reaching and long lived, up to and on the day of the next election is likely to not think necessarily about the broader historical trend. Okay, so what's been going on? I'm going to take you, like Congress, into recent memory. In March DOE conducted a test sale. We like to refer to it in March with benefits because it was sufficient in terms of the revenues it raised to fund the creation of a products reserve located at three sites in the northeast for a million barrels of gasoline and still thanks to the precipitous drop in crude prices purchased back essentially all the oil that was sold for the same amount of money. Well done, guys. Maybe you are very good traders. Now, there were several things that happened subsequent to that. The Department of Energy's Office on the SPRO sorry, the Government Accountability Office dating myself there. The GAO did a report on the SPRO in the context of crude exports and there was also the Cromnovas bill which is one of those elysian acronym things that happens only in Washington understood by no one for those who were blissfully outside the beltway that was the continuing resolution slash omnivus appropriations bill which blocked the subsequent creation of future products reserves without the involvement of Congress. Then there, of course, was the QER which made some comments about this pro and of course, Chris Smith appeared just last week for the House Energy and Commerce's subcommittee on energy and power where he gave very eloquent testimony similar to what you heard today. So what did we learn from these things? Well, the OIG report mentions a crude oil fill level. This would be pointing to a size discussion, question about right sizing the SPRO surfaces. We see in the GAO report questions about DOE has not recently reexamined the size. This is an interesting idea. Are we holding excess crude oil that could be sold to fund other national priorities? Parish the thought such a thing could never happen except that it did three times in 1996 and early 1997 for the total of 28.1 million barrels sold in three non-emergency sales the first of which you could argue was done because a cavern had to be emptied but the next two were done because Congress started to like the way it felt to sell crude. But wait, it's happened more recently as I think you may recall we had an emergency sale in June of 2011 30 million barrels of crude and the coordinated IEA action and in the context of that raised 3.2 billion dollars which went into the SPR petroleum account where it sat until Congress took it in what was effectively an ex-post facto fundraising sale. That money was no longer available to buy back crude for the SPRO because that money had gone to the general account the general fund of the Treasury. So does this sort of thing happen? Yes it does happen. Is GAO saying maybe you want to do it? Maybe they are. But then Congress responds to the diversification into products by saying no. I mean that's essentially what those words say. And maybe used unless we say you can use it. And by the way if you're thinking about doing any more products reserves, why don't you ask us first? Thanks. Okay, so that was in an appropriations bill. So we get the impression that maybe Congress is protective of this program. They want to keep it the way it is. They don't want DOE going off and right sizing it or modernizing it or optimizing it unless they have a robust discussion. Well the QER comes out and says we think it's a robust discussion. We DOE who are already studying this and the EPSA group which is looking at everything all things energy across the government has come up with the conclusion that yes a robust discussion is worthwhile. And so it would happen that the Honorable Secretary Smith was appearing before the committee last week in which 15 members managed to show up for a discussion about the SPRO. Which is not to say that out of a committee of the size and scale the Energy and Commerce Committee is going out when someone is eloquent and pleasant to talk to as Secretary Smith was there, but it did stand out because eight of those were Democrats, seven were Republicans, and fully seven of that 15 made comments that said hey maybe we should look at the size of the SPRO. What's going on here? Are we protecting against changes or are we eager for changes? Well there's one way to look at it which is that if $15 billion is what you can raise by selling it about $55 a barrel, the notional surplus above the 90 day theoretical net import cover, then that's $15 billion that can be spent obviously on the most urgent energy policy priorities of the US government or anything else the US government might wish to spend it on. And that of course is one of the risks associated with the ongoing debate. One of the things that it could be spent on though is the thing that we spent it on last time, which was the diversification into products and the time before last, too. What you have here is the five year average of Pad 1 middle distillate inventories up to 2,000 so prior to the creation of the New England Home Heating Oil Reserve which was done during the Clinton administration to protect against the risk of a supply disruption and or price issue in New England. The black line at the bottom and the several lines you see are the annual inventory levels on a weak basis during the years that followed and you will notice that they fall below the bottom of the range. Now this isn't a very fair analysis because there's a lot of reasons why inventory levels fall below the bottom of the range. But one potential explanation for it is that private entities who are currently investing their precious working capital in inventories might look upon the government choosing to invest in inventories and decide well, if they're doing it why should I? I have higher productive uses of that capital. I'm not saying for sure in a definitive statistically guaranteed sort of way that the inventories that the private entities in Pad 1 were holding were eliminated taken up by the government at taxpayer expense for the same net energy security benefit but it is a risk a free rider risk and that is one reason why Congress may have said hey let's talk about this products reserves thing before you go and do it again. There is a second reason which came up in Bob McNally's question I think earlier in the session which was the question of whether or not there is a political motivation to release reserves whether the context for the release of that reserves could be done specifically for the benefit of a local population. As Secretary Smith mentioned the SPR for crude is a national resource with national and global ramifications regional products reserves are regional resources which mean that they can have local political impacts. I would say that we are yet to have a robust refined products reserve debate but it's coming and those two arguments those two elements of discussion likely to be included among them. Thank you you've been very kind. Look forward to the discussion. Great so we've got about 15 minutes left for discussion. I know there's a lot of folks in the audience with deep expertise on the issue. One of the things I wanted to do is forego my own question and give someone who actually worked on the SPR portion of the QER an opportunity to maybe say a few different words just on the raison d'etre of the SPR from the QER's perspective just to add that additional element to the discussion. I know there's a few other people in the room who have also worked on this for a long time welcome you to make some comments but we do want to be able to get in other people's questions as well so if we could move through it quickly. Carmine Defiglio you want to take the first whack. Thank you very much. I just wanted to mention that especially given the last discussion. The basic economic rationale for the holding reserves has been a debate for quite a long time after the oil price collapsed in the early 80s after the oil price spikes in the 70s there's been a continuing economic debate whether or not oil price spikes really hurt the domestic economy or not and a lot of people had some economists had theories that well they were caused by the Fed having an overly strict monetary policy well since then a lot's happened we've had continued examples of oil price spikes and they've also caused depressions in economic growth both in the U.S. and the world and there's been a lot of statistical studies about the sensitivity of purchases of gasoline and oil with respect to gasoline or oil prices and in order to go into this question of the SPR one of the things we want to look at is especially given that U.S. oil imports are decreasing and expected to decrease further is there still a necessity of the SPR to protect the domestic economy from oil price disruptions and oil supply disruptions and the QER took a good look at this and there is a clear statement in the QER that despite the change of the U.S. and the world oil market in our more prominent role that without the protection of the SPR the domestic economy is still vulnerable to disruption from international oil supply disruptions and that is a that's something that we haven't abandoned as a basic principle behind the SPR. In addition of the legislative changes that we're making again given some of the discussion there's nothing in the QER recommendations that would be giving the president authority to release the SPR simply because oil prices have gone up. There is a recommendation to change a very small change in a section called this is very arcane 161D that in order for the president to have an unrestricted release of the SPR he has to find that the disruption has caused domestic product prices to increase levels that have already damaged the U.S. economy we'd like to see that say are expected to damage the U.S. economy because it's pretty clear that the SPR is more effective in preventing a price increase rather than bringing prices down after they've gone up. So there's nothing in the QER that's suggesting that the SPR be used as a way of managing oil prices. Thank you. I'd like to welcome other questions from the audience if there are some if not I'm going to start going on mine. John. John Shagg of Strategic Petroleum Consulting Mr. Young you outrightly said the IEA is against managing oil prices and then you went on to buttress that argument by saying legislation said it was illegal the first real serious use of the Strategic Petroleum Reserve was a 30 million barrel exchange the largest drawdown in the Strategic Petroleum Reserve near 2,000 by the Clinton Administration. Are you implying that that was illegal because it was strictly for price purposes? No. I wasn't actually referring to the U.S. legislation at that point I was actually referring to German legislation for their agency EVV. It's very clear that they can only use their stocks if there's a clear disruption. So I was not referring to the U.S. Martin, it does make me want to just follow up on that really quickly and then we'll go to Bob's question is you had mentioned that there is a variety of approaches and both in terms of size and composition and governance of strategic stocks within the global stock system. It was actually one of your colleagues here not too long ago Antoine Hoff who has sort of expressed this changing nature of global oil trade flows from one that's more sort of product heavy, less crude focused and has a lot of different sort of directional dynamics to it that led us to asking some of these questions about on a broader basis even outside but hopefully informing the U.S. SPR conversation this broader conversation within the international strategic stock system about how well positioned we are for the oil markets going forward. Is there work that you have done are doing considering anew on some of the things that have worked well or not well in the context of the global strategic stock system that you wanted to share with us at all? We've reviewed the effectiveness of recent collective actions. There was a lot of work after Katrina collective action which resulted in some things being sharpened up amongst our member countries. There was a long debate post the Libyan collective action about sharpening things up. I think probably in the short to medium term I think this current system is fine. The real issue is where the huge growing demand from China and India and making sure that they have emergency systems that work in the same grain as the current systems and that's where there is a lot of work with these countries trying to see if we can do things with them. I touched upon the agreement the US has got with China about sharing expertise and I think that's really beneficial because we know that the Chinese have got an SPR. We actually had an exercise in January where we did one of our exercises. I'll speak a little bit closer to it as well. We had an exercise in January in China where we did a global disruption and we had a lot of Chinese industry involved. We know the Chinese have an SPR. We don't know what their release processes are. The question is do they actually know what their release processes are? We would actually like to make sure that in due course that they could align with what we're doing. India is another case where they are building their SPR. I think they've actually now started filling it. Again, we'd like to know and be able to work with them on the release processes. So when disruption do come in the future we can try and maintain the effectiveness of the existing system. Thank you Bob McNally. I'll invite Kevin and anyone on the panel to respond to the question. I guess I want to repose the question I asked earlier. Recalling that the 2000 time exchange releases we saw on the screen that didn't have the words storm, war, collective action was announced 60 days before a national election in which President Clinton invited then candidate Al Gore to announce that and it's perhaps suggesting that there might be some politicization in the use of reserves when even more discretion was granted to the government than is already right now. I guess my question is rising gasoline prices terrify officials. Realizing definition of a disruption is in the eye of the beholder. When we think about giving more discretion to the government when to use a reserve what mechanisms or procedures might we want to consider to ensure we don't have politicized use of the SPR, which I think we all would agree would be very negative both for national security and market stability. Thank you. I don't know if out there in the digital world there's information you can find it but I had the pleasure of sitting on a panel with energy secretary Bill Richardson at an event hosted by Politico in 2012 at the Democratic National Convention. He actually said something I can't remember the exact quote but it was something like sometimes governments use reserves to move prices. Now it's as close as I can get to I think the secretary has other roles and perhaps he misremembers the context in which the decision was taken to release those reserves. But if you were to find that footage I think it might confirm your suspicion. On the other hand I also think that we might want to consider that maybe that's what they always have wanted to do with reserves. There's a constant tension that goes all the way back as Carmine mentioned throughout the debate on this whether or not this is a break glass type of tool or whether it's a tool that lends itself to some other use to modulate economic impacts. And I suspect that one of the limiting factors and whether Bob or anyone else can speak to it may be the question of whether or not it can be used tactically given the physical constraints of the facility. Could it be used tactically I guess the way that I would look at it as the program manager for this Epka to me it does have very clear language in terms of release authorities. Now whether you agree that the release authorities are good as written or as the QER has indicated that there really is a need to amend those authorities because they are a patchwork that have occurred through amendments over time to the original law there are clear authorities and with regards to tactical releases depending on how those authorities are written, if there are changes to the authorities which would be done by Congress obviously you could potentially utilize the SPR for meeting the release requirements in law but do it such that as I mentioned previously under the 161D for a full draw down right now it requires on the economic side that an adverse impact has already occurred and that's what I think the point that Carmine was making also is that where not to be utilized necessarily as a price maintenance mechanism but think of it more as an overall deterrent in the sense that you have a potential physical supply disruption say there's tensions in the Middle East there the waterways are starting to get choked off because of even if there's no actual fighting but you know shipments are slowing down or something like that that starts to drive global crude oil prices up there is the potential for a physical supply disruption in that particular case at that point in time it is extremely likely that the IEA member countries are going to be talking about what potentially could be done and if there was a collective action that the collective action could be as a result of rather than waiting until prices go all the way up to say $170 a barrel if you're at $130 a barrel but all the economists agree that if something were to occur it's going to go up to $170 a barrel then you do something at that point in time Martin Tellett one of the things I wanted to do is maybe ask you to address something that Kevin Book raised in his remarks which doesn't get nearly as much attention I think as the size or composition or strategic use but maybe in your real house a little bit I guess is this ownership question if changes in the strategic petroleum reserve in whatever direction either to have more products or to be in a different location or to be a different size would necessitate infrastructure investments right there is an economic efficiency argument to be made that perhaps the system that you have that's already designed to deliver products where it's needed most is perhaps the most efficient system at already doing that anyway right so using existing commercial stocks but just having more of them at places where you feel like you might need them but then not being government owned necessarily or there would have to be some sort of ownership and management is that something that has come up in some of the strategic reviews that you've looked at in the past over the capability of the strategic petroleum reserve to respond to different kinds of oil supply disruptions just because I know you look at it in sort of a global context and also very much understand sort of the international environment for this as well so I didn't know if that's something you've ever really looked at in terms of ownership structure of the SPR as one of the options on the table that's relevant to be evaluated that's quite a long question the short answer is no but I mean we have looked at instances we were involved in the report congress that led to the northeast heating oil reserve for example we were involved in another report congress which was looking at the policies of the US insular areas so we focused on the Puerto Rico and the US Virgin Islands and I guess if I would think back there probably were ownership questions that came up at that time not that we really got particularly into those but I guess one comment I would have is for Martin the Younger here and because this is really much more the European role right of requiring commercial entities to maintain a certain level of stocks the government doesn't this well there are stocks that the government owns but outside of that the main requirement is on commercial entities yes it's not necessarily European European obligation system is slightly different its focus is on actual products so there is part of that a number of European countries do impose obligations on industry but also Japan does as well and I think Korea in those systems it is slightly different because you are asking industry to hold a set amount which could be above their operational stock levels and then they can recover that cost from consumers there are different approaches it all depends on the national system how you want to defend against and mitigate the risks that you are dealing with yeah you showed this chart on pad 1A stocks after NEHOR pad 1A is really different than all the other pads and sub-pads because it's there to store heating oil where all the other sub-pads and pads their stocks are to store diesel fuel it's like 90 plus percent diesel fuel in those pads and almost all heating oil in pad 1A now after NEHOR something happened oil prices started skyrocketing and as a response to that in pad 1A people got out of heating oil they used other things so heating oil demand plummeted in pad 1A in fact it's pretty much the only pad where heating oil existed in the first place diesel fuel wasn't changed because obviously they don't care about what the oil prices are so it might have been just a coincidence that you had NEHOR and then a plummet in heating oil stocks because people moved out of heating oil I absolutely agree it might have been just a coincidence but it raises a question and so what I was trying to do by illustrating that is to give you two dimensions of the policy debate around products reserves you've heard the IEA and others say they're good we know that Sandy created disruptions that products reserves can solve so if they're all good what's the downside one potential downside could be an adverse incentive to industry another potential downside could be the political use thereof but I absolutely agree with you Carmine it's possible that it's merely coincidental and I would agree officially okay Jim last question how many years representing the U.S. and oil emergency matters at the IEA first a comment and then a question on that 2000 heating oil exchange at the time heating oil stocks were extremely low we were very concerned about the coming winter and we wanted to do everything possible to encourage refiners to make heating oil and the only thing we had was crude oil exchange that's my story it was my story then it's my story now secondly for Mr. Corbin a close reading of the QER and then looking at EPCA the law energy policy and conservation act it seems you're making some edits but in effect adding no authorities has the administration considered adopting a policy on how it would implement EPCA as previous administrations have done I would I'd direct you to the Reagan administration, the Clinton administration et cetera had a policy on how they intended to implement those authorities and the law the authorities are fine but what you intend to do is even more important so I signaled to Bob to keep the answer to that question short and he responded by deflecting it to me which was very skillfully done after that but at any rate as I think a couple of panelists mentioned and I mentioned my comments our challenge with EPCA is that it's as Frankenstein or the EPCA as it appears now I mean it started out with a certain very clear goal in terms of dealing with disruption of physical barrels over time it's been amended and changed and now it's the legislation we have now and I wouldn't say anything really specific in terms of what the review is going to recommend because that's why we're doing the review that's why we're thinking about these policies so what I can say is that the legislation as it exists right now is it's been changed in time to the point in which there are lots of ambiguities about what is the disruption and where and what are the authorities that we have are the authorities regionally and locally domestic, sorry, product versus crew consistent with the challenge of the future so that's I think the consideration that needs to be made when I had the opportunity to appear before House, Energy and Commerce several days ago the commitment that we made was that the recommendations of the QR are things that we need to take a look at this and that's something that we'll be doing on a go forward basis we've gone over time a little bit so I'm going to let everybody go, we do have some questions that we'll try and address in our next session on the Jones Act about how Jones Act crude oil exports and all of this relate to one another so I'll spare the panel from having to answer those but thank you very much for joining us here today we think this will be an ongoing discussion and look forward to pursuing it in our work so thanks very much to you guys and to Chris Smith for joining us