United States' legislation on oil security

This report is part of Oil Security Toolkit

Introduction

In the wake of the 1973-74 oil crisis, the United States (US) Congress enacted the Energy Supply and Environmental Coordination Act of 1974 (ESECA) and the more comprehensive Energy Policy and Conservation Act of 1975 (EPCA) with the specific aims to fulfil the US’s obligations under the International Energy Programme (IEP), to provide for the creation of a Strategic Petroleum Reserve (SPR), to conserve energy supplies, to provide for improved energy efficiency, to provide a means for verification of energy data, and to conserve water by improving water efficiency of certain plumbing products and appliances (EPCA section 2).

In addition to the SPR, the US Congress amended EPCA in 2000 to establish a separate Northeast Home Heating Oil Reserve (NEHHOR)1, in an effort to ensure the uninterrupted supply of home heating oil to several US States (Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York, Pennsylvania, and New Jersey) in the country’s Northeast (EPCA section 181).

Federal and State government activities and responses to all hazards impacting the energy sector are largely consistent with the National Response Framework (NRF), which is prepared by the US Department of Homeland Security (DHS) and serves as a guide for how the United States responds to all types of disasters and emergencies. Response to energy sector incidents, whether natural or manmade, begins at the State, local, tribal, or territorial level.

Within the NRF, at the Federal level, the US Department of Energy (DOE) serves as the coordinating agency for Emergency Support Function #12 – Energy, which facilitates the reestablishment of damaged energy systems and components, including liquid fuel infrastructure. When activated for a disaster response operation, DOE has two primary responsibilities: provide situational awareness during energy-related emergencies and facilitate the restoration of damaged energy infrastructure.

The Stafford Act, as amended, authorizes the US President (and, by delegation, federal agencies) to provide financial and other assistance to local, State, and other sub-national entities to support response, recovery, and mitigation following declared disasters. The Federal Emergency Management Agency (FEMA) within the US DHS coordinates Federal assistance provided under the Stafford Act. The Federal Government’s efforts generally support State and local response activities.

Relevant domestic legislation
Related domestic legislation
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Circumstances triggering operation of the emergency response system

According to section 3(8)(A-C) of EPCA, a “severe energy supply interruption” exists when there is a national energy supply shortage which the President determines (a) is, or is likely to be, of significant scope and duration, and of an emergency nature, (b) may cause major adverse impact on national safety or the national economy, and (c) results, or is likely to result, from (i) an interruption in the supply of imported petroleum product, (ii) an interruption in the supply of domestic petroleum products, or (iii) sabotage, an act of terrorism, or an act of God.  

According to section 252(k)(1) of EPCA, an “international energy supply emergency” means any period (a) beginning on any date which the President determines allocation of petroleum products to nations participating in the IEP is required by chapters III and IV of the IEP and (b) ending on a date on which the President determines that such allocation is no longer required. Such a period may not exceed 90 days, but the President may establish one or more additional 90-day periods by making anew the determination under subparagraph (a) of the preceding sentence.

For the purposes of section 161 of EPCA (governing the drawdown and sale of SPR petroleum products, which includes but is not limited to crude oil stored in the SPR), SPR crude oil can be released if the President has found drawdown and sale are required by a severe energy supply interruption or by US obligations under the IEP. In addition to the circumstances set forth under EPCA section 3(8)(A-C), a severe energy supply interruption shall be deemed to exist if the President determines that  (a) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration, (b) a severe increase in the price of petroleum products has resulted from such an emergency situation, and (c) such price increase is likely to cause a major adverse impact on the national economy (EPCA section 161(d)(2)). 

Authority determining whether an emergency exists

For the purposes of EPCA, it is the US President who must make the determination that a “severe energy supply interruption” exists (EPCA sections 3(8), 161(d)(2)). It is also the US President who must make the determination that an international energy supply emergency exists (EPCA section 252(k)(1)).

Legal stockholding obligations

Storage Agency

All SPR petroleum products are public stocks and the operation, development, and maintenance of the SPR is supervised by the US Secretary of Energy (EPCA section 154(b); see also EPCA section 159). With respect to SPR supervisory functions, the US Secretary of Energy is inter alia entitled to: issue regulations and orders; to construct, purchase, lease, or otherwise acquire storage and related facilities; to acquire, by purchase, exchange, or otherwise, petroleum products for storage in the SPR; and to store petroleum products in US-owned storage facilities or storage facilities owned by others if subject to audit by the US (EPCA section 159).

EPCA section 160(b) provides that petroleum products for the SPR shall be acquired, to the greatest extent practicable, in a manner consonant with the following objectives: minimum cost, minimum vulnerability for the Nation to a severe energy supply interruption, minimum impact upon supply levels and market forces, and encouragement of competition in the petroleum industry.

Storage Quantity

EPCA section 151 provides for the storage of up to 1 billion barrels of petroleum products in the SPR (actual maximum capacity of the SPR currently stands at 714 million barrels).2 In principle, the definition of “petroleum product” under EPCA is broad enough so as to allow for both crude oil and refined petroleum products to be stored as part of the SPR (EPCA section 3(3)).  In practice, however, the SPR primarily consists of crude oil. In 2014, DOE administratively established the Northeast Gasoline Supply Reserve (NGSR), which consists of 1 million barrels of gasoline in the Northeast United States. These barrels are counted as part of the SPR. DOE also holds 1 million barrels of petroleum distillate in the NEHHOR, which operates under separate statutory authority and which are not counted as part of the SPR. According to the US Office of Fossil Energy, crude oil is cheaper to procure and store than refined petroleum products, and the US refining industry is capable of refining SPR crude oil stocks sufficiently and quickly in times of emergency.3

Availability of stocks

EPCA does not provide specific requirements concerning the availability of emergency stocks. DOE’s sales procedures ensure that SPR crude oil sale and the flow of oil commence within 13 days of a Presidential determination that a drawdown and sale are required by a severe energy supply interruption or US obligations under the IEP.

Storage Locations

EPCA does not specify particular storage locations or storage location principles. The 1976 SPR plan determined that the most efficient location for the SPR was the US Gulf Coast, given its close proximity to a significant portion of US refining capacity. The NEHHOR and NGSR, however, are located in various terminals in the Northeast United States.

Sale of excess stocks

EPCA contains no specific provision for the sale of excess stocks.

Mechanisms to address an emergency

General

If the US President determines that a drawdown and sale is required by a severe energy supply interruption or by US obligations under the IEP, various measures are in place to address such circumstances (see below). In addition to the measures considered below, EPCA authorises the US President to direct, by rule, entities engaged in producing, transporting, refining, distributing, or storing petroleum products to take such actions as the President deems necessary to implement obligations of the United States based on chapters III and IV of the IEP, insofar as such obligations relate to the international allocation of petroleum products (EPCA section 251(a)). Such rules may not take effect unless the President has: (a) transmitted such rule to the US Congress, (b) found that putting such rule into effect is required in order to fulfil US obligations under the IEP, and (c) transmitted such finding to the US Congress, together with a statement of the effective date and manner for exercise of such rule (EPCA section 251(b)(1)). Additionally, such rules may not be put into effect or remain in effect after the expiration of 12 months after the date such rule was transmitted to Congress (EPCA section 251(b)(2)).

Stockdraw

Sale/Tender

The release and distribution of SPR petroleum products is governed exclusively by EPCA section 161 (EPCA section 154(f)(1)). A release for purposes not listed in EPCA section 161 is expressly prohibited (EPCA section 154(f)(1); see also EPCA section 161(a)). Notwithstanding this prohibition, the US Congress may legislate the sale of SPR petroleum products for revenue generation in non-emergency circumstances.

According to EPCA section 161(d)(1), a drawdown and sale of SPR petroleum products may not occur unless the US President determines that drawdown and sale are required by a severe energy supply interruption or by US obligations under the IEP. In addition to the circumstances defining a severe energy supply interruption set forth under EPCA section 3(8)(A-C), a severe energy supply interruption shall be deemed to exist if the US President determines that (a) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration, (b) a severe increase in the price of petroleum products has resulted from such an emergency situation, and (c) such price increase is likely to cause a major adverse impact on the national economy (EPCA section 161(d)(2)).

Any sale of SPR petroleum products conducted by the US Secretary of Energy must be made competitively at public sale to the highest qualified bidder (EPCA section 161(e)(1)). Further, at least part of the sold SPR crude oil stocks should be sold to entities not part of the US Federal Government (EPCA section 161(g)(3)). EPCA also provides that the US Secretary of Energy may not sell SPR crude oil stocks at a price less than that which the Secretary determines appropriate, and, in no event, at a price less than 95 % of the comparative sales price of crude oil being sold in the same area at the time the Secretary is offering crude oil for sale in such area (EPCA section 161(g)(4)).

If the US President determines that (i) a circumstance other than those described in EPCA section 161(d) exists that constitutes, or is likely to become, a domestic or international supply shortage of significant scope or duration, (ii) a limited drawdown and sale of SPR petroleum products would assist directly and significantly in preventing or reducing the adverse impact of such shortage, (iii) the Secretary has found that action taken will not impair the ability of the US to carry out obligations of the US under the international energy program, and (iv) the US Secretary of Defense has found that a limited drawdown and sale would not impair national security, then the US Secretary of Energy may authorise a limited drawdown and sale of SPR petroleum products (EPCA section 161(h)(1)(A-D)). In these circumstances, the Secretary may not conduct a limited drawdown and sale of SPR petroleum products: (i) in excess of an aggregate of 340,000,000 barrels with respect to each such shortage; (ii) for more than 60 days with respect to each such shortage; (iii) if there are fewer than 340,000,000 barrels of petroleum product stored in the reserve; or (iv) below the level of an aggregate of 340,000,000 barrels of petroleum product stored in the SPR (EPCA section 161(h)(2)(A-D)). The change was made in the latest version of EPCA (April 11, 2018).

Irrespective of the US President’s authority to determine whether a drawdown and sale is required by a severe energy supply interruption or by US obligations under the IEP, the US Secretary of Energy may also, if the Secretary determines that a severe energy supply interruption is imminent, suspend the acquisition of petroleum products for, and the injection of petroleum product into, the SPR, and may sell any petroleum product acquired for but not yet injected into the SPR (EPCA section 160(f)). Additionally, the Secretary is authorised to carry out a test drawdown and sale or exchange of SPR petroleum products for the purposes of testing the efficacy of the SPR drawdown and sales procedures. Such a test drawdown and sale or exchange may not exceed 5,000,000 barrels of petroleum products (EPCA section 161(g)).

Production Surge

The US President may, if the President determines that declines in the production of oil from domestic resources pose a threat to national energy security, direct the US Secretary of Energy to acquire oil stocks from domestic producers of stripper well properties for storage in the SPR (EPCA section 160(h)(1-2)). However, EPCA does not provide for – and the United States does not have – the capacity to engage in surge production of oil. US tight oil production can increase rapidly relative to conventional oil output, but significant additional volumes would take at least 3-6 months to come online and the US Federal Government has no control over domestic production activity taking place on non-Federal lands.

Demand restraint

EPCA does not provide for demand restraint measures on a national level. However, individual US States and specific state authorities possess the power to issue demand restraint orders within their respective states. These authorities and the procedures for enacting them vary by State. States prepare for energy emergencies through the development of individual plans and procedures, including State Energy Assurance Plans. The Federal Government may support local and/or State efforts by providing situational awareness and helping to facilitate the restoration of energy infrastructure.

Fuel Switching

The United States no longer burns significant quantities of oil in its power sector, which effectively precludes meaningful demand abatement through fuel switching. 

Monitoring and enforcement of emergency regime

The energy emergency regime of the United States is monitored and enforced at the domestic and international levels. Each will be considered in turn.

Domestic

Reporting duties

According to EPCA section 163(a), the US Secretary of Energy may require any person to prepare and maintain such records or accounts as the US Secretary of Energy, by rule, deems necessary to carry out the purposes of this part of EPCA (EPCA section 163(a)). Additionally, the US Secretary of Energy may audit the operations of any storage facility in which any petroleum product is stored or required to be stored pursuant to the provisions of this part of EPCA (EPCA section 163(b)). The US Secretary of Energy may require access to, and the right to inspect and examine, at reasonable times, (1) any records or accounts required to be prepared or maintained pursuant to EPCA section 163(a), and (2) any storage facilities subject to audit by the US under the authority of this part of EPCA (EPCA section 163(c)).

The US Secretary of Energy must in turn prepare an annual report for the US President and the US Congress concerning the actions taken by the US Secretary of Energy on actions taken to implement this part of EPCA (EPCA section 165).

ESECA section 11 authorises the US Secretary of Energy to require, by rule, any person engaged in the production, processing, transportation by pipeline, or distribution (other than at the retail level) of energy resources to submit reports to DOE as necessary to assist in the formulation of energy policy, the purposes of ESECA, or the Emergency Petroleum Allocation Act of 1973.

Enforcement

EPCA does not contain specific provisions concerning the enforcement of EPCA’s provisions. However, ESECA provides for the imposition of fines under very specific circumstances related inter alia to the transmission of energy information pursuant to ESECA section 11 and any rule, regulation, or order issued pursuant thereto (ESECA section 12).

International

The IEA

As a Member of the International Energy Agency (IEA), the US is obliged, pursuant to Article 2 of the IEP, to maintain oil reserves equal to 90 days of net petroleum imports of the previous year. In the event an IEA collective action is triggered in accordance with chapters III and IV of the IEP, the US share of the total response would be generally in proportion with its share of total IEA oil consumption. IEA Members are obliged to submit information concerning their emergency measures to the IEA Secretariat (IEP Article 32) on a continuous basis, and the IEA monitors Member countries’ compliance with the IEP. In this regard, EPCA authorises the transmission of required data and information to the IEA (see EPCA section 254(a)(1)). 

References

  1. The NEHHOR was originally authorized to hold 2 million barrels of heating oil. This authority was permanently reduced to 1 million barrels by the Consolidated Appropriations Act of 2012 https://www.congress.gov/112/plaws/publ74/PLAW-112publ74.pdf.

  2. US Office of Fossil Energy, ‘Strategic Petroleum Reserve’, http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve (accessed 15 December 2015).

  3. US Office of Fossil Energy, ‘SPR Facts and FAQs’, http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-quick-facts-and-faqs (accessed 16 April 2019).