American taxpayers have paid $19.4 billion to store oil in six underground salt caverns in Louisiana and Texas. Now they will get their first payback.
President Bush's decision to tap the Strategic Petroleum Reserve for 5 million barrels of oil in hopes of calming soaring prices is the first time the country's petroleum safety net has been put to use.The reserve has a rocky history, and its existence stems from this country's first major oil shock - the Arab oil embargo in 1973-74 that first brought home to millions of Americans the dangers of relying too heavily on foreign oil.
It is the first use of the oil reserve as an economic weapon, although the government tapped it for 1 million barrels of crude in 1985 to test the system. A year later, the Reagan administration used the threat of a drawdown to curtail a price spiral that was occurring because of the Iran-Iraq war, industry analysts said.
Congress authorized the petroleum reserve in 1975, and the first drop of oil went into storage areas two years later. Over the years, a series of salt caverns was excavated along the Texas and Louisiana coasts to store the oil - 590 million barrels as of today.
Creation of the reserve has been a massive undertaking. Early oil shipments went into abandoned salt mines. When those were filled, the caverns were carved out of rock-hard salt through massive injection of water. Oil does not dissolve salt, so the salt created a permanent subterranean enclosure.
A typical cavern is 2,500 feet high and 246 feet wide - about as wide and more than twice as tall as the World Trade Center in New York City.Creation of the reserve has not been without its problems and controversies. Originally envisioned to cost $6 billion to $7 billion, the price tag is close to $20 billion and rising. Congress recently voted to enlarge the reserve from a maximum of 750 million barrels to 1 billion barrels by the end of the decade.
Over the years there have been charges of fraud and mismanagement, millions of dollars of equipment missing, allegations that inferior oil - even toxic waste - was being put into the salt caverns. The government was accused of paying inflated prices for oil.
When oil was cheap briefly in the late 1970s, the government wanted to speed up filling the reserve but couldn't build new caverns fast enough to take advantage of the low price.
And when the second oil shock hit in 1979 with the fall of the shah in Iran, prices soared and the Carter administration suspended purchases for the reserve altogether.
The Reagan administration repeatedly sparred with Congress over how much oil to put into the reserve. In 1984, the administration sought to again halt purchases, arguing that petroleum was too expensive and the purchases were a drain on the budget. Congress disagreed.
Today, the reserve holds 590 million barrels of oil, enough to supply the country for 73 days should there be a total cutoff of oil imports.
The government must buy oil on the open market. Much of it has come from Mexico and British fields in the North Sea. Only 6.6 percent is domestically produced.
The salt caverns are connected by a maze of pipelines that can be directly connected to commercial refinery distribution systems. Officials said it would take 16 days for the Energy Department to award oil contracts under an auction system.
The reserve can make available 3.5 million barrels of oil a day when in full operation.