BOUCHER-DINGELL
STRATEGIC REFINERY RESERVE
BILL SUMMARY

May 11, 2006

How would the strategic refinery reserve work and why is it needed?

The Strategic Refinery Reserve (SRR) is designed to help cushion the shock of extreme supply disruptions that could occur as the result of natural disasters, acts of terrorism or widespread energy infrastructure problems. Last year’s catastrophic experience with Hurricanes Katrina and Rita underscored the Nation’s vulnerability to supply disruptions and resulting increases in gasoline prices and also illustrated a potential vulnerability in our current Strategic Petroleum Reserve (SPR) system: if the Nation loses significant refinery capacity, crude released from the SPR cannot be easily converted into refined product. Indeed, as of May 2006, the Energy Information Administration (EIA) estimates that our refinery capacity is still down one million barrels per day - nearly nine months after the events of last year. The SRR will enhance the SPR by providing the nation with the ability to produce refined product for the country during extreme situations.

How would the strategic refinery reserve be established?

The Secretary of Energy is directed to establish and operate a strategic refinery reserve. In doing so, the Secretary may design and construct new refineries or acquire and reopen previously closed facilities.

The Secretary is required to submit an implementation plan to the Congress within six months of enactment detailing how the SRR will be established within a two-year time frame. The SRR is required to be designed to produce 5 percent of daily demand for gasoline. In determining sites for potential SRR refineries, the Secretary is required to consider several factors including potential impacts on local communities, regional vulnerability to natural disasters or terrorists attacks, and access to energy infrastructure, among other things.

How would the strategic refinery reserve be used during non-emergency times?

During non-emergency times the SRR will provide refined product to the Federal fleet, including the Department of Defense. This provision provides the following benefits: (1) ensures that the Federal fleet and military needs can be met; (2) lessens startup time for SRR refineries to ramp up to full production during emergencies since they will not be starting cold and (3) lessens demand for refined product in the consumer market, thereby freeing additional supply and hopefully decreasing price pressures.

When would strategic refinery reserve products be made available?

During emergencies the Secretary is authorized to make SRR products available based on two criteria: (1) the same severe supply disruption criteria used to trigger the drawdown of SPR under Section 161 of the Energy Policy and Conservation Act (EPCA); and (2) upon a Presidential determination of a regional petroleum supply shortage.

What happens if an existing refinery closes?

Because the amount of refining capacity plays such an important role in the economic health of the United States, the bill requires owners or operators of refineries who are permanently closing refineries to notify the Secretary of Energy six months prior to such a closure and include in their notification a reason for the proposed closing. The Secretary must consult with the Federal Trade Commission and report to the Congress on the effects of the closure on petroleum product prices, competition in the refining industry, the national economy, regional supplies and U.S. energy security.

The Boucher-Dingell Bill Protects our Nation’s Energy Infrastructure

• The Strategic Refinery Reserve would address one of the major problems identified in the aftermath of Hurricanes Katrina and Rita: lack of emergency refinery capacity. Indeed, as of May 2006, the Energy Information Administration estimates that our refinery capacity is still down 1 million barrels per day, nearly nine months after the events of last year.

• The SRR also addresses two additional critical issues: (1) supplying the military and Federal government with refined product and (2) potentially reducing market pressures in the private markets thus freeing up additional supply.

• Preliminary EIA estimates indicate that in 2004 the Department of Defense used almost 2 percent of the petroleum consumed in the United States. For the same year, the Federal fleet used approximately .25 percent of total U.S. consumption. While these numbers are small, in a tight gasoline market, small reductions can have an impact on supplies.

• It is important to note that it took a number of years before the country ultimately recognized the wisdom of establishing the Strategic Petroleum Reserve. A stockpile of crude oil was first proposed in 1944 by Secretary of Interior Harold Ickes; The Truman Administration embraced the concept in 1952, Eisenhower in 1956, and ultimately President Ford, who codified the concept by signing EPCA in 1975.