oversight

Oil Reserve: Some Concerns Remain About SPR Drawdown and Distribution

Published by the Government Accountability Office on 1990-11-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Resources, Community,   and
Economic Development    Division

B-233820.6

November 28,199O

The Honorable Mike Synar
Chairman, Environment, Energy,
  and Natural Resources Subcommittee
Committee on Government Operations
House of Representatives

Dear Mr. Chairman:

This report responds to your May l&1989, request that we examine the Department of
Energy’s (DOE)SPR drawdown plans because of concerns about DOE’S ability to meet its
objectives for withdrawing and distributing SPR oil. The report suggests additional authority
that the Congress may want to consider granting to prevent potential distribution problems
and makes recommendations to the Secretary of Energy to (1) examine the effectiveness of
the review process for requests for waivers of the requirement that U.S. vessels be used to
transport SPR oil and (2) improve oversight of contractor compliance with”pipeline safety
requirements.

As arranged with your office, unless you publicly announce its contents earlier, we plan no
further distribution of this report until 30 days from the date of this letter. At that time, we
will send copies to the Secretary of Energy and other interested parties. We will also make
copies available to others upon request.

This work was done under the direction of Victor S. Rezendes, Director, Energy Issues,
(20‘2) 275-1441. Other major contributors to this report are listed in appendix I.

Sincerely yours,




J. Dexter Peach
Assistant Comptroller General
                   The current crisis in the Persian Gulf has brought renewed attention to
Purpose            the role of the Department of Energy’s (DOE) Strategic Petroleum
                   Reserve (SPR) in mitigating the effects of an oil supply disruption. The
                   SPR provides insurance against future oil supply interruptions and the
                   impact of such interruptions on the nation’s economy. To provide this
                   protection, however, DOE must be able to offset the supplies lost by
                   quickly drawing down SPR oil from its storage sites and distributing it to
                   purchasers.

                   At the request of the Chairman of the Environment, Energy, and Nat-
                   ural Resources Subcommittee of the House Committee on Government
                   Operations, GAO examined DOE'S SPR drawdown plans. Specifically, GAO
                   was asked to (1) review DOE'S current and planned capability for
                   removing the oil from SPR sites and getting it to users through oil distri-
                   bution networks, (2) examine the SPR'S compliance with pipeline safety
                   requirements, and (3) determine the status of DOE actions to correct
                   problems GAO had previously reported.


                   The SPR currently stores over 580 million barrels of crude oil in caverns
Background         and mines in salt domes in Louisiana and Texas. In an energy emer-
                   gency, the oil will be sold to the highest bidders. SPR sites are connected
                   to te;-minals with access to commercial distribution pipelines or to
                   marine docks where the oil can be loaded onto barges or tankers for
                   waterborne transportation. GAO has discussed drawdown and distribu-
                   tion problems in two previous reports: Evaluation of the Department of
                   Energy’s Plan to Sell Oil From the Strategic Petroleum Reserve (GAO/ -
                   ~~~~-86-80, June 5, 1986) and More Assurance Is Needed That Strategic
                   Petroleum Reserve Oil Can Be Withdrawn as Designed (GAO/RCED-86-104,
                   Sept. 27, 1985).


                   To achieve its purpose, SPR oil must be quickly and effectively intro-
Results in Brief   duced into the market. Any operational delays encountered in drawing
                   down the SPR could lessen its impact on oil prices and thus on the IJS.
                   economy. Currently, DOE estimates it can withdraw and distribute oil
                   from the SPR at a maximum rate of about. 3.5 million barrels a day. These
                   estimates are based on the results of a number of drawdown and other
                   system tests. In September 1990 DOE announced a sale of 5 million bar-
                   rels of oil as a further test of the SPR. DOE expects delivery to begin in
                   late October and last 30 to 45 days.




                   Page 2                           GAO/WED-91-M Oil Reserve:Some Concerns Remain
                         Executive fhmmary




                         A major distribution could be hampered because buyers of SPR oil are
                         required to use U.S.-flag tankers to transport the oil between U.S. ports.
                         DOE and industry officials believe that not enough U.S.-flag vessels
                         would be available, and questions remain about the efficiency of proce-
                         dures to authorize the use of foreign vessels.

                         Problems with pipeline operations could also hamper an SPR drawdown.
                         DOE attempts to comply voluntarily   with Department of Transportation
                         pipeline safety standards. However, DOE did not have a complete picture
                         of the extent of overall compliance with these standards, and GAO found
                         that the SPR was not in full compliance with certain standards related to
                         inspections and records retention.

                         DOE has acted on previous GAO recommendations concerning (1) further
                         testing of site drawdown capabilities, (2) testing the adequacy of water
                         distribution systems to support drawdown at two sites, (3) resolving
                         piping integrity and corrosion control concerns, and (4) completing auto-
                         mated control and integrated logistics support systems.


Principal Findings

Operational Problems     An SPR drawdown could help mitigate the effects of an oil supply disrup-
Could Offset Expected    tion by keeping oil price increases lower than they would otherwise be.
                         To achieve this, SPR oil must be quickly and effectively introduced into
Economic Impact of SPR   the market to replace lost supplies and ease market participants’ con-
Use                      cerns about supply shortages. Any problems encountered in drawing
                         down the SPR could lessen its impact on oil prices. Based on the results of
                         a DOE model used to analyze a hypothetical oil shortage of 4 million bar-
                         rels per day lasting for one quarter, crude prices could be almost $6 per
                         barrel higher if the SPR were drawn down at 2.6 million barrels per day
                         rather than at 3.6 million barrels per day.

                         Currently, DOE estimates that it can withdraw and distribute oil from the
                         SPR at a maximum rate of about 3.5 million barrels a day, DOE'S estimates
                         of its drawdown capability are based on more realistic tests and anal-
                         yses than those identified during the 1986 GAO drawdown review. DoE
                         could maintain this rate for 90 days, after which the rate would gradu-
                         ally decline. If the SPR were drawn down at the maximum achievable
                         rate, the bulk of the oil would be drawn down within 200 days.



                         Page3                           GAO/RCED-91-16OilReserve:SomeConcenwRemain
                            ExecutiveSummary




Problems in Securing        According to a DOE official, at the maximum 3.5 million barrels per day
Marine Transportation       drawdown rate, it is likely that between 40 and 60 percent of the oil
                            would be moved by water. DOE and industry officials indicated that the
Could Hamper Drawdow n      number of U.S.-flag vessels available would be insufficient to move the
                            portion of SPR oil planned for marine distribution at the higher
                            drawdown rates.

                            DOE believes that enough foreign-flag vessels would be available to pro-
                            vide the additional capacity needed. However, to use foreign-flag ves-
                            sels, oil purchasers would have to obtain Jones Act waivers from the
                            Treasury Department. Although that agency, DOE, and the Maritime
                            Administration have established an expedited waiver review process,
                            this process has never been tested. Further, DOE and industry officials
                            are concerned that the volume of waiver requests submitted during a
                            large drawdown could overwhelm the system and lessen the economic
                            impact expected from an SPR drawdown. During last winter’s heating oil
                            price spike, Treasury received six requests to allow the use of foreign
                            vessels to transport heating oil and propane. The events occurred during
                            the year-end holidays, and Maritime took from 1 to 7 days to provide
                            information on the availability of qualified U.S.-flag ships. In two cases,
                            the cargoes were shipped to foreign ports before a decision was received
                            on the waiver request.

                            Giving the President standby authority to issue limited blanket waivers,
                            which he could use if delays in the case-by-case waiver review process
                            were slowing the SPR drawdown, could provide additional insurance for
                            SPR use without unnecessarily jeopardizing the interests of the US. fleet.



Better Oversight of         The SPR oil pipelines are the link between the storage sites and the com-
                            mercial facilities (pipeline and marine terminals) that will be used to dis-
Compliance W ith Pipeline   tribute oil from the SPR. Problems with pipeline operations during
Safety Standards Needed     drawdown could slow or prevent distribution and result in‘severe eco-
                            nomic and environmental impacts. While the Department of Transporta-
                            tion establishes and enforces pipeline safety standards for privately
                            owned pipelines transporting crude oil, the SPR is not required to follow
                            these standards.

                            DOE has established a policy of voluntary compliance and requires its
                            contractors to adhere to the Department of Transportation’s pipeline
                            construction, maintenance, and operations standards. However, GAO'S
                            review of selected standards identified instances of noncompliance in
                            calendar year 1989. For example, the contractor that operates the SPR


                            Page4                            GAO/RCEDOl-18OilBeserve:&me~n~~Remain
                         Executive Summary




                         for DOE had not performed the right-of-way and corrosion control equip-
                         ment inspections as frequently as required and was not retaining pipe-
                         line repair records for the useful life of the pipeline.

                         Further, no single DOE official was responsible for overseeing the extent
                         to which the SPR complies with the pipeline safety standards. Instead,
                         responsibility for the functions affected by the standards is spread over
                         a large number of DOE and contractor offices. In October 1990 DOE desig-
                         nated an SPR Pipeline Manager with responsibility for operation, mainte-
                         nance, and construction of all SPR pipelines. According to SPR officials
                         the pipeline manager will also be’responsible for ensuring compliance
                         with the federal pipeline safety standards, but procedures for accom-
                         plishing this task have not yet been established.


DOE Acted on Prior GAO   DOE has implemented several prior GAO recommendations. DOE'S actions
Recommendations          included (1) conducting 20 drawdown-related tests between 1986 and
                         1989, (2) developing a program to identify piping conditions and correc-
                         tive actions needed, (3) completing automated controls designed to
                         operate valves and pumps and monitor control equipment from a central
                         control room, and (4) developing an integrated logistics support system
                         to ensure an adequate supply of spare parts for a sustained drawdown
                         period.


                         GAO recommends that DOE (1) develop a realistic test of the effectiveness
Recommendation to        of the expedited waiver review process under various SPR drawdown
the Secretary of         conditions and rates and (2) ensure that procedures and information
Energy                   systems are developed to monitor contractor compliance with pipeline
                         safety standards.


                         Because of the likelihood that Jones Act waivers will be needed to move
Matter for               SPR oil expeditiously and the uncertainty about prompt action under the
Congressional            current waiver review process, the Congress may wish to consider
Consideration            granting standby authority allowing the President to issue a blanket
                         waiver to the Jones Act requirement if delays resulting from the case-
                         by-case review process are limiting DOE'S ability to draw down the SPR.


                         As requested, GAO did not obtain official agency comments on a draft of
Agency Comments          this report. However, GAO did meet with agency officials and has made
                         changes based on their comments where appropriate.


                         Page 5                          GAO/RCED-01-MOil Reserve:&me Concerns Remain
Contents


Executive Summary                                                                                 2

Chapter 1                                                                                         8
Introduction           SPR Development
                       Recent Events Have Focused Renewed Attention on the
                                                                                                  8
                                                                                                 14
                           SPR
                       DOE’s Organizational Structure for SPR Management                         14
                       Scope and Methodology                                                     14

Chapter 2                                                                                        16
DOE’s Estimates of     Questions Raised About Possible Limitations on SPR
                            Drawdown Process
                                                                                                 16
Current Drawdown       Drawdown and Distribution Capability Estimated at 3.5                     18
Capability Appear           Million Barrels Per Day
                       Insufficient Number of U.S. Vessels to Distribute SPR Oil                 22
Reasonable,but              at Higher Drawdown Rates
Tanker Availability    Conclusions                                                               25
Could Affect           Recommendation                                                            26
                                                                                                 26
                       Matter for Consideration by the Congress
Distribution
Chapter 3                                                                                        27
Better Oversight       DOE’s Compliance With Pipeline Safety Standards Is
                           Voluntary
                                                                                                 27
Needed of Contractor   Pipeline Problems Could Have Significant Impact                           28
Compliance With        DOE Lacks Comprehensive Information on Contractor                         28
                           Compliance With Standards
Pipeline Safety        SPR Not in Full Compliance With DOl’ Safety Standards                     29
Standards              DOE Efforts to Ensure Integrity of SPR Pipelines                          31
                       Conclusions                                                               32
                       Recommendation                                                            32

Chapter 4                                                                                        33
Status of DOE’s        Drawdown and Water System Tests Usually Met
                         * Objectives but Identified Some Problems
                                                                                                 33
Actions on Previous    DOE Initiated a Program to Identify and Correct Pipeline                  35
GAO                         Corrosion Problems
                       Installation of Automated Instrumentation and Control                     35
Recommendations             Systems Completed Late
                       Basic Integrated Logistics Support System Now in Place                    35



                       Page 6                          GAO/WED-91-16 Oil Reserve:Some ConcerneRemain
                       Contents




Appendix               Appendix I: Major Contributors to This Report                          38

Related GAO Products                                                                          40

Tables                 Table 1.1: DOE’s Current and Planned Oil Storage at SPR                 9
                           Sites as of December 31,1989
                       Table 2.1: Impacts Predicted for a Disruption of 4 Million             18
                           Barrels Per Day for One Quarter
                       Table 2.2: DOE’s Current and Planned Maximum                           19
                           Drawdown Rates at SPR Sites as of December 3 1,
                           1989
                       Table 4.1: Type of SPR Drawdown Tests Conducted                        34
                           Between 1986 and 1989 and Extent Stated Objectives
                           Were Achieved

Figures                Figure 1.1: Fluid Flow During Drawdown                                 11
                       Figure 1.2: Strategic Petroleum Reserve Complexes and                  13
                           Associated Pipelines and Terminals




                       Abbreviations

                       DOE        Department of Energy
                       LKYr       Department of Transportation
                       GAO        General Accounting Office
                       NPC        National Petroleum Council
                       SPR        Strategic Petroleum Reserve


                       Page 7                          GAO/MXD-91-M Oil Reserve:SomeCkmcemaRemain
Chapter 1                                                                                           -
Introduction


                  The oil supply disruptions of the 1970s demonstrated the severe eco-
                  nomic distress that can occur when even a portion of oil imports are
                  threatened or interrupted. In 1975 the Congress, concerned about the
                  effects of oil import disruptions, authorized a Strategic Petroleum
                  Reserve (SPR). The SPRcurrently contains over 580 million barrels of
                  crude oil. To accomplish the SPR’Sintended purpose of replacing any lost
                  oil supplies in the event of supply disruptions and thus reducing any
                  related economic impacts, the Department of Energy (DOE) must be pre-
                  pared for a timely withdrawal (drawdown) and distribution of SPRoil.

                  In a letter dated May 16, 1989, the Chairman of the Environment,
                  Energy, and Natural Resources Subcommittee of the House Committee
                  on Government Operations asked us to examine DOE’SSPRdrawdown
                  plans because of concerns about DOE’Sability to meet its objectives for
                  withdrawing and distributing SPRoil. Based on the request letter and
                  subsequent discussions with the requester’s office, our specific objec-
                  tives were to (1) review DOE’Scurrent and planned capability for
                  removing the oil from SPRsites and getting it to users through oil distri-
                  bution networks, (2) determine whether the SPRis required to comply
                  with federal pipeline safety standards, and (3) determine the status of
                  DOEactions to correct drawdown problems previously reported, particu-
                  larly concerns about the adequacy of DOE’Stesting program.


                  The SPR,created by the Energy Policy and Conservation Act (Public Law
SPR Development   94-163, Dec. 22, 1975, as amended), is intended to supplement U.S.
                  industry stocks and supplies, thereby mitigating the effects of any
                  supply disruption on the national economy and reducing the nation’s
                  vulnerability to such disruptions. Further, the SPRhelps the United
                  States meet its commitment, as a member of the International Energy
                  Agency, to maintain a reserve equal to 90 days of net oil imports1

                  As initially planned in February 1977, the SPRwas to be large enough to
                  offset the highest amount of oil imported during a consecutive 3-month
                  period in 1974-75, or approximately 600 million barrels, and the storage
                  sites were to be designed to permit drawdown of the reserve within 150
                  days. The plan also provided for SPRstorage of crude oil in underground
                  caverns or mines located in salt domes in Louisiana and Texas. Because
                  of an increase in U.S. petroleum imports during 1977 and revised esti-
                  mates of future import levels, the SPRplan was amended in May 1978 to


                  ‘Net oil importsaretotal importsminusexports.


                  Page 8                                 GAO/RCED-91-16Oil Reserve:Some Concerns Remain
                                           Chapter 1
                                           introduction




                                           provide for storage of 750 million barrels of oil. Table 1.1 shows the
                                           current and planned oil storage by site.

Table 1.1: DOE’r Current and Planned Oil
Storage at SPR She8 as of December 31,     Barrels in Millions --                                                         ___--.-__
1999                                                                                                                 Oil inventory
                                           Storage site        -__-                                      Current     _____-.I___~          Planned
                                           Bryan Mound
                                           -.-                -___                             ___----        221 -__                             226
                                           West Hackberrv                                                     206                                 219
                                           Sulphur Mines                                                       25a                                  0
                                           Big Hill
                                           ______-.--___-                                                       lb                      -___-     160
                                           Bavou Choctaw                                                      54                                   72
                                           Weeks    Island
                                           ~l-------.--.-----~                                                73                                   73
                                                                                                             580              -                   750
                                           QOE plans to increase capacity at Big Hill and Bayou Choctaw to replace this site, which is scheduled
                                           to be decommissioned in 1992.

                                           bThis oil was used for cavern development purposes. Oil fill of the first cavern began in June 1990.


                                           The Energy Policy and Conservation Act Amendments of 1990, enacted
                                           in September 1990, extend SPRauthorization to September 30, 1994, and
                                           require DOEto develop plans to increase SPRstorage to 1 billion barrels of
                                           petroleum product and to test mechanisms for storing refined petroleum
                                           products. In addition, the amendments authorize (1) SPRuse for disrup-
                                           tions in domestic oil supplies, (2) suspension of SPRacquisitions and sale
                                           of purchases already en route when severe energy supply interruptions
                                           are imminent, (3) leasing of petroleum products and storage facilities for
                                           the SPR,and (4) sale of up to 5 million barrels of SPRoil as part of a test
                                           drawdown.

                                           DOE'SOctober 3 1, 1979, SPRdistribution plan (as required by the Energy
                                           Policy and Conservation Act) describes the methods for withdrawing
                                           and distributing crude oil from SPRstorage sites. As directed by the
                                           Energy Emergency Preparedness Act of 1982, in December 1982 DOE
                                           developed a second distribution plan which provided that the principal
                                           method of distributing SPRoil would be price-competitive sales: oil would
                                           be sold to the highest bidders. The sale would be open to the largest
                                           possible number of eligible buyers to ensure efficient distribution of SPR
                                           oil.

                                           With the exception of the Weeks Island site, the process used to draw
                                           down the caverns is very similar to the leaching process used to create




                                           Page 9                                        GAO/RCEB91-16Oil Reserve:SomeConcerns Remain
chaptm 1
Inlxodnction




the storage caverns in the salt deposits2 During drawdown, water is
pumped into the bottom of the caverns, forcing the oil out through the
top into the on-site piping. (See fig. 1.1.) Because fresh water is used, the
drawdown process will enlarge the caverns by dissolving additional
amounts of salt. noE-constructed caverns were designed to withstand at
least five drawdowns without threatening cavern integrity. Oil stored in
the Weeks Island site, which is located in a former salt mine, must be
pumped out using submerged pumps. From the on-site piping the oil is
pumped through DOEpipelines to terminals connected to commercial dis-
tribution pipelines or to marine docks where it can be loaded onto crude
oil barges or tankers for waterborne transportation to refineries.




21nthe leachingprocess,
                     freshwateris pumpedintosaltdeposits.
                                                        Thewaterdissolves   thesalt,
formingbrine.Removing the brineleavesa cavitywhichcanbeusedfor crudeoil storage.


Page 10                               GAO/RCRD-91-16Oil Reserve:Some Concerns Remain
                                         Chllpter 1
                                         Mraduction




Figure 1.1: Fluid Flow During Drawdown




                                                                         ‘\
                                                                                   SRINE   PRESSURE      PVMPS   ,j

                                                                              ./                OIL   PRESSURE        PUMPS   -1




                                         Source: Department of Energy.




                                         Page 11                          GAO/RCED91-16Oil Reserve:SomeConcerns Remain
    Chapter 1
    Introduction




    The SPR storage sites are connected to pipelines that can be used to move
    SPR oil directly to 41 refineries as well as 4 marine terminals, where the
    oil can be loaded onto tankers or barges for transport to other refineries.
    The sites are configured in three complexes. (See fig. 1.2.) It is up to the
    purchaser to select the delivery route and make arrangements to move
    the oil to the refinery where it will be processed.

9 Seaway Complex: The Bryan Mound storage site is connected to Phillips
  Petroleum Company’s terminal in Freeport, Texas, and to the ARCO ter-
  minal in Texas City, Texas. These terminals provide connections to two
  marine terminals and nine refineries in Texas.
. Texoma Complex: The West Hackberry, Sulphur Mines, and Big Hill sites
  are connected to the Sun Pipe Line Company’s terminal in Nederland,
  Texas. This terminal provides access to five refineries in Texas and
  Arkansas, a marine terminal, and a pipeline that can be used to reach
  six refineries in Kentucky, Michigan, and Ohio. The West Hackberry site
  is also connected to a pipeline with access to three refineries in Loui-
  siana and Texas, and DOE is preparing a request for proposals to provide
  additional distribution capacity for this complex.
l Capline Complex: The Weeks Island and Bayou Choctaw storage sites
  are connected to DOE'S St. James marine terminal; the LCCAP terminal,
  with access to two Louisiana refineries; and the Capline Terminal, with
  access to an interstate pipeline that can be used to distribute oil to 22
  refineries in the central part of the United States, including the 6 refin-
  eries also served by the Texoma complex.




    Page 12                          GAO/RCED-91-16Oil Reserve:SomeConcerns Remain
                                          Chapter 1
                                          Introduction




Flgure 1.2: Strategic Petroleum Reserve Complexes and Associated Pipelines and Terminals


                                                                                                       l   8PRBTORAOE        FACNJTY
                                                                                                       0   PlPElJNE   TERMINAL
                                                                                                       @   REFININO   CENTERS
                                                                                                   -       CRUDE OIL PIPELINES




                   TEXAS




                                          SULPHUR   MINES    ,



                                               @ST HACK&lY        “=I’“”   *
                                                                      I    1




                                              GULF OF MEXICO
                                                                                                                        ,I
      I-,-.---“-           .“..-I..-




                                          Source: Department of Energy.

                                          The rapid increases in crude oil and gasoline prices after Iraq’s August
Recent Events Have                        1990 invasion of Kuwait have brought attention to the role of the SPR.
Focused Renewed                           The oil market’s reaction to the invasion also demonstrated that the
Attention on the SPR                      price and economic impacts of an oil disruption can begin immediately.
                                          The embargo on trade with both countries imposed by the United
                                          Nations Security Council interrupted crude oil imports by the United
                                          States and other countries. In 1989, Iraq and Kuwait collectively pro-
                             ”            duced an average of 4.6 million barrels of oil per day. This represented
                                          about 7.8 percent of worldwide oil production. After the August 1990
                                          invasion, increased demand, perceptions of shortages, and expectations
                                          of higher future prices almost immediately resulted in increased prices


                                          Page 13                              GAO/RCED-91-16Oil Reserve:SomeConcems Remain
                        Chapter      1
                        Introduction




                        for oil and petroleum products. Between August 1 and September 28,
                        the price for oil futures on the New York Mercantile Exchange increased
                        from $21 per barrel to almost $40 per barrel. Surveys conducted by the
                        American Automobile Association showed that during the same period
                        average gasoline prices rose almost 25 cents per gallon.


                        DOE’S SPR Program Office in Washington, D.C., is responsible for overall
DOE’s O rganizational   program management and planning for achieving the goals and objec-
Structure for SPR       tives of the SPR program. Responsibility for SPR project management and
Management              implementation is assigned to the Oak Ridge Operations Office in Oak
                        Ridge, Tennessee. The Operations Office has delegated these activities to
                        the Project Management Office (Project Office) in New Orleans, Loui-
                        siana. Under an &year management and operations contract, Boeing
                        Petroleum Services, Inc., provides the personnel and services needed to
                        run the government-owned SPR facilities. DOE retains responsibility for
                        overall project management and technical direction, while Boeing, the
                        operating contractor, is responsible for the SPR’S day-to-day
                        management.


                        To review DOE’S current and planned capability for withdrawing and dis-
Scopeand                tributing SPR oil, we obtained information from SPR officials in Wash-
Methodology             ington, DC., and New Orleans, Louisiana. We analyzed drawdown and
                        distribution plans, reviewed the mathematical models used to estimate
                        drawdown and distribution capabilities, and examined storage develop-
                        ment plans and reports. To get an indication of the potential benefits of
                        an SPR drawdown, we also used a DOE model, the Disruption Impact Sim-
                        ulator, to estimate the potential impacts of selected SPR drawdowns on
                        crude oil prices, the Gross National Product, and other economic indica-
                        tors. We did not, however, conduct a detailed evaluation of the model.

                        At the recommendation of the National Petroleum Council (NPC), we dis-
                        cussed the SPR oil distribution system with representatives of Mobil Oil
                        Corporation in Fairfax, Virginia, and Shell Oil Company in Houston,
                        Texas. We also reviewed a recent NPC study of the industry’s oil pipeline
                        distribution system in which Mobil and Shell participated:

                        We discussed the procedures for processing waivers to allow the use of
                        foreign-owned tankers to transport SPR oil with DOE and Maritime
                        Administration officials in Washington, D.C. We obtained estimates from
                        SPR officials on the number of ships that would be needed for an SPR




                        Page 14                         GAO/RCED-91-16Oil Reserve:Some ConcernsRemain
Chqterl
Introduction




drawdown and reviewed their calculations of the number of US.
tankers that might be available to transport SPR oil.

To determine whether the SPR is required to comply with federal pipe-
line safety standards, we discussed the applicability of Department of
Transportation (nor) hazardous liquid pipeline safety standards to the
SPR's pipelines with SPR officials in New Orleans, Louisiana, and MJT’s
Office of Pipeline Safety officials in Washington, DC., and Houston,
Texas. We also discussed pipeline industry standards and inspection
practices with the Mobil and Shell representatives. We examined infor-
mation on SPR compliance with pipeline industry standards obtained
from DOE officials in Washington, D.C., and New Orleans, Louisiana, and
reviewed pipeline inspection plans and reports.

To determine the status of DOE actions to correct drawdown problems
previously reported, we obtained information from SPR officials in New
Orleans, Louisiana, on the status of the SPR automated control and inte-
grated logistics support systems, examined reports on SPR drawdown
tests and inspections to determine the integrity of SPR pipelines. We also
discussed the adequacy of the SPR'S drawdown testing with the Mobil
and Shell representatives.

This work was performed from May 1989 to September 1990 in accor-
dance with generally accepted government auditing standards. We dis-
cussed the accuracy of the information presented in this report with
responsible agency officials and have incorporated their comments
where appropriate. However, as requested, we did not obtain official
agency comments.




Page16                          GAO/RCFDOl-16OilReserve:SomeConcemaRemdn
Char&r 2                                                                              .

DOE’s Estimaks of Current Drawdown
Capability Appear Reasonable,but Tanker
Availability Could Affect Distribution
                     Uncertainty resulting from the current situation in Iraq and Kuwait has
                     brought renewed attention to SPR operational concerns. Operational
                     delays that limit an SPR drawdown could lessen the economic impact of
                     using the SPR.

                     DOE estimates that   it can currently withdraw and distribute oil from the
                     SPR at a maximum     sustainable rate of approximately 3.5 million barrels
                     per day. Although in the past we have questioned DOE'S drawdown esti-
                     mates, we believe that DOE'S current estimates are more realistic because
                     it has conducted a number of drawdown and other system tests and
                     adjusted rates to reflect actual performance. Although these tests were
                     still of limited volume and duration, in late September 1990, DOE
                     announced a sale of 5 million barrels as a test of the SPR system.

                     DOE will not be able to reach its drawdown goal of 4.5 million barrels per
                     day until the planned drawdown and distribution enhancements are
                     completed and enough oil is stored at the Big Hill site to support its
                     planned drawdown rate.

                     While DOEhas improved its capability considerably since 1985 when we
                     last reported on drawdown,’ insufficient availability of tankers could
                     still hamper SPRdrawdown and distribution. Buyers of SPR oil are
                     required to use U.S.-flag tankers to transport the oil between US. ports,
                     but DOE and oil industry officials believe that there will not be enough
                     U.S. tankers available to move the amount of oil that must be moved by
                     marine distribution at the higher drawdown rates. The agencies
                     involved have agreed to an expedited review process for Jones Act
                     waiver requests, but questions remain about the effectiveness of the
                     process.


                     The volatility in the oil markets since Iraq’s invasion of Kuwait has
Questions Raised     brought renewed attention to the SPR and the key role it plays in an
About Possible       energy emergency. Media and industry officials have again raised ques-
Limitations on SPR   tions about whether the SPR drawdown system can operate as planned to
                     quickly and reliably deliver the oil. This issue is of vital importance
Drawdown Process     because it could limit the extent to which the SPR can be used to offset
                     supply disruptions and the resulting economic impacts.



                     ‘MoreAssurance
                                  Is Needed
                                          ThatStrategicPetroleum
                                                               Reserve
                                                                     OilCanBeWithdrawnasDesigned
                           y _ _
                     (CTAO/R


                     Page 16                          GAO/RCED-91-16Oil Reserve:Some Concerns Remain
Chapter 2
DOE’s Edmate~~ of Current Drawdown
CapabIlity Appear Reasonable,but Tanker
Availability Could Affect Distribution




In a 1985 report we noted that a number of studies indicate that, in a
disruption, an SPRdrawdown would keep price increases lower than
they would otherwise be.z The SPR,however, can accomplish this objec-
tive only if the oil is quickly and effectively introduced into the market
to replace lost supplies and reduce market participants’ concerns about
future supply shortages. In both the current and previous disruptions,
some have argued that oil prices have risen further than would be
expected from the actual supplies lost. One explanation is that expecta-
tions about rising prices and fears that the disruption will worsen may
lead oil market participants to accumulate oil stocks. This could lead to
further supply shortages and increased prices.

As a result, any delays encountered in drawing down the SPRcould
lessen its potential impact, particularly if such delays increase market
participants’ uncertainties about future supplies.

To get an indication of the potential benefits of an SPRdrawdown, we
used a DOEmodel, the Disruption Impact Simulator, to estimate the
potential impacts on crude oil prices, the Gross National Product, and
other economic indicators, of selected SPRdrawdowns. We examined
drawdowns of 2.5 and 3.5 million barrels per day related to a hypothet-
ical disruption of 4 million barrels per day lasting one quarter only. As
shown in table 2.1, the model predicts that during that quarter crude
prices could be almost $5 per barrel higher if the SPRdrawdown rate is
2.5 million barrels per day than if it is 3.5 million barrels per day.3




2Evaluation
          of the Department
                         of Energy’Plan
                                   s to SellOil FromtheStrategicPetroleum
                                                                        Reserve,
@WRm J- 85-80 , June6,1986).
31tshouldbenotedthat althoughtable2.1showsimpactsonlyfor theparticularquarterin whichthe
disruptionoccurred,
                 the modelresultsindicateimpactsfor subsequent
                                                            quartersaswell.


Page 17                               GAO/RCED-91-16Oil Reserve:Some Concerns Remain
Table 2.1: Impacts Predicted for a
Disruption of 4 Million Barrels Per Day for                                                             SPR daily drawdown rate
One Quarter                                                                                   Base case
                                                                                         assumptions (no     3.5 million  2.5 million
                                                                 ___--                        disruption)        barrels      barrels             None
                                              Petroleum orices:
                                              Crude oil (per barrel)
                                              .-~                                                        $18.00               $19.89    $24.36    $39.83
                                              Gasoline (per gallon)                                          1.13                1.17     1.28      1.65
                                              __.._  - ..^ ---_-
                                              Heating oil (per gallon)                                      0.86                 0.90     1 .Ol     1.38


                                              Economic impact
                                                  kercentsY!
                                              Decrease in GNP                                                       b          -0.25    -0.75     -1.97
                                              Increase in unemployment
                                              ---                                                                   b            0.10     0.30      0.79
                                              Increase in inflation                                                 b            0.37     1.13      2.95
                                              Note: Impacts      only for the quarter   during   which   the disruption   occurred
                                              %nnuefized      rates.

                                              bNot epplicable.


                                              These results must be used cautiously because the DOEmodel is a simpli-
                                              fied tool for analyzing very complex relationships, The model does not
                                              explicitly account for interactions between the oil market and related
                                              markets such as the natural gas market.4 Such interactions may mitigate
                                              the impacts of oil supply disruptions and result in additional impacts on
                                              the economy. The model also does not explicitly account for market par-
                                              ticipants’ expectations about future events, which may have important
                                              economic ramifications in an oil supply disruption. Hence, the model
                                              results presented in table 2.1 as the impacts of an SPRdrawdown should
                                              be viewed as a rough estimate.


                                              As of December 31,1989, DOE estimated the maximum rate for SPR
Drawdown and                                  drawdown and distribution to be 3.5 million barrels per day. (See table
Distribution                                  2.2.) These rates could be sustained for 90 days, after which the balance
Capability Estimated                          of the SPR’S inventory could be withdrawn at gradually decreasing rates
                                              as the inventory was depleted. At the current maximum rate, the bulk of
at 3.5 M illion Barrels                       SPR oil would be drawn down in about 200 days. The maximum daily
Per Day                                       drawdown rate for the SPR will be gradually increased to 4.5 million bar-
                                              rels as the reserve is filled to the 750-million-barrel level.



                                              4For example, the modelduesnot calculatethe amountof fuelswitchingthat m ightresult.In setting
                                              up the assumpWns to be used in the model,the usercan, however,specifyan amount for reduced  oil
                                              demandresulting from fuel switching.



                                              Page 18                                                GAO/RCED-91-16Oil Reserve:some Concerns Remain
                                       As discussed in chapter 1, the SPR was designed to permit drawdown of
                                       the planned 760 million barrels of oil within 150 days. Each storage
                                       site’s caverns, pumps, and piping were designed to contribute a specified
                                       portion of this drawdown capability. Over time, DOE has adjusted these
                                       rates because of factors such as changes in the industry’s crude oil dis-
                                       tribution network and the decision to decommission Sulphur Mines.
                                       Table 2.2 shows DOE’s goals for each site’s maximum drawdown capa-
                                       bility-both   for the amount of oil stored in the SPR as of December 3 1,
                                       1989, and after the reserve has reached 750 million barrels of oil.

Table 2.2: DOE’8 Current and Planned
Maximum Drawdown Rates at SPR Sites    Barrels in Millions
a8 of December 31,1989                                                                   Maximum dais drawdown
                                                                                                   cl
                                       Complex/site
                                               __--                                          Current     Planned
                                       Seawav
                                         Bryan Mound                                             1.10        1.25
                                       Texoma
                                         West Hackberry                                          1.25        1.25
                                         Sulohur Mines                                            .lO               a
                                         Big Hill                                                       a     .93
                                                                                                 1.35        2.18
                                       Capline   -
                                         Bavou Choctaw                                            .48         .48
                                         Weeks Island                                             .59         .59
                                                                                                 1.07        1.07
                                       SPR total                                                3.52         4.50
                                       ‘Not applicable.



How DOE Determines                     DOE bases its drawdown estimates on predictions from several mathe-
Drawdown and                           matical models that are based on performance data gathered in
                                       drawdown tests at SPR sites. Although, as discussed in chapter 4, we
Distribution Capabilities              questioned DOE’S estimates of its drawdown capability in our 1985
                                       drawdown report, we believe DDE’S current estimates are more realistic
                                       because DOE has conducted a number of drawdown and other system
                                       tests. A certain amount of inherent uncertainty can never be removed
                                       because it would be impossible to simulate in a test situation an actual
                                       drawdown that would have to be sustained for several months.
                                       Although the tests conducted by DOE have been of relatively short dura-
                                       tion, they have physically tested the SPR drawdown system, and the use
                                       of data on actual operations provides greater assurance that estimated
                                       drawdown capabilities can be achieved. Further, on September 27,1990,


                                       Page19
                                                                                                 ,
                            chapter 2
                            DOE’s Eatimatea of Current Drawdown
                            Capability Appear Reasonable,but Tanker
                            Availability Could Affect Distribution




                            DOEannounced a sale of 5 million barrels as a test of the SPRthat will
                            allow the private sector to increase its familiarity with the process for
                            distributing SPRoil. Finally, DOEhas also implemented several other rec-
                            ommendations we made in 1985, and thus provided further assurance
                            regarding the accuracy of the drawdown predictions.

                            DOE'Sdistribution  strategy for the SPRrelies on the marketplace to deter-
                            mine how to get the oil where it is needed. DOE'Sresponsibility ends
                            when the oil has been delivered to the pipeline or marine terminal,
                            where custody transfers to the buyer. DOEdoes, however, analyze the
                            commercial transportation network to ensure that the available capacity
                            is adequate to distribute SPRoil.

                            WE currently estimates that a maximum of about 2.5 million barrels per
                            day could be distributed by pipeline, using a model containing data on
                            the 41 refineries that could receive oil from the SPRby pipeline. The
                            model estimates potential demand for SPRoil based on the amount of
                            imported oil historically processed by these refineries. The model calcu-
                            lates what portion of the imports could be replaced by SPRoil consid-
                            ering physical constraints such as pipeline size and available
                            interconnections.

                            DOEestimates current maximum marine distribution capability at about
                            2.1 million barrels per day. This is determined by the volume of oil that
                            can be moved through the marine terminals and across docks to ships or
                            barges. Except for the St. James terminal, which is owned and operated
                            by DOE,DOEhas multi-year contracts to use three commercial marine ter-
                            minals in Texas for oil fill and withdrawal.

                            The portion distributed by either method will, of course, depend on the
                            purchasers. If as much oil as possible is moved by pipeline, that method
                            would account for about 70 percent of a drawdown at the maximum 3.5
                            million barrels per day rate, leaving 30 percent to be transported by
                            water. Conversely, if water transportation is used to move as much of
                            the oil as possible, it would account for approximately 60 percent of the
                            drawdown, leaving 40 percent to be distributed by pipeline.


Some Drawdown               Tests at Bryan Mound identified water system limitations that affected
Limitations Identified at   the site’s ability to meet its drawdown goal of 1.1 million barrels per
                            day. WE is currently constructing facilities at Bryan Mound that should
Bryan Mound *               raise its drawdown capability to 1.25 million barrels per day. These
                            enhancements will (1) correct the water system limitations that prevent


                            Page 20                              GAO/RCED-91-16Oii Reserve:Some Concerns Remain
                         chapter   2
                         DOE’s Estimates of Current Drawdown
                         Capability Appear Reasonable,but Tanker
                         Availability Could Affect Distribution




                         attainment of the 1. l-million-barrels-per-day rate and (2) increase the
                         drawdown capability by another 150 thousand barrels per day to offset
                         the West Hackberry rate reduction.6 The water system enhancements
                         include an additional water-intake line, larger pump impellers in existing
                         pumps, and an additional water booster pump and water injection pump
                         to increase the water flow rates. DOEexpects to complete these enhance-
                         ments in 1991.


Measures Needed to       To increase drawdown capability from the current 3.5-million-barrel-
Achieve a 4.5-Million-   per-day rate to the planned 4.5-million-barrel-per-day rate, DOEneeds to
                         (1) complete construction of the water and oil transportation system
Barrel-Per-Day Rate      enhancements at Bryan Mound mentioned above, (2) finish leaching
                         caverns at Bayou Choctaw and Big Hill, and (3) store enough oil at the
                         Big Hill site to support its planned drawdown rate. DOEexpects to com-
                         plete cavern leaching at Bayou Choctaw and Big Hill in September 199 1.

                         DOE  still faces some uncertainties in increasing the SPR’Sdistribution
                         capability from the current 3.5-million-barrels-per-day rate to the
                         planned 4.5-million-barrels-per-day rate. Additional distribution
                         capacity will be needed in the Texoma complex. In 1988 and 1989 DOE
                         tried to acquire additional distribution capacity in the Lake Charles,
                         Louisiana, and Beaumont/Port Arthur, Texas, areas, but did not receive
                         any acceptable proposals. DOEis currently revising its plans for a I990
                         solicitation. This request will solicit a combined pipeline and marine dis-
                         tribution capacity of 700,000 barrels per day and be open to any termi-
                         nals or pipelines that can be readily connected to Texoma facilities.

                         Because drawdown capability will not exceed current distribution capa-
                         bilities for several years, DOEofficials believe they have time to find a
                         solution to the problem. They also believe that changes in the oil
                         industry might create other distribution alternatives. For example, with
                         the decrease in domestic production since 1985, refineries are processing
                         more imported oil. DOEis monitoring these events, and as capacity is
                         added to distribute imported oil to different parts of the country, DOE
                         plans to examine ways to connect into these distribution networks.




                         %causetestsshowed that WestHackberry   couldsustaina drawdownrateof only 1.3millionbarrels
                         perdayand excessdistributioncapacityexistedin theSeawaycomplex,
                                                                                       DOEdecided   to reduceWest
                         Hackberry’drawdown
                                    s        goalfrom 1.4to 1.26millionbarrelsperdayandincreaseBryanMound’s
                         goal.


                         Page 21                               GAO/RCED-91-16Oil Reserve:Some ConcernsRemain
                         chapter 2
                         DOE’s IWimatea of Current Drawdown
                         Capability Appear Reaeouable,but Tanker
                         Availability Cauld Affect Distribution




                         DOEand industry officials indicated the number of U.S.-flag vessels
Insufficient Number of   available to move the SPRoil would be insufficient to move the portion of
U.S. Vessels to          the SPRoil planned for marine distribution at the higher drawdown
Distribute SPR Oil at    rates. Estimates of the point at which problems would occur ranged
                         from 2 to 3 million barrels per day. Under the Jones Act buyers of SPRoil
Higher Drawdown          are required to use U.S.-flag vessels to transport the oil between U.S.
Rates                    ports.6 To supplement the U.S.-flag vessels, oil purchasers would have to
                         obtain Jones Act waivers allowing them to use foreign-flag vessels.
                         Waiver requests can be granted by the Treasury Department after con-
                         sultation with the Maritime Administration, Department of Defense, and
                         Department of Energy.

                         Uncertainty exists as to whether the current case-by-case waiver pro-
                         cess will ensure that vessels are available as needed for SPRdistribution.
                         Blanket waiver authority to suspend the Jones Act requirement for an
                         SPRdrawdown would increase the likelihood that purchasers of SPRoil
                         will be able to transport the oil from marine distribution terminals in a
                         timely manner, and allow the SPRto accomplish its intended purpose.


More Ships Needed Than   The availability of vessels to move SPRoil from marine terminals to
U.S. Fleet Can Supply    refiners is a critical element in DOE’Splans to mitigate the effects of an
                         oil supply disruption. As noted, from about 30 to 60 percent of DOE’S
                         current 3.5million-barrels-per-day distribution capability could be
                         moved by water. A DOEofficial pointed out, however, that waterborne
                         distribution is more likely to range between 40 and 50 percent of the
                         drawdown. DOEwill also solicit an additional 700,000 barrels per day of
                         combined marine and pipeline distribution capability for its Texoma
                         complex. Without the ability to move oil quickly through distribution
                         networks, the economic benefits to the nation of using the SPRduring an
                         oil supply disruption would be decreased.

                         The Director of DOE’SSPRoffice forecasts that the number of U.S. ships
                         available would probably be insufficient for drawdowns exceeding 3
                         million barrels a day. An oil industry official said that he believed there
                         would be a shortage of U.S.-flag ships during drawdowns of even 2 mil-
                         lion barrels per day. At the planned 4.5-million-barrels-per-day rate,
                         Boeing Petroleum Services, the SPRoperating contractor, estimates that
                         between 76 and 90 tankers would be needed. Based on conditions in

                         ‘TheJonesAct (Section27of the MerchantMarineAct of 1920(46USC. app.883))promotes    the
                         continuedexistence
                                          of a fleetof U.S.-flag
                                                               vessels
                                                                     because
                                                                           of its importance
                                                                                           for nationaldefense--in
                                                                                                                 a
                         war it wouldbeneeded to movemilitarysuppliesabroad.


                         Page 22                               GAO/RCED-91-16Oil Reserve:Some Concerns Remain
                             Chapter 2
                             DOE’s E&mates of Current Dmwdown
                             Capability Appear R.eaaonable,but Tanlrer
                             Avalhbllity Could Affect Metrlbutlon




                             1990, however, the contractor calculated that only 36 to 40 U.S. tankers
                             would be available to transport the SPRoil.7

                             If waivers are obtained to allow foreign-flag tankers to be used, the SPR
                             contractor believes enough ships would be available to make up for the
                             anticipated shortage of U.S. vessels. This conclusion was based on the
                             number of foreign-flag tankers delivering crude oil to the east coasts of
                             western hemisphere countries in 1987.


Uncertainty Remains          Under the Jones Act, purchasers of SPRoil must use U.S.-flag vessels to
About Effectiveness of the   transport SPRoil between U.S. ports. In the interest of national defense
                             and if U.S.-flag vessels are not available, the Department of Treasury
Expedited Waiver Process     can waive this requirement. Waivers are considered on a case-by-case
                             basis. As part of the waiver request process, the Maritime Administra-
                             tion provides information to the Treasury Department on the availa-
                             bility of U.S.-flag vessels. In our 1985 report, we discussed the potential
                             shortage of U.S.-flag ships and the waiver process, and reported that the
                             National Petroleum Council had recommended that the Maritime Admin-
                             istration develop a contingency plan to expedite Jones Act waivers.8

                             In 1987 DOE,the Treasury Department, and the Maritime Administration
                             entered into an interagency agreement providing for expedited review
                             of waiver requests associated with an SPRoil drawdown. If this process
                             operates as designed, the Treasury Department should be able to issue a
                             decision on a request within 3 business days. The agreement provides
                             for early and frequent exchanges of information among the agencies
                             involved and establishes a goal of 2 business days for the Maritime
                             Administration to review the availability of U.S. vessels to transport the
                             oil and advise the Treasury Department whether or not the waiver
                             should be granted. According to an official of the Treasury Depart-
                             ment’s Customs Service, Treasury cannot act on the waiver request until
                             Maritime responds. Therefore, the decision will be delayed if Maritime is
                             not able to provide this information within the allowed 2 days.

                             According to DOEand Maritime officials, the expedited waiver agree-
                             ment for SPRcargoes has never been tested, and delays such as those

                             7Theexactnumberof shipswill vary depending  onthecircumstances.  In estimating
                                                                                                          thenumberof
                             availableshipsin 1990,thecontractoreliminated thoseU.S.vesselsthat aretoolargeto usetheSPR
                             docks,thoseout of servicefor repairs,andthosecurrentlyinvolvedin transporting
                                                                                                         refinedproducts
                             anddomestic crudeoil-since thoseactivitieswouldcontinueduringa disruption.
                             *GAO/RCED-85-80,
                                          June6,1986.


                             Page 23                                GAO/WED-91-16 Oil heme:      SomeConcernsRemain
                           ChnPtm    2
                           DOE’s Euthaten of Current Lhxxwdowu
                           CapabIltty Appear Reasonable,but Tanker
                           Availability Could Af%ct Dietrlbution




                           experienced during the 1989-1990 home heating fuel price spike could
                           have a serious impact on an SPRdrawdown. Over an 8-day period in
                           December 1989, Treasury received six requests to allow the use of for-
                           eign vessels to move cargoes of heating oil and propane to the Northeast
                           of the United States. Although not covered by the SPRinteragency agree-
                           ment, the review process followed was similar. The events occurred
                           during the year-end holidays, and Maritime took from 1 to 7 days to
                           provide information on the availability of qualified U.S.-flag ships. In
                           two cases, the cargoes were shipped to foreign ports before a decision
                           was received on the waiver request.g


Agencies Di ffer on Need   To ensure that the transportation needed in an SPRdrawdown is avail-
                           able, DOEand oil company officials have called for blanket authority to
for Blanket Waiver         waive the Jones Act requirement. Officials of DOEand the Maritime
Authority                  Administration differ on the need for blanket waiver authority, but both
                           agree that exercising such a waiver could mean that U.S. vessels might
                           be excluded from transporting any of the SPRoil because of their higher
                           costs.

                           The Director of DOE’SSPRoffice believes the waiver process would be the
                           most significant problem during a drawdown of 3 million barrels a day
                           or larger. In his opinion, the case-by-case waiver process established by
                           the interagency agreement would become overloaded with requests for
                           waivers. Delays in the drawdown resulting from a shortage of ships to
                           distribute the oil would work against the U.S. policy of drawing down
                           the SPRearly at a maximum rate for maximum impact. Blanket waiver
                           authority would increase the likelihood that the desired economic
                           impact of distributing SPRoil could be achieved.

                           Officials of the Maritime Administration, however, believe that the
                           expedited waiver process will ensure that distribution of SPRoil will not
                           be delayed. According to a Maritime official, their main task is to deter-
                           mine the status of about 100 ships, and this can be accomplished
                           through a survey of vessel availability within the 2 business days pro-
                           vided for in the agreement. The official stated that the work can be
                           intense initially, but quickly evolves into a series of repetitive actions.
                           Although he could not estimate how many waiver requests might be
                           received during an SPRdrawdown, he did not believe he or his staff of

                           “Subsequentto thecrisis,an interagencyagreementwasdevelopedfor dealingwith futureenergy
                           crises.Theagreement is similarto theonefor SPRdrawdowns.Wearepreparinga reportonthe
                           possibleconsequences of that agreementontheJonesAct waiverprocessin theeventof another
                           homeheatingfuelpricespike.In that reportweplanto addresspossiblepolicyoptions.


                           Page 24                               GAO/RCED-91-16Oil Reserve:Some ConcernsRemain
              Chapter2
              DOE’s lMlm&m of Current Drawdown
              Capability Appear Reasonable,but Tanker
              Availability could AfYect Distributton




              seven employees would be overloaded. However, the experiences of last
              winter’s fuel price spike illustrate that Maritime’s task is not always as
              simple as surveying 100 vessels. Burdens on the staff increase when the
              people filing the waiver requests do not understand the process or do
              not provide all the information needed to determine whether a U.S.
              vessel might be available to move a particular cargo.

              Standby authority for limited blanket waivers that the President could
              use if the case-by-case waiver review were slowing the SPR drawdown
              could provide additional insurance for SPR distribution without unneces-
              sarily jeopardizing the interests of the U.S. fleet. If such authority does
              not exist before a disruption occurs, the effectiveness of the SPR
              drawdown could be severely affected because it is unlikely that action
              could be taken quickly enough to prevent delays in obtaining the neces-
              sary vessels.


              Delays during drawdown could limit the economic impact expected from
Conclusions   using the SPR. Because DOE’S estimates of its current capabilities for
              withdrawing and distributing SPR oil are based on a number of
              drawdown and other system tests, we believe they provide more assur-
              ance that MOEwill be able to achieve these rates during an actual
              drawdown. DOE will not be able to achieve the drawdown goal of 4.6
              million barrels per day until several drawdown and distribution
              enhancements are completed and further oil fill is completed at the Big
              Hill site.

              One issue that could affect DOE'S ability to use the SPR successfully to
              offset the impacts of an oil supply disruption is whether purchasers of
              SPR oil will be able to obtain the tankers needed to move the portion of
              the oil that must be moved by marine transportation.

              Waivers of the Jones Act requirement regarding use of U.S.-flag ships
              are likely to be needed for SPR drawdowns exceeding 3 million barrels a
              day, and questions have been raised about whether the interagency
              agreement will expedite the waiver review process. Because the agree-
              ment has not yet been tested, the delays experienced in acting on Jones
              Act waiver requests during last winter’s home heating fuel price spike
              could portend similar problems in the event of an SPR drawdown
              exceeding 3 million barrels a day.

              While officials disagree about the need for a blanket waiver of the
              requirement that U.S. vessels be used to transport SPR oil, uncertainty


              Page 26                              GAO/RCED-91-16Oil Reserve:SomeConcerns Remain
                       chapter   2
                       DOE’s EWmates of Current Drawdown
                       Capability Appear Reasonable,but Tanker
                       Avallabllity Could Affect Distribution




                       exists as to whether the case-by-casereview process will work effec-
                       tively. Standby authority for limited blanket waivers could provide
                       additional insurance for effective SPR distribution without unnecessarily
                       jeopardizing the interests of the U.S. fleet.


                       To examine the effectiveness of the expedited waiver review process,
Recommendation         we recommend that the Secretary of Energy direct the Assistant Secre-
                       tary for Fossil Energy to work with the Maritime Administration and
                       the Treasury Department to develop a realistic test that would simulate
                       agency actions to process the number and type of waiver requests
                       expected during SPR drawdowns of various rates.


                       Because of the likelihood that Jones Act waivers will be needed to move
Matter for             SPR oil expeditiously and the current uncertainties about whether the
Consideration by the   waiver review process will ensure prompt action on individual waiver
Congress               requests, the Congress may wish to consider granting standby blanket
                       waiver authority that would allow the President to waive the Jones Act
                       requirement if delays resulting from the case-by-case review process
                       were limiting DOE’s ability to draw down the SPR.




                       Page 26                              GAO/RCED-91-16Oil Reserve:SomeConcernsRemajn
Chapter   3   ’

Bemr oversight Needed of Contractor
Compliance With Pipeline Safety Standards

                       The SPRoil pipelines are critical to DOE’Sdrawdown plans because they
                       provide the link between the storage sites and the commercial facilities
                       (pipeline and marine terminals) that will be used to distribute oil from
                       the SPR.Problems with pipeline operations during drawdown could slow
                       or prevent drawdown and could have severe economic and environ-
                       mental impacts. ucrr promulgates and enforces safety standards regu-
                       lating the transportation of hazardous liquids by privately owned
                       pipelines. Although the SPRis not required by law to comply with these
                       standards, DOEhas established a policy of voluntary compliance.

                       Most functions related to the construction, maintenance, and operation
                       of the SPRare carried out by contractors. Although DOEhas imposed
                       D@S pipeline safety standards on the SPRcontractors, we believe DOEis
                       responsible for overseeing the contractors to ensure compliance. We
                       found, however, that no single DOEofficial or office had a comprehen-
                       sive overview of the extent to which the SPRcomplies with Dm’S stan-
                       dards. Although DOEand contractor officials believe that current SPR
                       operations meet the urn standards, our review of selected standards
                       identified instances of noncompliance in calendar year 1989.


                       The nation’s pipeline safety standards, issued by D&S Office of Pipeline
DOE’s Compliance       Safety, cover the transportation by privately owned pipelines of haz-
With Pipeline Safety   ardous liquids, including crude oil, associated with interstate or foreign
Standards Is           commerce (49 C.F.R. 196). The standards require timely accident
                       reporting and spell out criteria for the design, construction, hydrostatic
Voluntary              testing, and operation and maintenance of these pipelines. The operation
                       and maintenance standards require periodic inspections to uncover
                       potentially unsafe conditions, such as right-of-way infringements,
                       eroded river crossings, and inoperative ,or defective corrosion preven-
                       tion and detection equipment.

                       These regulations apply to each “person” who engages in the transpor-
                       tation of hazardous liquids or who owns or operates pipeline facilities.
                       The definition of the term “person” in the authorizing legislation does
                       not include the federal government, and the legislative history indicates
                       that the law was not intended to apply to federally operated facilities.’
                       Since D0E is in operational control and accepts responsibility for mainte-
                       nance and safety of SPRpipeline facilities, DOTbelieves the SPRis not sub-
                       ject to its pipeline standards.


                       1Hazardous
                               LiquidPipelineSafetyAct of 1979(49USC. app.2001(l)).


                       Page 27                             GAO/RCED-91-16Oil Reserve:Some CkmcernsRemain
                                                                                          I



                         Better Overeight Neededof Contractor
                         timplhnce With Pipeline EMety Standards




                         Although it is not required to do so, DOE attempts to comply voluntarily
                         with these pipeline safety regulations in the operation and maintenance
                         of all SPR oil pipelines. According to DOE officials, the criteria DOE devel-
                         oped to guide the design of SPR facilities state that the DOTpipeline
                         safety standards must be followed in the design, construction, and oper-
                         ation of SPR facilities. These officials said that the pipeline construction
                         contracts and the contract for maintenance and operation of the SPR
                         require that contractors follow the design criteria containing the nor
                         standard compliance statements. However, DOE retains responsibility for
                         assessing contractor activities and ensuring compliance with pipeline
                         safety regulations.


                         Potentially significant environmental impacts could result from the rup-
Pipeline Problems        ture of SPR pipelines. There are about 260 miles of SPR oil pipelines,
Could Have Significant   ranging in size from 16 inches to 42 inches in diameter. During a
Impact                   drawdown at the current maximum rate, about 146,000 barrels of oil an
                         hour would be pumped through the pipelines, including about 52,000
                         barrels an hour through the highest volume line. These pipelines trav-
                         erse fragile Gulf Coast ecological areas. The swamps, marshes, and estu-
                         aries contain diverse varieties of fish and wildlife that support trapping,
                         hunting, and recreational and commercial fishing.

                         Problems with SPR pipelines during a drawdown could have an even
                         larger impact if they hindered the SPR'S ability to serve its intended pur-
                         pose. Previous oil supply interruptions illustrate the potential economic
                         impact. For example, as we reported in 1985, the interruption of U.S.
                         imports caused by the 1973-74 oil embargo and resulting oil price
                         increase resulted in an estimated loss of $35 billion to $45 billion in
                         Gross National Product and 600,000 jobs.


                         Although DOE Project Office officials acknowledged that some of the
DOE Lacks                pipeline corrosion and integrity problems previously reported may have
Comprehensive            been caused by noncompliance with the nor standards, they believe that
Information on           current SPR maintenance and operating activities are in compliance with
                         the nor pipeline safety regulations. At the time of our review, however,
Contractor Compliance    there was no focal point in DOE to determine and ensure compliance with
W ith Standards          the standards.

                         An Accident Investigation Board appointed by Oak Ridge to investigate
           ”




                         a 1989 rupture of the Bryan Mound brine disposal pipeline recognized
                         the need for such a compliance focal point. It recommended in August


                         Page 28                             GAO/RCRD-91-MOil Reserve:Some ConcernsRemain
                         Chapter 3
                         Better Oversight Needed of Contractor
                         Compliance With Plpeline Safety Standards




                         1989 that DOE create a position in the Project Office with responsibility
                         for overseeing all aspects of SPR pipeline operations, including compli-
                         ance with applicable safety and environmental requirements. The Board
                         Chairman told us that the Oak Ridge Manager approved this recommen-
                         dation, and on October 6, 1990, the Assistant SPR Project Manager desig-
                         nated an SPR Pipeline Manager with responsibility for operation,
                         maintenance, and construction of all SPR pipelines. According to SPR offi-
                         cials, the pipeline manager will also be responsible for ensuring compli-
                         ance with the federal pipeline safety standards, but this was not
                         mentioned in the appointment memorandum, and procedures for accom-
                         plishing this task have not yet been established.


                         To check SPR compliance with the DOTstandards, we selected nine
SPR Not in Nl            requirements and reviewed the operating contractor’s records to deter-
Compliance With DOT      mine compliance with the requirements. We found the contractor had
Safety Standards         complied with six of the nine requirements in 1989. For the remaining
                         requirements, we found the contractor did not perform required right-
                         of-way and corrosion control equipment inspections as frequently as
                         required and had not retained pipeline repair records for the useful life
                         of the pipelines as required.


Pipeline Right-of-Way    The n(rr standards (49 C.F.R. 196.412(a)) require oil pipeline operators
Inspections Did Not      to inspect surface conditions of pipeline rightszof-way at least 26 times
                         each calendar year at intervals not exceeding 3 weeks. According to the
Comply W ith Standards   Project Office’s Site Management Division Director, the contractor
                         attempts to comply with this requirement by aerial inspections of the
                         rights-of-way. Our review of overflight inspection records for 1989
                         showed that the contractor performed at least 26 inspections of each
                         line during the year but did not comply with the 3-week interval
                         requirement on any of the lines. During the first part of the year,
                         periods ranging from 4 to 12 weeks elapsed without aerial inspections of
                         the lines.

                         The Accident Investigation Board investigating the Bryan Mound brine
                         line rupture also found flaws in the contractor’s aerial pipeline inspec-
                         tion program. The Board found the operating contractor was not making
                         aerial or ground right-of-way inspections as frequently as required by
                         the contractor’s own manuals and handbooks. Specifically, the Board
                         found that the contractor




                         Page 29                               GAO/RCED-91-16Oil Reserve:SomeConcerns Remain
                            Chapter 3
                            Better Oversight Needed of Contrclctor
                            C2mpUanceWith Pipeline Safety Standards




                        . allowed the pipeline overflight contract to expire and did not conduct
                          inspections on a regular basis after the contract was extended, and
                        l failed to conduct the right-of-way land patrols required by the Off-site
                          Pipeline Maintenance and Repair Handbook and the Security Operations
                          Manuals when aerial patrols were not performed.

                            The Board concluded that the inspection program lacked senior manage-
                            ment interest and recommended that the operating contractor (1) eval-
                            uate the pipeline surveillance program in writing on a regular basis and
                            (2) ensure that aerial and ground inspections are made weekly with
                            crews trained to recognize anomalies that threaten the pipelines and/or
                            the environment.

                            In an October 1990 meeting to confirm the factual information in this
                            report, SPRofficials acknowledged previous problems but noted that
                            they had acted in response to the Board’s report by revising overflight
                            procedures and replacing the contractor. Consequently, they reported
                            that the 38 pipeline overflights conducted from March 13,1990, to Sep-
                            tember 28,1990, exceeded nor standards.


Frequency of Pipeline       Paragraph 196.416(c) of the nor standards requires owners of pipelines
                            with cathodic protection systems to inspect the rectifiers-a key compo-
Protection System           nent of the cathodic protection system -6 times each year at intervals
Inspections
     _ - Did Not Meet       not exceeding 2-l /2 months.2 Records provided by the operating con-
Standards                   tractor indicate that the rectifiers on four of the six pipelines requiring
                            inspection had been inspected in accordance with the required stan-
                            dards. The rectifiers on the oil pipelines from the Bayou Choctaw and
                            Weeks Island sites to the St. James terminal, however, were inspected
                            only four of the required six times during 1989.

                            In our October 1990 meeting, SPRcontractor officials also stated that
                            they believed they had made the required inspections. They could not,
                            however, provide the inspection reports.




                            2Cathodic
                                    protectionis a technique
                                                           to preventthe corrosion
                                                                                 of a pipelinecausedby a reaction
                            between
                                  the pipelineandthesurrounding  soilandwater.


                            Page 30                                GAO/RCED-91-16Oil Reserve:SomeConcerns Remain
                          Better Overright Needed of Contractor
                          Compliance With Pipeline Safety Stan-




Pipeline Repair Records   Paragraph 196.404(c)( 1) of the DOTstandards requires operators to
Not Maintained as         maintain, for the useful life of each pipeline, records showing the dates,
                          locations, and descriptions of each pipeline repair. SPRoil pipelines are
Required                  designed for a ZO-year useful life. The operating contractor’s mainte-
                          nance director/told us they keep such repair records for only 7 years. He
                          also said that the pipeline repair records were commingled with repair
                          records for all other SPRequipment and were not readily identifiable as
                          pipeline repairs.

                          In our October 1990 meeting, SPRcontractor officials claimed that repair
                          records were kept permanently. Further discussion, however, revealed
                          that this applied only to the computer records, not the source documents
                          which contained detailed information on the repair. Further, work done
                          by subcontractors was not consistently included in the computer
                          records.


                          Because of the discovery of pipeline corrosion that raised questions
DOE Efforts to Ensure     about the structural integrity of some SPRpipelines, since the mid-1980s
Integrity of SPR          DOEhas required the operating contractor to report periodically on the
Pipelines                 condition of the pipelines and recommend corrective actions when
                          needed. These efforts, however, do not address the question of whether
                          SPRoperations are in compliance with the uor standards.

                          Beginning in 1986 DOEdirected the operating contractor to prepare Pipe-
                          line Integrity Reports describing each pipeline and any events, such as
                          repairs and inspections, that occurred during the reporting period. The
                          reports describe the condition of each line, including any operating limi-
                          tations; discuss major repairs; and discuss the pigging3 and corrosion
                          control monitoring program for each pipeline.

                          In July 1986 DOEalso directed the operating contractor to develop a
                          Pipeline and Piping Assurance Program to (1) identify the existing con-
                          ditions of the pipeline system, (2) identify pipeline deficiencies that war-
                          rant correction, (3) make recommendations regarding required
                          corrective actions, and (4) prepare a corrective action plan. The oper-
                          ating contractor inspected 635 field-site piping locations and identified
                          20 locations (3 percent) that it believed required either repair, definite
                          replacement, or possible replacement. In March 1989 the operating con-
                          tractor reported to DOEthat the SPRsite piping was in good condition

                          3Pigging
                                 meanssendinginstruments  (the“pigs”)throughthepipelinesto checkthe pipelineelectroni-
                          callyandidentifytheextentof corrosion.


                          Page 31                                 GAO/RCED-91-MOil Reserve:SomeConcerneRemain
                 Chapter 3
                 Better Oversight Needed of Ckmtractor
                 Compliance With Pipeline Safety Standards




                 with the exception of some brine and raw water lines. The report identi-
                 fied numerous repairs that must be made to give immediate and long-
                 term assurance on the SPR piping, but it concluded that the pipelines
                 would support required drawdown and fill rates in their current
                 condition.


                     attempts to comply voluntarily with the federal pipeline safety
Conclusions      DOE
                 standards, and DOE and contractor officials believe they are in compli-
                 ance. However, our review indicated that they have not always fully
                 complied with some of the operations and maintenance requirements.
                 DOE has taken action to require the contractor to periodically report on
                 the condition of the SPR pipelines, but this does not address the issue of
                 compliance with the DOTstandards.

                 Although DOE is responsible for overseeing contractor activities and
                 ensuring compliance with these standards, at the time of our review DOE
                 did not have a focal point to collect and review such information. The
                 October 1990 memorandum appointing the SPR pipeline manager did not
                 specifically include responsibility for overseeing contractor compliance
                 with federal pipeline safety standards, and detailed procedures for the
                 position have not yet been developed. As a result, M)E lacks certainty
                 that SPR pipelines will be properly maintained and protected from corro-
                 sion so that they can be relied on to function according to design stan-
                 dards during drawdown.

                 The serious environmental and economic impacts that could result from
                 pipeline failures increase the level of confidence needed about the safety
                 and reliability of the SPR pipelines. At a minimum, holding the SPR to the
                 same standards required of commercial pipeline operators would
                 increase that level of confidence.


                 To increase the certainty that SPR pipelines will operate safely and reli-
Recommendation   ably as designed, we recommend that the Secretary of Energy direct the
                 manager of the Oak Ridge Operations Office to assign specific responsi-
                 bility for ensuring compliance with federal safety standards to the
                 recently designated SPR Pipeline Manager and ensure that needed proce-
                 dures and information systems are developed to monitor contractor
                 operations.




                 Page 32                               GAO/RCRD-91-16Oil Reserve:SomeConcerns Remain
Chapter
     ---~-4   ’

Shtus of DOE’s Actions on Previous
GAO Recommendations

                           Our 1986 drawdown report, More Assurance Is Needed That Strategic
                           Petroleum Reserve Oil Can Be Withdrawn As Designed, recommended
                           four actions MDE could take to help ensure that the SPR system has the
                           capability to provide a readily availab1.e supply of oil. We recommended
                           (1) further testing of site drawdown capabilities, (2) testing water-
                           system adequacy at two sites to support drawdown rates, (3) resolving
                           piping integrity and corrosion control concerns, and (4) satisfactorily
                           completing ongoing work on the automated control systems and inte-
                           grated logistics support system. DOE'S implementation of our recommen-
                           dations provides greater assurance the SPR oil can be successfully
                           withdrawn during an emergency.


                           Our previous report questioned drawdown capabilities in part because
Drawdown and Water         DOE had not conducted comprehensive oil drawdown tests at each
System Tests Usually       storage site or completed water system modifications necessary to move
Met Ob,jectivesbut         the amount of water required for drawdown. We recommended that DOE
                           (1) conduct further tests to allow an assessment of drawdown capability
Identified Some            and (2) after completing modifications underway, test water systems to
Problems                   ensure that drawdown capability was not limited by inadequate water
                           supplies.


Additional Tests Provide   DOE   has taken some action to respond to our 1986 recommendation that
Better Basis for DOE’s     it conduct further tests of the SPR to allow an assessment of its capa-
                           bility to meet design drawdown goals. From 1986 through 1989 DOE con-
Estimated Drawdown         ducted 20 oil movement, water flow, and other system tests to assure
Rates, but Concerns        itself oil could be withdrawn as designed from SPR sites. Eleven tests
Remain                     involved oil movements, and at least one maximum rate drawdown test
                           was conducted at each site, other than Big Hill. Although some of the 20
                           tests encountered problems, they usually met most of the test objectives
                           that DOE established.

                           We also pointed out that the limited duration of these tests left a degree
                           of uncertainty as to whether DOE will be able to sustain these rates over
                           the extended periods required during an energy emergency. In the 1985
                           report, we pointed out that while the l-day tests conducted by DOE
                           showed that oil can be withdrawn from the SPR, they provided only lim-
                           ited confidence that the SPR will be able to achieve its drawdown goals.
                           We noted that, although the duration of a test that would stress the
                           system has not been defined, engineers familiar with the SPR or compa-
                           rable oil industry equipment have indicated that a 5- to 7-day test would
                           be reasonable. The tests conducted by DOE after 1986 were still of short


                           Page 33                         GAO/RCED-91-MOil Reserve:SomeConcerns   Remain
                                                                                                                    .
                                             chapter 4
                                             Status of DOE’@Actlona on Previous
                                             GAO Recommendations




                                             duration, with most lasting less than a day. For example, one of the
                                             objectives of an April 1989 test at Bayou Choctaw was to demonstrate
                                             that the site could draw down at a rate of 605,000 barrels per day.
                                             During the test the 605,000-barrels-per-day rate was achieved and sus-
                                             tained for 20 minutes. The test as a whole lasted about 6-l/2 hours and
                                             moved just over 78,000 barrels of oil.

                                             The Director of DoE's SPR office does not believe longer tests are war-
                                             ranted because engineering and scientific analysis of the tests provide
                                             adequate assurance that drawdown goals will be met. He also said that
                                             there would be no place to move the quantity of oil involved in an
                                             extended drawdown test without affecting the market and disrupting
                                             ongoing commercial oil movement operations. Further, full-scale
                                             drawdown causes wear and tear on equipment. While we understand the
                                             Director’s concerns, more extensive testing will decrease the uncertainty
                                             regarding the SPR'S drawdown capabilities.

                                             On September 27, 1990, DOE announced a sale of 5 million barrels of oil
                                             (as authorized by the Energy Policy and Conservation Act Amendments
                                             of 1990) to test the SPR and allow the private sector to increase its famil-
                                             iarity with the SPR distribution process. DOE expects to deliver the entire
                                             6 million barrels over a 30-to-45-day period.


Table 4.1: Type of SPR Drawdown Teats Conducted Between 1986 and 1989 and Extent Stated Objectives Were Achieved
                                                       Number of                       Number of           Number which
“_..~..__--- - ..__
                  ----.-... -._-..-_-.--- .-_____-_-__     tests .- Time frame     objectives met   --  met  all objectives
                                                                                                            ---
Oil movement tests                                                  Apr.   1986 to
                                                 --    11           Oct.   1989                 54 of 63 (86%)            8 of 11 (73%)
System tests                                                        Oct.   1986 to
---“-    .-__.-.   ._...- ---__--__-__   ______-__    ~9            Oct.   1989                 40 of 42 (95%)            --7 of 9 (78%)
Total                                                 20                                      94 of 105 (90%)           15 of 20 (75%)



Drawdown Enhancements                        Results of the drawdown tests led DOE to conclude that four of the five
Should Ensure Ability to                     present sites-Weeks Island, Bayou Choctaw, West Hackberry, and
                                             Sulphur Mines -could meet their designed drawdown rates, but that the
Achieve Overall                              remaining site-Bryan Mound-had problems meeting its planned rate.
Drawdown Rate                                As discussed in chapter 2, DoE initiated enhancements to correct this
                                             shortfall and allow them to increase Bryan Mound’s drawdown
                       *                     capacity.




                                             Page 34                                 GAO/RCEDBl-16 Oil Reserve:SomeConcerns Remain
                       Chapter 4
                       Status of DOE’s Actione on Previous
                       GAO Recommendationa




                       Our previous report discussed corrosion problems identified at some
DOE Initiated a        sites and raised questions about the integrity of the piping and pipeline
Program to Identify    systems if the problems were not corrected. We recommended that DOE
and Correct Pipeline   (1) assess the integrity of its piping/pipelines to withstand pressures
                       needed to move the oil at maximum drawdown rates and (2) protect
Corrosion Problems     piping/pipelines from future corrosion.

                       As discussed in chapter 3, DOE directed its operating contractor to pre-
                       pare a periodic Pipeline Integrity Report and initiate a Pipeline and
                       Piping Assurance Program to assess piping conditions and ensure that
                       the pipelines would meet drawdown and fill requirements.


                       Our 1985 drawdown report discussed the numerous delays DOE experi-
Installation of        enced in completing the automated instrumentation and control systems
Automated              at each site. These automated controls, which are designed to open and
Instrumentation and    close valves, start and stop pumps in the proper sequence, and monitor
                       and control sensory devices on field equipment from a central control
Control Systems        room, were not fully operational at all sites when we issued our report.
Completed Late         Although these systems are not essential for drawdown, we believed
                       their completion would increase confidence that a drawdown could be
                       safely sustained. We recommended that DOE ensure that ongoing work
                       on these systems was satisfactorily completed and that the systems
                       functioned as designed.

                       According to the DOE Project Office engineer overseeing installation, the
                       automated systems in process at the time we reported have been com-
                       pleted and work acceptably. He added that DOE installed additional auto-
                       mated control systems to accommodate additional caverns constructed
                       after our report at West Hackberry, Bryan Mound, and Bayou Choctaw
                       and all caverns at Big Hill. These systems also suffered installation
                       problems and considerable delays, but they were completed and
                       accepted by DOE in early 1990.


                       Our previous report discussed delays that DOE experienced with the con-
Basic Integrated       tractor in trying to develop an integrated logistics support system for
Logistics Support      the SPR to ensure an adequate supply of spare parts for a sustained
System Now in Place    drawdown. Logistics support is the system of procuring, maintaining,
                       storing, and controlling materials and equipment needed to keep a pro-
             u         ject such as the SPR operational. Such a system ensures that spare and




                       Page 35                               GAO/RCED-91-MOil Reserve:Some Ckmcernalbnah
Chapter 4
Statue of DOE%Actions on Previous
GAO Recommendations




repair parts, support equipment, tools, warehousing, technical documen-
tation, computerized inventory control systems, and associated per-
sonnel are in place when needed. We concluded that DOE needed to
complete the support system as soon as possible and recommended that
DOE ensure that the ongoing work on the system was completed and that
the system functioned as designed. According to DOE officials, an accept-
able support system is in place and functioning. In addition, the oper-
ating contractor and a subcontractor have studied the support system
and identified refinements to improve it.




Page 36                             GAO/IUXDBl-16 Oil Reserve:Some Chwerna Remain
Page 37   GAO/RCED-91-MOil Reserve:Some ConcerxwRemain
Appendix I

Major Contributors to This Report


                         Judy A. England-Joseph, Associate Director
Resources,               Richard A. Hale, Assistant Director
Community, and           Joanne E. Weaver, Assignment Manager
                         Nicholas C. D’Amico, Senior Evaluator
Economic
Development Division,
Washington, D.C.
                                    .   -.
                                        r;valuator-in-Charge
Dallas Regional Office   ~~~~~~~~;,
                                 PttVU)
                                     WI-.-Y*
                                     Scminr I. -euy---
                                            Flvah~nt.nr

(New Orleans
Sublocation)




                         Page 38                         GAO/RCED-91-16Oil Reserve:Some Concerns Bemain
Page 39   GAO/RCEDBl-16 Oil Reserve:Some ConcernaRemain
                                                                               .

~ Related GAO Products


                Oil Reserve: DOE'S Management of the Strategic Petroleum Reserve
                (GAO/RCED-87-171BR,July 17, 1987).

                The Strategic Petroleum Reserve: An Overview of Its Development and
                Use in the Event of an Oil Supply Disruption (GAo/RCED-86-134, Sept. 30,
                1986).

                More Assurance is Needed That Strategic Petroleum Reserve Oil Can Be
                Withdrawn as Designed (GAO/RCED-86-104, Sept. 27, 1986).

                Evaluation of the Department of Energy’s Plan to Sell Oil from the Stra-
                tegic Petroleum Reserve (GAO/RCED-86-80, June 6, 19%).

                Analysis of Oil Withdrawal and Distribution Tests for the Strategic
                Petroleum Reserve (GAO/RCED-86-116, May 8, 1986).




  (001812)      Page40                          GAO/RCEDBl-10 Oil i&serve: Some ConcerxwRemain
Ortl~rittg   Ittforttt:rt.iott

‘I’ttv first fivtb copit  of c~clt GAO report art’ free. Additional    copies
art’ $2 taach. Ortlt~rs slioulcI be sent. to t.htb following address, accottt-
I)attitvI by at check or money order made out to Lhe SnI~~rirtt~ettcit~ttl
of Docutttc~tt t.s, when necessary. Ordt*rs for 100 or more copies t 0 he
ttr;tiltd t 0 a sittglv address are ciiscouttted 25 pc*rcmt..

li.S. Gc~ttvral Accounting Office
I’.(). Box 6015
Gait hersburg, MI) 20877

Orders tttay also be placed by calling     (202) 275-6241.
-_,I   ._..   “_   I   “.~“-_l-..   “.“.   .l”.l_   _ --....   _--_-.““-_   _._.   .”   Itll”l_   .   “._._...~   ..-.l-------




                                                                                                                                   Firs t-Class Mail
                                                                                                                                 Post,age 82 Fees Paid
                                                                                                                                           GAO
                                                                                                                                   Permit No. G lO O