280. Telegram From the Department of State to Selected Diplomatic Posts1

209320. Subject: Resumption of Oil Acquisition for the Strategic Petroleum Reserve.

1. Confidential—entire text.

2. This cable describes the status of the Strategic Petroleum Reserve (SPR) program. Posts should not repeat not raise this issue with host governments or local press. However, in response to inquiries, information provided here may be used, unless otherwise noted.

3. The USG is committed strongly to the SPR program. The Energy Security Act of 1980 requires the President to “immediately undertake . . . crude oil acquisition, transportation, and injection activities” to fill the SPR at an average rate of at least 100,000 b/d for each year beginning in FY 81.

4. FYI: We may achieve a higher average rate over FY 81, if present market conditions continue. End FYI.

5. Use of Naval Petroleum Reserve Oil. The Federal share of the production of the Naval Petroleum Reserve (NPR) at Elk Hills, California will be a major source of oil for the SPR. This will probably be about 100,000 B/D.

6. Most of the NPR oil cannot be placed directly in the SPR because NPR production areas are on the west coast and SPR storage sites are on the gulf coast. Most NPR oil will therefore have to be exchanged for more accessible oil. This will be accomplished by competitive bids or by regulatory action requiring certain U.S. refiners to take cash or NPR oil in exchange for oil for the SPR. We plan to proceed simultaneously with both the competitive and the regulatory approaches, along with efforts to arrange the direct transport of some relatively minor quantities of NPR oil to the SPR facilities.

7. The competitive exchange will begin with a solicitation of offers from oil companies and traders. A request for proposals (RFP) will be issued in early August by the Defense Fuel Supply Center (DFSC) as [Page 883] purchasing agent for the SPR. Foreign national oil companies can and, in the past, have responded to RFPs for the SPR. The USG is at present neither encouraging nor discouraging them to do so.

8. The regulatory process for NPR/SPR exchanges will begin this August when DOE’s Economic Regulatory Administration issues a Notice of Proposed Rulemaking (NOPR) to amend DOE’s regulations under the Emergency Petroleum Allocation Act.2

9. Potential Additional Sources. The USG has assured producer and consumer countries that we will use discretion in the purchase of foreign crude oil for the SPR. Therefore, we do not plan at this time to solicit offers for direct sole-source (non-competitive) purchases from foreign governments or national oil companies. (FYI: We will consider unsolicited offers of crude oil from such sources on a case-by-case basis. End FYI.) Other domestic crude sources such as the outer continental shelf and Alaska North Slope are being considered, but they present a number of technical and legal difficulties. DOE and other concerned agencies will continue to work on these and other domestic sources. (FYI: USG may also issue solicitations that will remain open for short time periods and seek individual cargoes available on the domestic and international market. End FYI.)

10. Foreign Policy Considerations. Secretary of Energy Duncan conducted consultations on the SPR with our Summit partners, as required by the Tokyo communiqué, and with other European countries at the IEA Ministerial and Venice Summit. The USG believes that current oil market conditions warrant renewal of strategic stockpiling by all governments having stockpile programs. Others with whom we have consulted concur.

11. Most consumer nations seem to understand the considerations underlying resumed SPR oil purchases and most have accepted our assurance that we will control the scale and timing of procurements so as to avoid significant effects on oil prices. Most producers continue to express opposition to the US SPR and to the use of “their” oil in it. But we believe the modest initial procurement rate now contemplated and the NPR/SPR concept will preclude reductions in output. The DFSC and the SPR office are confident that there is sufficient administrative flexibility in the procurement process to avoid cargoes that might give rise to adverse foreign reactions during the first few months of SPR fill when attention will be focused on the program.

Christopher
  1. Source: National Archives, RG 59, Central Foreign Policy Files, D800377–1021. Confidential; Immediate. Drafted by J. Geocaris (DOE/IA); cleared by Twinam and in EB/IEP/EPC, E, ARA, EA/IMBS, EUR/RPE, DOE/IA, and DOE/S; and approved by Edward L. Morse (EB/IEP). Sent to Mexico, Port of Spain, Ankara, Athens, Bern, Bonn, Brussels, Canberra, Copenhagen, Dublin, Lisbon, Luxembourg, Madrid, Ottawa, Rome, Stockholm, The Hague, Tokyo, Vienna, Wellington, Lagos, Libreville, Quito, Jidda, Kuwait, Paris for the Embassy and USOECD, Abu Dhabi, Algiers, Doha, Caracas, Jakarta, and London.
  2. The Emergency Petroleum Allocation Act was signed by President Nixon on November 27, 1973, and President Ford extended the provisions of the act on September 25, 1975. (P.L. 93–159 and 94–99)