Naval Petroleum Reserve: Limited Opportunities Exist to Increase Revenues From Oil Sales in California
RCED-94-126
Published: May 24, 1994. Publicly Released: May 25, 1994.
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Highlights
Pursuant to a congressional request, GAO provided information on Naval Petroleum Reserve (NPR) oil sales, focusing on whether: (1) NPR oil sales to Gulf Coast and mid-continent refiners would increase government revenues and result in higher prices for the remaining NPR oil in California; (2) there are barriers that impede the shipment of NPR oil to refiners; (3) the Department of Energy (DOE) can sufficiently determine the adequacy of NPR oil prices; and (4) alternatives exist to enhance government revenues.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Energy | In order to maximize opportunities to enhance revenues to the government from the sale of NPR oil, the Secretary of Energy should direct DOE to seek an alternative to the index it currently uses to establish and adjust prices for NPR oil that reflects enough transactions to yield a reliable price and is not subject to manipulation. |
DOE has abandoned the thin Line 66/ANS index and has adopted a dual-index approach--WTI and Posting--which it used for the first time during the September 1995 sales. 10,000 barrels per day were sold using WTI under a 2-month contract, while the remaining was sold using Posting under a 6-month contract. It plans to compare revenue results under both methods and select one with the greater potential.
|
| Department of Energy | In order to maximize opportunities to enhance revenues to the government from the sale of NPR oil, the Secretary of Energy should direct DOE to conduct the required analysis to ascertain whether small refiners have adequate alternative sources of crude oil before granting them preference in the purchase of NPR oil. |
The U.S. Government sold the Naval Petroleum Reserve at Elk Hills on February 5, 1998, to Occidental Petroleum Corporation for $3.65 billion. As a result, this oil and gas field is no longer owned by the federal government or managed by the Department of Energy. Consequently, this recommendation is no longer relevant.
|
| Department of Energy | In order to maximize opportunities to enhance revenues to the government from the sale of NPR oil, the Secretary of Energy should direct DOE to consider changing its billing practice to conform to standard industry practice, which requires payment on the 20th day of the month following delivery and performance guarantees from buyers that pose a credit risk. |
DOE has changed its billing practices from weekly to a monthly billing cycle.
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| Department of Energy | In order to maximize opportunities to enhance revenues to the government from the sale of NPR oil, the Secretary of Energy should direct DOE to take steps to market NPR oil more aggressively, such as establishing a marketing presence in California and contracting prospective buyers regularly to educate them on the NPR sales process and the logistics of transporting NPR oil. |
DOE has hired two marketing specialists to help market NPR oil in California, and is making significant revisions to marketing procedures and documents.
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Crude oil pipeline operationsDomestic crude oilEnergy suppliesFuel salesMicroeconomic analysisOil importingOil resourcesPetroleum industryPetroleum pricesPetroleum refining facilities