Washington (Platts)--1Mar2012/454 pm EST/2154 GMT

The US government on Thursday pushed back against a prominent analyst's argument that major shifts in pipeline flows have left the country's emergency oil stockpile unable to quickly inject supplies into the market when needed.

Ed Morse, Citi Group's managing director and global head of commodity research, said last year's sale of 30.6 million barrels of stockpiled crude demonstrated the Strategic Petroleum Reserve's increasingly limited takeaway capacity.

Morse questioned the stockpile's response rate as talk of high oil and gasoline prices dominates political debates in Washington, leading some lawmakers to demand that President Barack Obama sell SPR crude.

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The salt caverns along the US Gulf Coast were built in the 1970s, another era for the US pipeline network, when imported crude flowed north from the coast into markets in the middle of the country. Now that pipelines have reversed flows to carry booming US oil production south, Morse argues that the SPR cannot react as quickly as the government contends.

"Now logistics require mostly seaborne exports, and port congestion impedes tanker loadings at SPR terminals such that the oil cannot be brought out at any more than one-seventh of the planned rate into pipelines," Morse said this week in a Financial Times column.

The Department of Energy, which manages the emergency reserve, disputed Morse's calculations and said the agency "is confident that, if needed, it could effectively react to a situation requiring the movement of 4.25 million b/d."

The agency recently dropped its earlier maximum flow rate of 4.4 million b/d because one storage tank used for loading vessels needed repairs.

"The department conducts routine and thorough analysis of commercial distribution capabilities to ensure accurate assessments," an agency official said Thursday on the condition of anonymity.

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Energy Secretary Steven Chu and Treasury Secretary Tim Geithner have said the national oil stockpile remains an option for responding to market disruptions that could spring from tensions between the West and Iran.

The US tapped the reserve last year as part of the International Energy Agency's coordinated drawdown of 60 million barrels of crude and refined products to replace an estimated 2 million b/d of Libyan crude kicked off the market during that country's civil war.

The pace of US deliveries ranged from 500,000 b/d to 865,000 b/d in July and August, according to weekly summaries posted on DOE's website.

That rate satisfied Valero, spokesman Bill Day said Thursday. The refining giant bought 6.9 million barrels, almost a quarter of the release.

DOE said no conclusions about growing infrastructure constraints should be drawn from last year's delivery rates.

"This was an intentionally targeted release of light sweet crude to counteract the specific and unique effects of the Libyan situation at the time," the agency said. "The targeted release and distribution worked as intended."

Morse said in an interview that the only way he sees the SPR achieving a 4.25 million b/d release rate is if all import traffic stops. Otherwise, tanker congestion will slow any future drawdowns.

"It's a logistics problem," he said of last year's delivery rate. "They had to locate vessels because they couldn't put it in pipelines."

Successful bidders in last year's sale elected to pick up about 23 million barrels, more than 75% of the release, on vessels. Another 7.4 million barrels, or 24%, flowed into pipelines and 150,000 barrels got barged out, according to an analysis of the bids.

The SPR now contains 695.9 million barrels, about 62% sour and 38% sweet, held in caverns in Texas and Louisiana.

While the reserve sits about 31.1 million barrels below capacity, it contains more than the 90 days of net imports required for membership in the IEA, the organization of oil-consuming countries formed in the 1970s to confront OPEC. Based on December's net petroleum imports, the US would need about 667 million barrels to satisfy the requirement.

Oil analyst Philip Verleger, however, argues the US should exclude Canadian and Mexican imports in that calculation, given the extreme unlikelihood that those supplies would disappear amid international conflict.

On that basis, the SPR holds as much as 300 million surplus barrels, Verleger said.

On whether the Obama administration will tap the stockpile this year, Citi's Morse predicted: "I can't imagine they're not, but what do I know?"

Kevin Book, managing director of ClearView Energy Partners, said continuing high prices make another SPR sale possible this year. "Last year's draw did attenuate prices for a period of time," he said in a report.

--Meghan Gordon, meghan_gordon@platts.com

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