LeibyEtAl2015 ORNL - Drawdown Capability Study For DOE EPSA - Final - 20150414

Results of Drawdown Capability Benefits Study for DOE/EPSA
Paul Leiby1, David Bowman, Debo Oladosu, and Rocio Uria-Martinez

March 30, 2015
Abstract
The U.S. Strategic Petroleum Reserve (SPR) is a government-owned stockpile of
oil intended to provide surge supply during oil market supply emergencies.
Changing patterns of oil production and transport in the domestic market as well
as technical changes to the distribution infrastructure capabilities have made
achieving the full U.S. SPR design drawdown capability of 4400 MBD difficult.
Recent analysis shows that left unaddressed, the maximum draw and distribution
capability could be as low as 1200 MBD in some disruptions conditions. This
paper details a study of the economic benefits associated with maintaining higher
levels of SPR drawdown and distribution capability. The benefits estimates for
three potential disruption suggest that under a wide range of circumstances, the
total benefits of increasing the maximum drawdown and distribution capability
rate by 2000 MBD (from 1200 MBD to 3200) can result in tens to hundreds of
billions of dollars in savings, in the event of a large world oil supply disruption.
1.0 Introduction
The U.S. Strategic Petroleum Reserve (SPR) is a government-owned stockpile of oil intended to
provide surge supply during oil market supply emergencies.2 Much of the prior analysis of the
economic costs and benefits of this reserve (e.g. U.S. DOE/Interagency 1990, Leiby and
Bowman 2000a, 2000b, Leiby, Jones and Bowman 2000, GAO 2006, Leiby and Bowman 2007,
IEA 2012, Leiby et al. 2013) has focused on the uncertainty of world oil supply but treated the
availability of oil from the SPR during oil supply disruptions as completely assured. However,
changing patterns of oil production and transport in the domestic market as well as technical
changes to the distribution infrastructure capabilities have made achieving the full U.S. SPR
design drawdown capability of 4400 MBD difficult. Recent analysis shows that left
unaddressed, the maximum draw and distribution capability could be as low as 1200 MBD, in
some disruptions conditions.
Corresponding author: leibypn@ornl.gov

See http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve. Established in the aftermath of
the 1973-74 oil embargo, the SPR provides the President with a powerful response option should a disruption in
commercial oil supplies threaten the U.S. economy. It also allows the United States to meet part of its International
Energy Agency obligation to maintain emergency oil stocks, and it provides a national defense fuel reserve.
2
2
The following note details ORNLs limited study of the economic benefits associated with
maintaining higher levels of SPR drawdown and distribution capability3. Using the scenario
submodule of ORNLs BenEStock model, 4 the benefits of possible increases in SPR drawdown
capability are assessed under various world oil supply disruptions and other key assumptions.
The benefits (avoided costs) are calculated both with and without the currently maintained site
capabilities in order to estimate the value of increasing the draw and distribution capacity.
The results presented here depend upon assumptions regarding an inherently unstable oil market
and an uncertain future. Many factors such as U.S. net imports and world oil prices are
forecasted to change significantly over the next few years and these expected changes are
reflected in the analysis. In the most recent EIA Annual Energy Outlook,5 net petroleum imports
are expected to decline to 5 MMBD by 2015 and remain at lower levels for many years. This
decline in net imports is expected to reduce one component of benefits, the imports-cost
component, by roughly two-thirds. Despite these import reductions, the projected U.S. demand
for petroleum remains steady at around 19 MMBD. As such, the U.S. is still reliant on
petroleum and potentially sensitive to global price shocks. Projected real oil price levels are
projected to rise from $80 in 2015 to $125 by 2040 (AEO 2014 Base Case). Ceteris paribus,
higher real oil prices imply more costly disruptions and greater value to SPR drawdown
reliability, thereby increasing overall benefits. Higher base oil prices imply greater absolute
response to a disruption, increasing wealth transfer and the impact on GDP.
The drawdown benefits analysis considers possible disruptions to oil supply from four
historically unstable global regions. This analysis does not specify where the disruption came
from, or the likelihood of a particular disruption. Rather the disruption scenarios modelled here
are specified in terms of net disruption size (net of offsets) and length. Three disruption
scenarios are modelled; based on likely size/length combinations:
Large, Short Disruption: 6000 MBD Net Disruption for 3 Months, e.g. 60% of Saudi
Arabia, or 45% of Other Persian Gulf OPEC, or other.
Moderate, Long Disruption: 4500 MBD Net Disruption for 6 Months, e.g. 45% of Saudi
Arabia, or 40% of Other Persian Gulf OPEC, or other.
Small, Very Long Disruption: 3000 MBD Net Disruption for 12 Months, e.g. 35% of
Saudi Arabia, 30% of Other Persian Gulf OPEC, or other.
2.0 Analysis Method Updated BenEStock Model

The economic benefits from an improved drawdown capability are measured by comparing the
costs of future oil market disruptions under reduced SPR drawdown capability with the (lower)
3
While drawdown refers to the physical capability of the SPR to withdraw oil, distribution refers to the entire
process of providing oil from the SPR to the market. We use these terms interchangeably in this document.
4
Successor to the DIS-SPR and DIS-Risk models (DOE, 1990 and Leiby and Bowman, 2005).
5
U.S. EIA, Annual Energy Outlook 2014.
3
damages when an incremental 2000 MBD of drawdown capability is added. The difference is
the avoided costs or benefits of drawdown recovery capability.
In this study, this comparison is implemented using the scenario submodule component of
ORNLs BenEStock model, a simulation model for estimating the benefits of emergency oil
stocks. The BenEStock Model (IEA 2012, ORNL 2012, Leiby, 2015) is an enhanced version of
the DIS-SPR and DIS-Risk models used in prior SPR size and drawdown studies.6 It allows for
the reproduction of prior study results, while permitting extensions and the analysis of specific,
risk-related outcomes in a simulation or scenario-driven format.
BenEStock characterizes emergency stocks in terms of draw rate capabilities, stock sizes and fill
and refill rates. It can be used to look at individual disruption scenarios, or run in a Monte Carlo
risk analysis fashion to produce estimates of the expected benefit, expected frequency of
disruptions and use of emergency stocks, the probability of stock exhaustions, and the
probability distribution of economic benefits. For this study, selected scenarios were chosen to
deterministically illustrate a range of potential benefits across alternative SPR size/draw rate
configurations and management strategies.
See in particular the 1990 DOE/Interagency SPR Size Study (DOE 1990), and the 1999 ORNL study (Leiby and
Bowman, 1999).
INPUTS
Reference
Market
Conditions
Projected
Excess
Production
Capacity
Oil Supply
Disruption
Scenario Module
(Size and
Duration)
OUTPUTS
Current U.S. SPR

Draw (4,400
MBD): Market &
Economic
Post Disruption
Supply, Demand
& Price Levels
U.S.
Emergency Oil
Stock
Capabilities
BenEStock
Model
Reduced U.S.
SPR Draw (750
MBD): Market &
Economic
Post Disruption
Supply, Demand
& Price Levels
Non-U.S.
Emergency Oil
Stock
Capabilities
Response Module
(Price Elasticities
of Demand,
Supply, & GDP)
Combined U.S.
Benefits: GDP Loss
Avoidance Oil Import
Savings
Figure 1: Flow Diagram of the BenEStock Model
Inputs of the BenEStock model are illustrated in the green and red boxes of Figure 1 above.
Outcomes, including supply, demand, price, and GDP levels are shown in the yellow boxes.
Two world states are simulated side-by-side and benefits, costs, prices, etc. are calculated for
each state. The assumptions for each program, including draw rates, sizes, and behavior can be
specified separately resulting in net benefits or costs of policies or options. A comparison of the
net benefits between the scenarios then yields the value of a particular SPR configuration.
For the scenario analysis here, disruptions are assumed to occur in 2020, with a sensitivity case
of 2030. In any particular scenario (2020 or 2030), a disruption size and duration is defined.
First, OPEC spare capacity is used to mitigate the lost supply. Then, based on the scenario
description, a distribution strategy for reserves is used to mitigate the supply disruption. While
only the U.S. reserve is used in the default scenarios, non-U.S. reserves are allowed to mitigate
the supply disruption in the sensitivity cases.
Loss of supply is then translated into a price response. The price elasticity depends on several
factors, including the reference oil price, how long the disruption has lasted, and the size of the
disruption. Finally, the price shock is used to show GDP losses. Total losses due to the disruption
are the sum of GDP losses and wealth transfer as the disruption raises the price of imports.
5
Finally, the benefits of the SPR may be taken as the mitigated losses between configurations of
the SPR for identical scenarios.
Reference Market Conditions
The model requires a reference oil market which is used as a point of departure for simulating oil
market disruptions. Key factors in determining economic impacts include a projection of net
imports and the GDP growth. Other parameters are needed to translate market disruptions into
economic losses, such as the "GDP elasticity," which signifies the responsiveness of aggregate
production to changes in oil prices; and demand elasticities. Where possible, reference oil
market forecasts are drawn from the EIAs Annual Energy Outlook. Other reference market data
include gross domestic product for major net importing regions, GDP elasticities for net
importing regions (based upon historical data), world oil price, and regional world oil demand
and oil production.
Oil Supply Disruption

When the BenEStock model is used for Monte Carlo simulation, the riskiness of the oil market is
characterized by the probability, magnitude and duration of gross world oil supply disruptions
(prior to offsets). Disruption likelihoods used in a number of studies since 2005 have been based
on the 2005 Energy Modeling Forum (EMF) assessment. With changing world dynamics, this
assessment has been increasingly dated. As updating the oil market risk is well outside the scope
of this analysis, it was decided to present the benefits of the three disruption scenarios described
above without attempting to weight them by probabilities of disruption size and duration.
Projected Excess Production Capacity

Spare capacity considered in this model is restricted to OPEC countries. The availability of
future OPEC spare capacity is governed by a set of rules:
Assume spare capacity floor of 2 MMBD Saudi Arabia (Stelter, 2012) and 0.83 MMBD
Other OPEC (based upon historical average share).
In simulations, the base case assumption is that only 50% of Saudi Spare Capacity would
be available for drawdown (per discussions with IEA).
For year 2015, assume 2.8 MMBD of OPEC spare capacity (2 MMBD Saudi, 0.8 Other).
For 2016-2045, any assumed forecast reductions in OPEC supply initially become spare
capacity (production is reduced but production capacity is not). Note, declines in OPEC
supply are not normally forecasted in the AEO base cases (sometimes in the AEO high
oil price case).
Spare capacity above the floor is vintaged and scrapped at a 15% annual rate (85%
annual survival rate).
6
A figure showing the base case OPEC production (AEO 2014) and OPEC spare production may
be found in the Leiby et al. (2015).
U.S. and Non-U.S. Emergency Oil Stock Capabilities
The U.S. SPR and foreign emergency stockpiles are characterized by attributes including size,
various physical operational characteristics, and several categories of cost. While the model
may allow various sizes, this study varies the maximum drawdown and distribution capability of
the reserve while holding the size constant. The rates at which the reserves can be filled initially,
refilled in the event of a draw, and the size of a disruption are also specified parametrically.
Hand-in-hand with the maximum drawdown rate which the reserves may achieve in the event of
a disruption are the implicit rules governing when to draw and how much. The capital costs and
operating costs other than filling costs are specified for each year.
Emergency Oil Stock Sizes and Availability
The U.S. and other IEA countries holding emergency oil stocks are assumed to engage in
withdrawal action only if spare production capacity is not enough to offset simulated supply
disruptions to an acceptable level. More specifically, the net supply loss (after spare production
capacity has been utilized) must be above a pre-specified threshold (base case is 2 MMBD) to
trigger emergency stock releases. The cooperative use of other IEA stocks can either be assumed
simultaneous with the U.S., or to follow with a specified number of months delay. Both of these
assumptions are examined in this analysis.
IEA Emergency Stockholdings
Public stocks were approximately1.5 billion barrels, of which 697 are in the U.S., based on IEA
closing stock levels as of December 2011. Country-specific of stocks may be found in Leiby et
al. (2015). Projected emergency stock levels in the future are assumed to adjust with imports and
consumption levels, in accordance with current laws of member countries. A summary of the
country specific rules may be found in Leiby et al. (2015)
Forecasted levels of publicly-controlled stocks and obligated private industry stocks are
estimated using legislative information provided by various IEA documents. If no information
concerning future levels is available, 2011 stock levels are held constant throughout the model
horizon. These estimates use country-level consumption and net import forecasts from the EIAs
Annual Energy Outlook where available. When country-level forecasts were not available,
estimates were derived using country group forecasts and year 2011 country shares from the
EIAs International Energy Statistics tables.
Other Non-U.S. Stockholdings

Mandate industrial stocks were assumed not to be deployed in this analysis. Non-IEA emergency
stocks, while considerably large (mostly China and India) are not currently assumed to be
available for a coordinated emergency drawdown. In the future this may change as the IEA and
non-IEA partners continue to forge closer cooperation and agreements.
Emergency Oil Stock Drawdown Rates
In this study a drawdown threshold is applied, so that not all disruptions lead to stock draw. The
drawdown threshold value is 2.0 MBBL/d in the base case and variants are considered. Once the
threshold is exceeded, the drawdown rate is governed by the selected drawdown strategy. The
available strategies are:
Maximum Sustainable Rate: approximately equal to Reserve Size / Disruption Length

Maximum Rate: Max rate each reserve is technically capable of drawing at.
Maximum Rate for First 3 Months, Sustainable Thereafter
Delayed Drawdown (In combination with 1-3).
No Drawdown
The third strategy was suggested to us by the IEA as the preferable, most-likely approach. Given
uncertainty about disruption duration, initially, the available stocks are drawn down at the rate
necessary to fully offset the net shortfall, up to the maximum technically feasible rate. This
continues for the first 3 months. After 3 months, if the disruption persists and it becomes evident
that the disruption will last longer, it is assumed that the length is probably better-known, and the
drawdown slows to the maximum sustainable rate for the expected remaining duration of
disruption.
The U.S. design technical maximum drawdown rate is 4.4 MMBD. In the first few weeks of a
disruption, as the draw rate ramps up to the maximum level, that rate would be somewhat lower
(~3.4 MMBD). The currently achievable SPR drawdown rate may be limited by factors
including distribution constraints, in which case simulations can be performed for lower SPR
drawdown and distribution capability. The maximum rates for other IEA government-owned
emergency stocks are assumed to be rates which are capable of exhausting the reserves in 6
months.7 IEA obligated industry stocks, if available and drawn down, are thought to be
available sooner and at greater volumes, so are assumed to have a max draw rate equal to a 3
month exhaustion rate.
Efforts are underway to fully incorporate more realistic regional drawdown profiles based upon information
provided by the IEA. These draw rates tend to have greater surge capacity in the first few months.
8
Response Modules (price elasticities of demand and GDP)
Oil demand and supply elasticities determine the degree to which oil supply shocks (shortfalls)
translate into oil price increases. The smaller the elasticity (in absolute terms), the greater the
price increase. The literature on demand and supply elasticities displays only limited agreement
regarding short run elasticities, and offers very little guidance about the applicable elasticity of
demand for the unprecedentedly large supply losses and price increases that are contemplated
here. A brief review of the relevant literature may be found in Leiby et al. (2015).
Approach Used to Model Net Supply and Demand Response to Disruptions
Most of the assessments of elasticity refer to annual periods. However, disruption analysis
typically calls for modeling quarterly or even monthly response. Furthermore, studies usually are
only able to estimate a single (constant) elasticity regardless of the magnitude of price increase.
Using a constant elasticity framework for large oil shocks is problematic, because such
elasticities imply extremely high short run prices for large disruptions, yet supply and demand
behavior at very high prices is poorly understood.8
Following prior emergency stock studies (DOE 1990, Leiby and Bowman 2005, 2007) we
applied a variable elasticity for the market response to changing prices. As used, the elasticity
may be interpreted as a short-run elasticity of net world demand, that is, an elasticity of the net
response of demand and supply. It is widely accepted the short run demand and supply
elasticities are quite small, while longer-run elasticities, which may apply after a number of
years, are 4 to 10 times larger.
Apart from comparability to prior emergency oil stock studies, the approach has the primary
advantage that elasticities increase over the course of a disruption (reflecting the process of
slowly increasing adjustment over time to sudden price changes) and they also increase with the
magnitude of the disruption supply shortfall. The chosen functional form makes elasticity an
increasing function of both month and disruption size:
= + + +
Where:
t = initial demand elasticity for 0 month and 0 shortfall
Stm = Net Oil Shortfall (after offsets) in year t and month m
M = Month
and are monthly growth terms which cause the elasticities to increase over the course of a
disruption. Since elasticities grow with disruption size, the price response per million barrels per
day of supply loss declines as disruptions get increasingly large. This prevents prices from
For example, a short run (annual) net demand response elasticity or -0.10 would imply that a 20% loss of supply
would increase price by over 9-fold (to above $900) for the first year.
9
becoming arbitrarily large for very large disruptions, as would occur with a fixed short run
elasticity.
The values of and come from the EIA (EIA DIS 2002 and 2007). For the values of (initial
undisrupted elasticity) and (change in elasticity with time) we currently use two values, EIA
DIS 2002/07 and recent estimates by ORNL (2014). Recent (ongoing) research by ORNL and
others has suggested that oil demand has become less responsive to price in recent years. More
inelastic demand implies that supply shocks produce greater price changes (in percent change
terms) than in the past. It also means that emergency stocks drawn down to offset these supply
shocks have a greater effect on prices and therefore produce larger benefits. The alternative
demand elasticity case uses estimates provided by a meta-analysis, recently conducted by ORNL,
of dozens of demand elasticity studies.
The outcome of this approach is a set of time-varying elasticities. The base case and sensitivities
of the elasticities used in the study are shown in Table 1. These modeled base elasticity values
are comparable to many of the estimates in the literature briefly summarized above, or perhaps
on the larger side. Moreover, the variable elasticity framework moderates extreme and longer
lasting disruptions. All of this suggests that the base model specification may be somewhat
conservative about the price effect of disruptions, and stock drawdowns.
GDP Elasticities
Estimates of the GDP impact of oil shocks under the current study involve a direct relationship
between price implications and the gross domestic product of oil importing economies. This
approach can be described as a summary of the modeling of macroeconomic effects of the oil
supply shocks in the literature, but accounts for the direct and indirect effects on the economy.
Oil importing economies are classified into four groups: United States, IEA Europe, Other IEA
and Non-IEA. The change in regional GDP (RGDP) associated with an oil supply disruption,
RGDP, is calculated based on the estimated change in oil prices, P, as:
GDP,oilprice
RGDP RGDPref 1
1
Pref
The above equation requires estimates of the oil price-GDP elasticity of, GDP,oilprice, reference
RGDP and oil price, RGDPref and Pref, and the price change due to the oil disruption event, P.
Estimates of the oil price-GDP elasticity used in this analysis are shown in Table 1. Additional
information may be found in Leiby et al. (2015).
Alternative SPR Configurations and Benefits

Each SPR configuration is specified in terms of costs (capital, operations, and maintenance),
draw rate capabilities, reserve sizes, and fill and refill rates. For this study, the economic
benefits of four alternative configurations which differ only in the maximum rate at which oil
10
can be released and distributed were evaluated and compared. The current SPR distribution
capability is less than its prior maximum distribution capacity of 4400 MBD, but the actual
current distribution capability is situation-dependent. Therefore, two alternative base
configurations were analyzed, each of which was compared with a 2000 MBD increase in
distribution capacity. The first situation involves a recovery of draw and distribution capacity
from 1200 MBD to 3200 MBD. In the second situation a higher base distribution capability of
2000 MBD is raised to 4000 MBD. Each SPR drawdown configuration is subject to the same set
of hypothetical oil supply disruptions for scenario analysis. Oil supply disruptions are simulated
against reference (i.e. undisrupted) paths for oil prices, U.S. demands, U.S. supplies, and world
demands through the year 2042. Reference paths track low, base, and high oil price path cases
from the Annual Energy Outlook of the Energy Information Administration.9
3.0 Key Base Case and Sensitivity Model Assumptions

The table below summarizes the key model assumptions used in the analysis. Highlighted
sensitivity variables, for this analysis, are Demand Elasticity and GDP elasticity. All of the
results presented here are bracketed by the high/low benefit combinations of these two
elasticities. Other important sensitivity variables include:
Non-U.S. (other IEA) drawdown, specified in terms of either no draw or delayed draw
AEO 2014 Case
Disruption Year
Table 1: Key BenEStock Assumptions

Variable/Parameter
Description
Default Value
Sensitivity Option
Non-U.S.
Drawdown Delay
Number of months after

disruption until drawdown
by Non-U.S. emergency
reserves
Default is 24 month delay

(no use). This study is
primarily focused on
scenarios in which the U.S.
acts independently.
2-5 month delays considered.
U.S. Drawdown
Strategy
U.S. drawdown profile

during the disruption.
Current assumed strategy

is max draw (up to the
disruption size) for the first
3 months, sustainable draw
thereafter for the
remainder of the disruption
(IEA Study assumption).
Current assumed strategy

reflects one approach given
uncertainty about shock length.
Other choices Max draw (for as
long as possible) and
sustainable draw (requires
market foresight).
Years 2041 and 2042 are extrapolated.
11
Table 1: Key BenEStock Assumptions
Variable/Parameter
Description
Default Value
Sensitivity Option
AEO 2014 Oil

Market
Assumptions
Reference Oil market prices,

demands, supplies, and GDP
estimates.
AEO 2014 Base case.
AEO 2014 alternate projections

of low and high U.S. Liquid
Resources
Demand/Supply
Elasticity Choice
World and U.S. Demand

Elasticities.
Default is Range of demand elasticities used in 2012 study for

IEA and prior studies (derived from EIA/DIS 2002/7
approach) to smaller value from 2014 ORNL 2014 Meta
Analysis of Demand Elasticity.
Default Value #1
EIA/DIS 2002/7
0 MMB Loss
-0.08 after 1 month
-0.11 after 12 months,
-0.10 average over 12
months.
Default Value #2
ORNL 2014
0 MMB Loss
-0.05 first month,
-0.06 average over 12 months.
GDP Elasticity
U.S. GDP response to price

changes due to supply
shocks.
Default is Range based on distribution and mean values from

2012 study for IEA (supported by ORNL 2012 Meta
Estimate). Range used here is the endpoints of the 68%
Confidence interval around the mean.
Disruption Year
Severity of the net disruption

depends upon a confluence
of forecast variables,
disruption sizes, and reserve
drawdowns capabilities.
These variables change
yearly as will the benefits.
The disruptions simulated in
this study are assumed to
occur in a specific year.
Year 2020.
Year 2030.
Saudi Arabia %
Excess Capacity
Available
% of undisrupted Saudi
Arabian excess capacity
applied to disruptions.
50% (IEA Study

Assumption).
None specified for this analysis
Mandated
Industrial Stock
Availability (0100%)
If Non-U.S. IEA stocks

drawn down, what % of
European and Asian IEA
mandated industrial stock
will be available for
drawdown.
0%
None specified for this analysis
12
4.0 Results
4.1 Results for Expansion of Draw/Distribution Capability from 1200 MBD to 3200 MBD
The benefits estimates for three potential disruption sizes are given in Table 2 below. These are
also presented graphically in the Appendix. The results suggest that under a wide range of
circumstances, the total benefits of increasing the maximum drawdown and distribution
capability rate by 2000 MBD (from 1200 MBD to 3200) can result in tens to hundreds of billions
of dollars in savings, in the event of a large world oil supply disruption.
Table 2: High and Low Total Benefits (Billions $ Undiscounted)
For Draw/Distribution Rate Expansion from 1200 MBD to 3200 MBD
Note: High and Low values for each size/length/sensitivity combination is derived from upper
and lower Demand and GDP elasticity values assumed in the analysis.
Net Disruption Size (MBD)
6000
4500
3000
12
Base Case (without Foreign Draw)
$58 - $103
$111 - $213
$53 - $106
Foreign Draw (with 5 Month Delay)
$58 - $103
$49 - $89
$31 - $61
$21 - $36
$21 - $38
$19 - $37
AEO 2014 Lower U.S. Resources Case
$62 - $108
$117 - $222
$55 - $110
AEO 2014 Higher U.S. Resources Case
$49 - $90
$94 - $187
$45 - $94
$68 - $122
$131 - $253
$63 - $129
Net Disruption Length (Months)
2030 Disruption Year
Sensitivity cases with additional supplies of oil, such as Foreign Drawdown (after delay) or
assumed Higher U.S. Liquid Resources, result in lower total benefits across all of the assumed
size/length combinations. If correctly timed, the Foreign Drawdown can be an effective
complement to the U.S. response, in which case the benefits of additional SPR drawdown
capabilities are reduced for the disruptions sizes considered here. The reduction in benefits under
the Higher U.S. Resources case is modest, about 10% to 15%. Other sensitivities such as the
Lower U.S. Liquids Resources Case or 2030 disruption year lead to moderately higher, albeit
undiscounted, total benefits of draw and distribution capability expansion. The benefits are
presented in constant real dollars, but in undiscounted terms because we are only looking at the
effects of hypothetical disruptions in two specific years (2020 and 2030), and not discounting
back to the present and aggregating into a net present value.
13
4.2 Results for Expansion of Draw/Distribution Capability from 2000 MBD to 4000 MBD
Under some disruption conditions, depending on the pattern of domestic or imported flows
interrupted, the base drawdown and distribution capacity for the SPR could be higher, 2000
MBD rather than 1200 MBD. Table 3 shows the estimated range of benefits for increasing
maximum drawdown and distribution capability by 2000 MMB from this higher starting level,
that is, from 2000 MBD to 4000 MBD. Again these estimates are constructed for three potential
major disruptions in 2020 of varying sizes and durations.
As would be expected, in the particular base disruption case where the starting drawdown and
distribution capability is higher, the incremental benefits of greater capability are somewhat less.
In cases of a disruption lasting under one year (e.g. in the 3 and 6 month disruption cases), the
incremental benefits of a 2000-to-4000 MBD distribution capability increase are only modestly
lower (4%-19%) than those of the 1200-to-3200 increase. However, for a long disruption, the
optimal draw rate can be governed by the rate that exhausts the SPR. In the hypothetical 12
month event in Table 3, the incremental benefits of a faster drawdown could be zero, or even
slightly negative, if the U.S. must act alone for the entire disruption period. That is because, for
the 692 MMB SPR, the maximum sustainable rate over 12 months, i.e. the exhaustion rate, is 1.9
MMB.10 So in this particular situation of a long disruption, where the U.S. acts alone
throughout, there is less value to draw/distribution capability expansion. However, the results in
Table 3 also show that even in the long (12 month) disruption, if there is a non-U.S. strategic
reserve drawdown that joins that of the U.S. drawdown after a few months, the higher
distribution capability provided by a 2000-to-4000 MBD expansion could be worth tens of
billions of dollars by allowing a larger drawdown early in the disruption.
10
Given the modeled demand elasticity and price dynamics, the optimal drawdown strategy is an even,
sustainable rate over the course of the disruption. It is not generally possible to know the duration of a disruption at
its outset, although it may become clearer as the disruption progresses. So we currently model drawdown strategy
as Max draw rate for first 3 months, Sustainable rate thereafter. Therefore, increasing the maximum draw rate
capability from 2 MMBD to 4 MMBD allows the model to draw initially at greater than the 12 month average
sustainable rate, (frontloading the draw rate and causing a lower draw later during long sustained events that would
exhaust the SPR). In some events this could incur slightly lower benefits than the slower, but evenly-sustained
draw.
14
Table 3: High and Low Total Benefits (Billions $ Undiscounted)
For Draw/Distribution Rate Expansion from 2000 MBD to 4000 MBD
Note: High and Low values for each size/length/sensitivity combination is derived from upper
and lower Demand and GDP elasticity values assumed in the analysis.
Net Disruption Size (MBD)
6000
4500
3000
12
Base Case (without Foreign Draw)
$54 - $99
$97 - $192
$0*
$54 - $99
$41 - $79
$12 - $25
$17 - $29
$17 - $32
$10 - $21
Net Disruption Length (Months)
15
References
Leiby, Paul and David Bowman (2000a) The Value of Expanded SPR Drawdown Capability,
Oak Ridge National Laboratory, Final Report, October 18.
Leiby, Paul and David Bowman, (2000b) The Value of Expanding the U.S. Strategic Petroleum
Reserve, Oak Ridge National Laboratory, ORNL/TM-2000/179, January 23.
Leiby, Paul, David Bowman, and Donald W. Jones (2002) Improving Energy Security Through
an International Cooperative Approach to Emergency Oil Stockpiling, Proceedings of the 25th
Annual IAEE International Conference, June 26-29, Aberdeen, Scotland.
Leiby, Paul, David Bowman, Debo Oladosu, Rocio Uria-Martinez (2015). BenEStock Model
for SPR Analysis - Model Documentation, Oak Ridge National Laboratory, Revised Draft,
January 29.
Leiby, Paul, David Bowman, Debo Oladosu, Rocio Uria-Martinez, and Ken Vincent (2012)
Benefits of Emergency Oil Stocks, A Study of IEA Stocks and Benefits, Oak Ridge National
Laboratory, Reported prepared for the U.S. Department of Energy and the International Energy
Agency.
Leiby, Paul, David Bowman, Debo Oladosu, Rocio Uria-Martinez, and Ken Vincent (2013) The
Value of Strategic Oil Stocks Under Reduced U.S. Oil Imports, Presented at the meeting of the
U.S. Association for Energy Economics, July 29.
U.S. Department of Energy/Interagency Working Group (1990) Strategic Petroleum Reserve
Analysis of Size Options, DOE/IE-0016, February.
U.S. Government Accountability Office (2006) Strategic Petroleum Reserve: Available Oil Can
Provide Significant Benefits, but Many Factors Should Influence Future Decisions about Fill,
Use, and Expansion, Report to Congressional Requesters, GAO-06-872, August.
16
Appendix A. Detailed Results
Table A1: High and Low Benefits Components for the Base Case (Billions $ Undiscounted)
(for draw/distribution rate expansion from 1200 MBD to 3200 MBD)
Net Disruption
Size (MBD)
Net Disruption
Length (Months)
Net Import
Benefits
GDP Benefits
Total Benefits
6000
$23 - $30
$35 - $73
$58 - $103
4500
$39 - $54
$72 - $159
$111 - $213
3000
12
$17 - $24
$36 - $82
$53 - $106
World Oil Price (1200 v 3200 MBD Draw Capability)

6000 MBD Net Disruption Lasting 3 Months
$250
$225
$200
$2010/BBL
$175
$150
$125
$100
$75
U.S. Max Draw 1.20 MMBD: Lower World Demand Elasticity, Higher GDP Response to Price
U.S. Max Draw 1.20 MMBD: Higher World Demand Elasticity, Lower GDP Response to Price
$50
$25
$0
1
11
13
15
17 19 21
Month
23
25
27
29
31
33
35
17

$250
$225
$200
$2010/BBL
$175
$150
$125
$100
$75
$50
$25
$0
1
11
13
15
17 19 21
Month
23
25
27
29
31
33
35

$250
$225
$200
$2010/BBL
$175
$150
$125
$100
$75
$50
$25
$0
1
11
13
15
17 19 21
Month
23
25
27
29
31
33
35
18
World Oil Price Differential Range (1200 v 3200 MBD Draw

Capability): 6000 MBD Net Disruption Lasting 3 Months
$45
Lower World Demand Elasticity, Higher GDP Response to Price
$40
Higher World Demand Elasticity, Lower GDP Response to Price
$35
$2010/BBL
$30
$25
$20
$15
$10
$5
$0
1
11
13
15
17 19 21
Month
23
25
27
29
31
33
35

$45
$40
$35
$2010/BBL
$30
$25
$20
$15
$10
$5
$0
1
11
13
15
17 19 21
Month
23
25
27
29
31
33
35
19

$80
$70
$2010/BBL
$60
$50
$40
$30
$20
$10
$0
350
11
13
15
17 19 21
Month
23
25
27
29
31
33
35
U.S. Cumulative Total Benefits for 1200 v 3200 MBD Draw Capability:
300
Billions $2010
250
200
150
100
50
0
1
11
13
15
17 19 21
Month
23
25
27
29
31
33
35
20
250
U.S. Cumulative Total Benefits for 1200 v 3200 MBD Draw Capability:
Billions $2010
200
150
100
50

0
1
11
13
15
17 19 21
Month
23
25
27
29
31
33
35
U.S. Cumulative Total Benefits for 1200 v 3200 MBD Draw Capability
350
300
Billions $2010
250
200
150
100
50
0
11
13
15
17 19 21
Month
23
25
27
29
31
33
35
21
Appendix B: BenEStock Documentation
BenEStock Model for SPR Analysis

Model Documentation
Revised Draft 4.0

February 4, 2015
Paul Leiby, David Bowman, Debo Oladosu, and Rocio Uria-Martinez
Oak Ridge National Laboratory
xxiii
Table of Contents
1. INTRODUCTION, 1
2. DESCRIPTION OF THE BENESTOCK MODELING APPROACH, 2
2.1 Assumptions in the BenEStock Model, 2
2.1.1 Reference Market Conditions, 3
2.1.2 Oil Market Risk, 3
2.1.3 Spare Oil Production Capacity, 6
2.1.4 Emergency Oil Stock Capabilities, 9
2.1.4.1 Emergency Oil Stock Sizes and Availability, 9
2.1.4.2 Emergency Oil Stock Drawdown Rates, 14
2.1.5 Market Responsiveness (price elasticities of demand), 15
2.2 Net Benefit Estimation Approaches, 23
2.2.1 Monte Carlo Simulation Approach for Estimating 30-Year Benefits, 23
2.2.2 Scenario Analysis Approach for Estimating Benefits for a Single Selected Year, 24
3 COMPACT STATEMENT OF MODEL EQUATIONS, 24
1
1. INTRODUCTION
The BenEStock model is used to simulate the economic benefit of emergency stocks under
current and alternative configurations for a variety of sensitivity cases.11 BenEStock
characterizes emergency stocks in terms of draw rate capabilities, stock sizes and fill and
refill rates. It can be used to look at individual disruption scenarios, or run in a Monte Carlo
risk analysis fashion to produce estimates of the expected benefit, expected frequency of
disruptions and use of emergency stocks, the probability of stock exhaustions, and the
probability distribution of economic benefits. These distributions are generated using
thousands of sample iterations.
Oil supply disruptions are simulated against reference paths for oil prices, demands and
supplies. Reference oil market paths track the IEAs World Energy Outlook, New Policies
Scenario. Within each year over the model horizon (2013 to 2042), an oil supply disruption
may occur. The timing, size and the length of the disruption can be manually specified for
individual scenario analysis, or in a full Monte Carlo analysis disruptions are randomly
sampled from the underlying probability distributions. Disruption impacts are modeled on a
monthly basis, for up to 36 months after disruption onset with disruptions up to 18 months in
length.
This gross oil supply disruption is directly offset by two exogenously specified sources:
available spare world oil production capacity and short-run demand switching (generally very
small). If the net disruption after these offsets is greater than the specified drawdown
threshold level, the emergency stocks will coordinate action in an attempt to offset it.12
Drawdown rates and timing for each stock type (i.e. U.S. and other IEA public stocks and
obligated industry stocks) are limited by the specified technical maximum drawdown rate for
that year, the specified drawdown rule or strategy, and by the rate of exhaustion. After a
drawdown, the emergency stocks are assumed to be refilled at exogenously specified refill
rates.
The oil shortfall is calculated as the size of the remaining disruption after offsets and
emergency stock draw. If the oil shortfall is greater than zero, world oil price is affected.
Under the base case assumptions, we consider the possibility that market dislocation,
speculative behavior, or a risk premium will prevent stocks from completely eliminating the
price increase, even if the net disruption is fully offset by stocks. World oil price is
determined assuming that world demand responds to the price change (according to specified
net demand elasticities), non-OPEC supply is essentially fixed, and that the price increases
sufficiently for demand to accommodate the oil shortfall.
11
BenEStock is an enhanced version of the DIS-Risk model used by ORNL in prior SPR size and drawdown
studies. The DIS-Risk Model was a risk-analysis oriented implementation of the DIS-SPR model used in the
1990 DOE/Interagency SPR Size Study. It allowed for the reproduction of DOE90 study results, while
permitting extensions and the analysis of specific, risk-related outcomes. See in particular the 1990
DOE/Interagency SPR Size Study (DOE, 1990), 1999 ORNL study (Leiby and Bowman, 1999) and 2005 study
(Leiby and Bowman, 2005).
12
E.g. a drawdown threshold of 2 million barrels per day was used in the base case for the 2013 IEA study.
2
Oil price increases are then translated into economic costs to society. These costs are
composed of Gross Domestic Product (GDP) losses and net oil import costs.
We begin with a description of the model approach, summarizing the model, and including a
compact statement of its equations. Certain details are omitted from the text but included in
the appendices. The most important categories of model assumptions are identified.
2. DESCRIPTION OF THE BENESTOCK MODELING APPROACH

2.1 Assumptions in the BenEStock Model
There are six categories of parameters in the BenEStock model. The six key inputs for
estimating the strategic economic benefits of stockholding are:
Reference Market Conditions

Spare Oil Production Capacity
Emergency Oil Stock Capabilities
Oil Supply Disruption Likelihoods
Market Responsiveness (price elasticities of supply and demand)
Macroeconomic Sensitivity to Shocks (GDP elasticities)
INPUTS
Reference
Market
Conditions
Projected
Excess
Production
Capacity
Oil Supply
Disruption
Scenario Module
(Size and
Duration)
OUTPUTS
World State #1
Market &
Economic Post
Disruption
Supply, Demand,
& Price Levels
BenEStock
Model
World State #2
Market &
Economic Post
Disruption
Supply, Demand,
& Price Levels
Figure 2: Flow Diagram of the BenEStock Model.
Non -U.S.
Emergency Oil
Stock
Capabilities
U.S.
Emergency Oil
Stock
Capabilities
Response Module
(Price Elasticities
of Demand,
Supply, & GDP)
Combined U.S.
Benefits: GDP Loss
Avoidance Oil Import
Savings
3
Inputs of the BenEStock model are illustrated in the green and red boxes of Figure 2 above.
Outcomes, including the supply, demand, price and GDP levels are shown in the yellow
boxes. Two world states are simulated side-by-side and benefits, costs, prices, etc. are
calculated for each state. The assumptions for each program, including draw rates, sizes, and
behavior can be specified separately resulting in net benefits or costs of policies or options.
A comparison of the net benefits between the scenarios then yields the value of a particular
SPR configuration.
2.1.1 Reference Market Conditions

The beliefs about the future oil economy are characterized by the reference (undisrupted)
price and quantity paths for oil during the thirty-year period over which the model evaluates
the SPR. The model assumes reference oil market conditions to determine the undisrupted
market state which is used as a point of departure for simulating oil market disruptions. Net
imports (demand supply) and GDP are used to determine the magnitude of economic costs.
These assumptions also include parameters determining the economic response to an oil price
rise: the "GDP elasticity," which signifies the responsiveness of aggregate production to
changes in oil prices; and demand elasticities. Where available, reference oil market
forecasts are drawn from the EIAs Annual Energy Outlook. Reference market data include
gross domestic product for major net importing regions, GDP elasticities for net importing
regions (based upon historical data), world oil price, and regional world oil demand and oil
production.
2.1.2 Oil Market Risk

When the BenEStock model is used for Monte Carlo simulation, the riskiness of the oil
market is characterized by the probability, magnitude and duration of gross world oil supply
disruptions (prior to offsets). Naturally, these likelihoods are difficult to assess. Disruption
likelihoods can be entered based on available assessments, but a full expected-value analysis
requires probabilities distributions for the full range of sizes and durations of potential
disruptions. Disruption likelihoods used in a number of studies since 2005 have been based
on the 2005 Energy Modeling Forum (EMF) assessment.
The EMF 2005 Expert Panel study quantified oil disruption risks over the course of three
rounds of workshops, from 2004 to 2005. These workshops constituted a formal risk
assessment using the methodologies of decision analysis and influence diagrams. The focus
was on potential losses of supply from four key regions:
Saudi Arabia
Other Persian Gulf
West of Suez (a region including Nigeria, Venezuela, Mexico and others)
Russia and Caspian Region
The disruption probability assessment was based on the assessment of conditional event
sequences, that is, some supplier groups outcomes can depend conditionally on other supplier
outcomes. The assessment also explicitly considers disruption duration along with size
probability, so that there are conditional disruption size probabilities for each disruption
4
length. The disruption lengths considered range from less than 6 months to more than 18
months. The assessment also considered spare capacity, and the availability and likelihood of
spare capacity use depending on the disruption scenario. Even though the focus of the EMF
assessment was disruption risk for the next decade, these same risk probabilities (annualized)
were maintained for percentage shortfalls throughout the horizon of analysis. Information
from EIAs Annual Energy Outlook is used to project the evolving share of world supply met
by each of the regions at risk.
The BenEStock Disruption Risk Characterization includes:
4 supply regions at risk corresponding to the EMF2005 focus regions

3 disruption lengths (taken as 3, 12 and 18 months), not equally probable
EMF 2005 Discrete disruption probabilities by size (as percentage of supply), distinct
for each region and conditional on disruption length.
Uniform distribution of +/-10% around the discrete EMF disruption size. Converts
the disruption probabilities from discrete to semi continuous, avoiding issues with
arbitrarily missing threshold boundaries while maintaining the EMF expected values.
EIA midcase projections of world spare production capacity broken out by region.
Each regions spare capacity is available if that region is undisrupted, unavailable
otherwise.13
To reflect that disruption risk might rise or fall as supply becomes more or less concentrated
in volatile regions, disruption sizes are specified as percentage losses of supply from various
regions.
13
This is slightly more optimistic than the EMF 2005 assessment, which identified some other conditions under
which spare capacity may not be made available.
5
Table B1: EMF 2005 Discrete disruption probabilities
Saudi Arabia
0% of
Production
50.47%
21.59%
23.39%
95.45%
20% of Production
2.74%
0.43%
0.21%
3.38%
50% of Production
0.62%
0.13%
0.07%
0.83%
90% of Production
0.22%
0.07%
0.06%
0.35%
0% of
Production
32.30%
44.56%
14.07%
90.92%
20% of Production
4.48%
2.78%
0.13%
7.38%
50% of Production
0.82%
0.74%
0.06%
1.63%
90% of Production
0.03%
0.03%
0.00%
0.07%
Other Persian Gulf

0% of
Size/Length
Production
3 Months
33.67%
12 Months
28.00%
18 Months
26.79%
Any Length
88.46%
20% of Production
7.62%
1.80%
0.61%
10.03%
50% of Production
0.78%
0.39%
0.19%
1.35%
90% of Production
0.09%
0.05%
0.03%
0.16%

0% of
Size/Length
Production
3 Months
86.87%
12 Months
7.96%
18 Months
2.51%
Any Length
97.35%
20% of Production
2.16%
0.03%
0.00%
2.18%
50% of Production
0.46%
0.01%
0.00%
0.47%
90% of Production
0.00%
0.00%
0.00%
0.00%
Size/Length
3 Months
12 Months
18 Months
Any Length
West of Suez
Size/Length
3 Months
12 Months
18 Months
Any Length
The combination of the semi-continuous, independent EMF-based regional probabilities allows

for an unlimited number of possible market states of various sizes and lengths. However, as
expected, of the multiple outcomes, 0% production loss is the most common, occurring
approximately 75% of the time.
The figure below gives the cumulative probability distribution for gross disruptions (prior to
offsets) for the year 2020. As the figure shows, the most common events are relatively small
production losses from the Other Persian Gulf region or a small West of Suez disruption. Russian
and Caspian region disruptions are the least common with zero loss occurring more than 97% of
the time. Specific regional events can occur individually or in combination, each for various
6
lengths. 94% of all disruptions are 4% or less of world supply and 99% of disruptions are 10% of
or less.
30%
Saudi Arabia
Probability of Disruption >= X%
25%
Other Persian Gulf

West of Suez
20%

Total At Risk Supply
15%
10%
5%
0%
0%
5%
10%
15%
20%
X% of Year 2020 World Supply

Figure 3: Disruption Probability Distribution for Year 2020. Sizes are for gross disruptions (prior to excess
capacity and emergency stocks), and probability given is the likelihood of a disruption greater than or equal
to that size (survival function form).
2.1.3 Spare Oil Production Capacity

In BenEStock, the initial response mechanism to an oil supply disruption is the output increase
by other producers with spare capacity. More specifically, the spare capacity considered in this
model is restricted to OPEC countries. Within the cartel, three different subregions are
considered (Saudi Arabia, Other Persian Gulf and West of Suez).
When possible, the BenEStock model inputs are derived from the EIAs Annual Energy Outlook.
Unfortunately, neither the AEO nor the EIAs International Energy Outlook forecasts spare oil
production capacity.14 For the key swing producer in OPEC, Saudi Arabia, this study assumes
14
For years the IEA estimated future spare oil production capacity but this feature was discontinued in 2007 with the
advent of a new IEO modelling approach.
7
an effective spare capacity floor of two MMBD (Stelter, 2012), consistent with other long-term
forecasted values cited elsewhere.15
Shares of OPEC spare capacity by OPEC sub-region are derived from historical data published
in the IEA Oil Market Report (OMR). Effective OPEC Capacity is defined as unused capacity
that can be accessed within 30 days and sustained for 90 days. It excludes spare capacity in
disrupted countries. Figure A-2 combines the historical and historical average (2009-2013)
shares of effective OPEC spare production capacity.
90%
80%
70%
60%
50%
40%
Saudi Arabia
Other Persian Gulf
West of Suez
2009-2013 Average
2009-2013 Average
2009-2013 Average
30%
20%
10%
0%
Figure 4: Shares of Effective OPEC Spare Production Capacity
15
E.g. U.S. EIA International Energy Outlook (2011) and Dourian (2011): "Saudi Arabia will continue with its
current plan to maintain spare production capacity at levels between 1.5 and 2.0 million barrels per day." (EIA's
International Energy Outlook 2011, p. 35); and "'Given that the kingdom has total production capacity of 12.5
million b/d, of which 72% is currently being exploited, actual production to end 2030 will be maintained at this
assumed level within this available capacity,' he added. 'This will be enough to meet anticipated production (to
satisfy both export and local demand requirements) while maintaining through this period spare capacity that will
reach 1.7 million b/d by 2030, within the kingdom's declared aim of maintaining spare capacity of 1.5-2 million b/d,'
Moneef said."(Dourian, 2011)
The availability of future OPEC spare capacity is governed by a set of rules:

Assume spare capacity floor of 2 MMBD Saudi (Stelter, 2012) and 0.83 Other-OPEC
(Historical Average Share).
In simulations, base case assumption is that only 50% of Saudi Spare Capacity available
for drawdown (per discussions with IEA).
For year 2015, assume 2.8 MMBD of OPEC spare capacity (2 MMBD Saudi, 0.8 Other).
For 2016-2045, any assumed forecast reductions in OPEC supply initially become spare
capacity (production is reduced but production capacity is not). Note, declines in OPEC
supply are not normally forecasted in the AEO base cases (sometimes in the AEO high
oil price case).
Spare capacity above the Floor is vintaged and scrapped at a 15% annual rate (85%
annual survival rate).
The base case OPEC production (AEO 2014) and OPEC spare production capacity are given in
the figure below.
70
60
MMBD
50
40
30
Spare Production Capacity
Production
20
10
0
2015
2020
2025
2030
Year
2035
Figure 5: OPEC Production and Spare Production Capacity, Base Case.
2040
2045
9
2.1.4 Emergency Oil Stock Capabilities
The U.S. SPR and foreign emergency stockpiles are characterized by attributes including size,
various physical operational characteristics, and several categories of cost. The current and
target reserve sizes for the SPR can be varied in the model. The rates at which the reserves can
be filled initially, refilled in the event of a draw, and drawn down in the event of a disruption
also are specified parametrically. Hand-in-hand with the maximum draw-down rate which the
reserves may achieve in the event of a disruption are the implicit rules governing when to draw
and how much. An additional parametric constraint in the model is a time path of maximum
reserve capacity for each year across the time horizon. The capital costs and operating costs
other than filling costs also are specified for each year.
2.1.4.1 Emergency Oil Stock Sizes and Availability

The U.S. and other IEA countries holding emergency oil stocks are assumed to engage in
withdrawal action only if spare production capacity is not enough to offset simulated supply
disruptions to an acceptable level. More specifically, the net supply loss (after spare production
capacity has been utilized) must be above a pre-specified threshold (base case is 2 MMBD) to
trigger emergency stock releases. The cooperative use of other IEA stocks can either be assumed
simultaneous with the U.S., or to follow with a specified number of months delay. Cases where
non-U.S. stocks are unavailable or unused may also be evaluated.
IEA Emergency Stockholdings

Public IEA stocks for end of year 2011 are presented in Figure 5, based on IEA closing stock
levels as of December 2011. Projected emergency stock levels in the future are assumed to adjust
with imports and consumption levels, in accordance with current laws of member countries, as
summarized in Table 2.
10
800
700
600
MMB
500
400
300
200
100
United States
Japan
Germany
France
Korea, South
Spain
Netherlands
Belgium
Czech Republic
Ireland
Finland
Hungary
Poland
Portugal
Denmark
Slovakia
New Zealand
Australia
Austria
Canada
Greece
Italy
Luxembourg
Norway
Sweden
Switzerland
Turkey
United Kingdom
Figure 6: Year 2011 IEA Public Emergency Stocks
Forecasted levels of publicly-controlled stocks and obligated private industry stocks are
estimated using legislative information provided by various IEA documents. If no information
concerning future levels is available, 2011 stock levels are held constant throughout the model
horizon. The table below contains detailed information on legislated public and private
emergency stockholdings for each country.
11
Table B2: Legislated Public and Private Emergency Stockholdings
Note: IEA commitment is roughly equivalent to 90 days of net imports. EU commitment is
approximately 90 days of consumption of the 3 main products (gasoline, middle distillates, and
fuel oils).
Country
Public Stock Estimate
Obligated Private Stock Estimate
100 days of oil imports of 3 EU product
Austria
0 MMB
categories
28 MMB Starting Value. Max
Belgium
EU and IEA commitments
0 MMB (No Obligation)
Czech Republic
15 MMB
8 MMB Starting Value. 81 days
consumption of 3 EU product
categories. 70% held by
81 days consumption of 3 EU product
Stockholding Association (Public categories. 70% held by Stockholding
Denmark
Stock).
Association (Public Stock).
Finland
10 MMB
60 Days of Net Imports
98.5 days consumption of 3 Main 98.5 days consumption of 3 Main
Products using 75/25
Products using 75/25 Public/Private
France
Public/Private Split.
Split.
182 MMB Starting Value. Max
EU and IEA commitments, no
Germany
Industry Stocks.
0 MMB (No Industry-Held Stocks)
Industry Obligation of 90 days of Net
Greece
0 MMB
Imports of 3 EU product
Max of EU and IEA
Hungary
Commitments
Max of EU and IEA
Ireland
Commitments
Italy
0 MMB
Max of IEA and EU Commitments
Luxembourg
0 MMB
Max of IEA and EU Commitments
Netherlands
31 MMB
4.4 MMB
20 days of oil domestic consumption of 3
Norway
0 MMB
EU product categories.
Max of IEA and EU
Commitments. 90 Days of
Max of IEA and EU Commitments. 90
Consumption of 3 Main Products Days of Consumption of 3 Main
with 76/14 Day Public/Private
Products with 76/14 Day Public/Private
Split + 30 days of Industry
Split + 30 days of Industry Obligated
Poland
Obligated LPG Storage.
LPG Storage
12
Table B2: Legislated Public and Private Emergency Stockholdings
Note: IEA commitment is roughly equivalent to 90 days of net imports. EU commitment is
approximately 90 days of consumption of the 3 main products (gasoline, middle distillates, and
fuel oils).
Country
Public Stock Estimate
Obligated Private Stock Estimate
Max of IEA and EU
Commitments. Public Agency
Holds remainder IEA/EU
commitments after Industry
Max of IEA and EU Commitments.
Obligations. Equal to 30% (27
Industry Obligations equal to 70% (63
Portugal
Days).
Days).
Max of IEA and EU
Slovakia
Commitments.
Max of EU and IEA
Commitments, 50/50
Max of EU and IEA Commitments,
Spain
Public/Private split
50/50 Public/Private split
Max of 91 days of consumption of 3
main products and 91 days of net
Sweden
0 MMB
imports.
135 days of imports for gasoline, diesel
and heating oils; 90 days of jet fuel
Switzerland
0 MMB
imports
Turkey
0 MMB
90 days of Net Imports
Max of EU 67.5 days of supply for
refineries and 58 days of net imports for
importers, and IEA 90 Day Import
United Kingdom 0 MMB
Commitment.
Australia
0 MMB
Canada
0 MMB
Japan
324 MMB
230 MMB
Korea, South
90 MMB
40 Days of Consumption (All Products).
New Zealand
1 MMB
United States
692 MMB
Forecasted estimates of IEA emergency stocks are summarized in the figures below. These
estimates use country-level consumption and net import forecasts from the EIAs Annual Energy
Outlook where available. When country-level forecasts were not available, estimates were
derived using country group forecasts and year 2011 country shares from the EIAs International
Energy Statistics tables.
Non-IEA emergency stocks, while considerably large (mostly China and India) are not currently
assumed to be available for a coordinated emergency drawdown. In the future this may change
as the IEA and non-IEA partners continue to forge closer cooperation and agreements.
13
1,800
1,600
1,400
MMB
1,200
1,000
IEA Non-Europe, Non U.S.

United States
800
IEA Europe
600
400
200
Year
Figure 7: IEA Public Oil Stocks (MMB)
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
14
1,200
1,000
MMB
800
IEA Non-Europe, Non U.S.
600
United States
IEA Europe
400
200
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
Year
Figure 8: IEA Obligated Industry Oil Stocks (MMB)
2.1.4.2 Emergency Oil Stock Drawdown Rates

For this study, except in selected sensitivity cases, the results presented apply a drawdown
threshold so that not all disruptions lead to stock draw. The drawdown threshold value is 2.0
MMBD in the base case and variants are considered. Once the threshold is exceeded, the
drawdown rate is governed by the selected drawdown strategy. The available strategies are:
Maximum Rate: Max rate each reserve is technically capable of drawing at.
Maximum Rate for First 3 Months, Sustainable Thereafter
Delayed Drawdown (In combination with 1-3).
No Drawdown
The third strategy was suggested to us by the IEA as the preferable, most-likely approach. Given
uncertainty about disruption duration, initially, the available stocks are drawn down at the rate
necessary to fully offset the net shortfall, up to the maximum technically feasible rate. This
continues for the first 3 months. After 3 months, if the disruption persists and it becomes evident
that the disruption will last longer, it is assumed that the length is probably better-known, and the
drawdown slows to the maximum sustainable rate for the expected remaining duration of
disruption.
15
The U.S. design technical maximum draw down rate is 4.4 MMBD. In the first few weeks of a
disruption, as the draw rate ramps up to the maximum level, that rate would be somewhat lower
(~3.4 MMBD). The currently achievable SPR drawdown rate may be limited by factors
including distribution constraints, in which case simulations can be performed for lower SPR
drawdown and distribution capability. The maximum rates for other IEA government-owned
emergency stocks are assumed to be rates which are capable of exhausting the reserves in 6
months.16 IEA obligated industry stocks, if available and drawn down, are thought to be
available sooner and at greater volumes, so are assumed to have a max draw rate equal to a 3
month exhaustion rate.
2.1.5 Market Responsiveness (price elasticities of demand)

Oil demand and supply elasticities determine the degree to which oil supply shocks (shortfalls)
translate into oil price increases. The smaller the elasticity (in absolute terms), the greater the
price increase.
Estimates of Short-run Elasticity from the Literature

The literature on demand and supply elasticities displays only limited agreement regarding short
run elasticities. It offers very little guidance about the applicable elasticity of demand for the
unprecedentedly large supply losses and price increases that are contemplated here. Many recent
surveys suggest quite low short run elasticities of supply and demand. Atkins and Jazayeri
(2004) survey estimates of short-run oil demand elasticity, and report values from -0.0 to 0.11.
Cooper (2003) estimates the short run elasticity of demand for 23 OECD countries with results
between 0.0 (or slightly positive) and -0.109, with a mean result of -0.046. Smith (2009) obtains
similar results for world regions. There are fewer studies of short-run supply elasticity, although
the estimates are generally even smaller. Brown and Huntington (2010) recently assessed the
evidence in preparation for modeling oil supply shocks and selected a midpoint world demand
elasticity of -0.055 (range of 0.02 to 0.09) and a short-run elasticity of oil supply midpoint
value of 0.05 (range 0.025 to 0.075). These are separate demand and supply elasticities, and they
also noted that short run income elasticity of demand, coupled with the reduction in income from
price increases, can augment short-run global demand response. Combining supply, demand, and
income effects to estimate the net demand elasticity, they selected a midpoint annual elasticity of
0.136 to find the overall price response needed to close the gap between production and
consumption that is created by a production disruption. (Brown and Huntington 2010:14)
One other very recent estimate of global demand and income elasticities is provided by the
International Monetary Fund (2011). This report estimates quite small future oil demand
16
Efforts are underway to fully incorporate more realistic regional drawdown profiles based upon information
provided by the IEA. These draw rates tend to have greater surge capacity in the first few months.
16
elasticities, particularly for non-OECD regions.17 Median short-run demand elasticities for
OECD countries are -0.025 (with a narrow 80% confidence interval of -0.035 to -0.015). They
conclude the demand in Non-OECD countries is even less elastic, and the increasing importance
of Non-OECD demand means that global oil demand elasticity is declining.18 The combined
short-run demand elasticity for OECD and Non-OECD oil importing countries is estimated at 0.019 (range -0.028 to -0.009). Even including the income and supply responses, this suggests a
very low net response elasticity to disruptions.
Approach Used to Model Net Supply and Demand Response to Disruptions

Most of the assessments of elasticity refer to annual periods. However, disruption analysis
typically calls for modeling quarterly or even monthly response. Furthermore, studies usually are
only able to estimate a single (constant) elasticity regardless of the magnitude of price increase.
Using a constant elasticity framework for large oil shocks is problematic, because such
elasticities imply extremely high short run prices for large disruptions, yet supply and demand
behavior at very high prices is poorly understood.19
Following prior emergency stock studies (DOE 1990, Leiby and Bowman 2005, 2007) we
applied a variable elasticity for the market response to changing prices. As used, the elasticity
may be interpreted as a short-run elasticity of net world demand, that is, an elasticity of the net
response of demand and supply. It is widely accepted the short run demand and supply
elasticities are quite small, while longer-run elasticities, which may apply after a number of
years, are 4 to 10 times larger.
Apart from comparability to prior emergency oil stock studies, the approach has the primary
advantage that elasticities increase over the course of a disruption (reflecting the process of
slowly increasing adjustment over time to sudden price changes) and they also increase with the
magnitude of the disruption supply shortfall. The chosen functional form makes elasticity an
increasing function of both month and disruption size:
= + + +
Where:
t = initial demand elasticity for 0 month and 0 shortfall
Stm = Net Oil Shortfall (after offsets) in year t and month m
M = Month
17
See IMF 2011, Tables 3.1 3.3. Original Source - IMF staff calculations.
The growing importance of emerging market economies appears to have reduced world oil demand price
elasticity (in absolute terms) and increased income elasticity. (IMF 2011 pp. 94-95).
19
For example, a short run (annual) net demand response elasticity or -0.10 would imply that a 20% loss of supply
would increase price by over 9-fold (to above $900) for the first year.
18
17
and are monthly growth terms which cause the elasticities to increase over the course of a
disruption. Since elasticities grow with disruption size, the price response per million barrels per
day of supply loss declines as disruptions get increasingly large. This prevents prices from
becoming arbitrarily large for very large disruptions, as would occur with a fixed short run
elasticity.
The values of and come from the EIA (EIA DIS 2002 and 2007). For the values of (initial
undisrupted elasticity) and (change in elasticity with time) we currently use two values, EIA
DIS 2002/07 and recent estimates by ORNL (2014). Recent (ongoing) research by ORNL and
others has suggested that oil demand has become less responsive to price in recent years. More
inelastic demand implies that supply shocks produce greater price changes (in percent change
terms) than in the past. It also means that emergency stocks drawn down to offset these supply
shocks have a greater effect on prices and therefore produce larger benefits. The alternative
demand elasticity case uses estimates provided by a meta-analysis, recently conducted by ORNL,
of dozens of demand elasticity studies. Year 2020 World average values for 0 and 10 MMBD
losses are given in the tables below. Estimates are also available for other regions and years.
Year 2020 Average World Demand Elasticities for Various Months and Shortfall Levels
EIA/DIS 2002/7
0 MMB Loss
-0.08 after 1 month
-0.11 after 12
months,
-0.10 average over
12 months.
EIA/DIS 2002/7
10 MMB Loss
-0.13 after 1 month
months.
ORNL 2014
0 MMB Loss
-0.05 first month,
months.
ORNL 2014
10 MMB Loss
-0.10 first month,
months.
These modeled base elasticity values are comparable to many of the estimates in the literature
briefly summarized above, or perhaps on the larger side. Moreover, the variable elasticity
framework moderates extreme and longer lasting disruptions. All of this suggests that the base
model specification may be somewhat conservative about the price effect of disruptions, and
stock drawdowns. Further sensitivity analysis of this issue is merited.
2.1.6 GDP Elasticities

Estimates of the GDP impact of oil shocks under the current study involve a direct relationship
between price implications and the gross domestic product of oil importing economies. This
approach can be described as a summary of the modeling of macroeconomic effects of the oil
supply shocks in the literature, but accounts for the direct and indirect effects on the economy.
Oil importing economies are classified into four groups: United States, IEA Europe, Other IEA
and Non-IEA. The change in regional GDP (RGDP) associated with an oil supply disruption,
RGDP, is calculated based on the estimated change in oil prices, P, as:
18
GDP,oilprice
RGDP RGDPref 1
1
Pref
The above equation requires estimates of the oil price-GDP elasticity of, GDP,oilprice, reference
RGDP and oil price, RGDPref and Pref, and the price change due to the oil disruption event, P.
Estimates of the oil price-GDP elasticity are derived from the literature as described below.
Overall approach
There is a considerable amount of empirical research on the GDP effects of crude oil price
shocks. These studies have identified several mechanisms and channels through which crude oil
price changes impact the economy. Prominent among these are reallocations of expenditures on
goods and services within the economy, frictions in capital and labor market adjustments,
reductions in capacity utilization rates, difficulty in adjusting prices, monopolistic behavior,
inflationary effects, and responses by the monetary authorities. In general, these studies have
identified a non-linear and asymmetric, but stable, oil price-GDP relationship in the historical
data using measures that reflect the sudden or surprise nature of oil price shocks (e.g. Jimenez
and Sanchez, 2009). Studies on the GDP effects of crude oil price shocks account for these
factors in different ways, and the approach taken depends on the underlying modeling
framework.
Models in the literature can be categorized into three broad groups: structural and non-structural
econometrics, and general equilibrium models. Structural econometric models are represented by
large macro-econometric models such as the IMF Multimod and the Global Insight models,
whereas non-structural econometric models include a wide range of studies based on empirically
estimated single- and multi-equation specifications. These models are typified in the oilmacroeconomy literature as Vector Auto-Regression (VAR) models. Lastly, general equilibrium
models are economy-wide modeling frameworks that include computable (applied) general
equilibrium (CGE/AGE) and dynamic stochastic general equilibrium (DSGE) models. The
DSGE models are less detailed than CGE models, but stochastic dynamics is a basic feature that
gives them some resemblance to VAR-type models. In addition to the above factors and
modeling approaches studies in the literature differ in the frequency and date covered by the
data, and many other specification choices. Finally, most of the existing studies in the literature
are for developed economies, whereas the current study requires estimates of the GDP impacts of
oil price changes for oil importing economies that include more than 160 nations. The overall
approach employed for estimating the oil price-GDP elasticity from the existing literature
involves the following steps:
Review of the latest literature on estimates of the GDP impacts of oil price
changes.
Estimation of the oil price-GDP elasticity based on the literature survey.
19
For the IEA countries, we calculated the oil price-GDP elasticities using country
estimates from the literature. We implemented an approach for estimating the oil
price-GDP elasticity for the non-IEA group, which includes almost 140 net oil
importing economies.
Literature review
A search of the recent literature identified about 100 recent papers related to the GDP impacts of
oil price changes. There are two basic criteria for estimating oil price-GDP elasticities from these
studies:
The study must include simulation(s) of the effects of oil shocks on the economy.
The study must present numerical information on the size of the oil price change, and
estimates of the GDP effects or other information to evaluate these variables. These are
required to convert GDP impacts to elasticity values comparable across studies.
Many of the identified studies satisfy the first criterion, but not the second. Ultimately, we found
14 recent studies that met the two criteria.
Alessandro Cologni and Matteo Manera (2008) Oil Prices, Inflation and Interest Rates in
a Structural Cointegrated VAR Model for the G-7 Countries, Energy Economics, 30,
856888.
Makena Coffman (2010) Oil price shocks in an island economy: an analysis of the oil
price-macroeconomy relationship, Ann Reg Sci, 44:599620, DOI 10.1007/s00168-0080271-6.
Marcelo Snchez (2011) Oil Shocks and Endogenous Markups: Results from an
Estimated Euro Area DSGE model, Int Econ Policy, 8:247273 DOI 10.1007/s10368010-0159-7.
Surender Kumar (2009) The Macroeconomic Effects of Oil Price Shocks: Empirical
Evidence for India, Economics Bulletin, 29(1), 15-37.
Luis J. lvarez, Samuel Hurtado, Isabel Snchez, Carlos Thomas (2010), The Impact of
Oil Price changes on Spanish and Euro Area Consumer Price Inflation, Economic
Modelling, 28, 422431.
Lutz Kilian (2007) A Comparison of the effects of exogenous oil supply shocks on output
and inflation in the G7 countries. Journal of the European Economic Association, 6 (1),
78-121.
Levent Aydin, Mustaf Acar (2011) Economic impact of oil price shocks on the Turkish
economy in the coming decades: A dynamic CGE analysis, Energy Policy, 39, 1722
1731.
Limin Dua, Yanan He, Chu Wei (2010) The relationship between oil price shocks and
Chinas macro-economy: An empirical analysis. Energy Policy, 38, 41424151.
Gert Peersman, Ine Van Robays (2011) Cross-country differences in the effects of oil
shocks, Energy Economics (In Press).
20
Christian Lutz, Bernd Meyer (2009) Economic Impacts of Higher Oil and Gas Prices:
The role of International Trade for Germany, Energy Economics, 31, 882887.
Iikka Korhonen, Svetlana Ledyaeva (2010) Trade Linkages and Macroeconomic Effects
of the Price of Oil, Energy Economic, 32, 848856.
Katsuya Ito (2010) The Impact of Oil Price Hike on the Belarusian Economy, Transit
Stud Rev, 17:211216, DOI 10.1007/s11300-010-0140-8.
Ana Gmez-Loscos, Antonio Montas, M. Dolores Gadea (2011) The Impact of Oil
Shocks on the Spanish Economy, Energy Economics, 33, 10701081.
We collected the following information from each study as available:
Region(s) covered by the study.

Type and size of the simulated oil price shock.
Frequency of the data which are generally month, quarter or annual.
Type of economic impact reported, which is typically the GDP effect. Some
studies report impacts on industrial production, rather than GDP.
Estimates of the GDP effects of simulated oil shocks and the length of time since
the beginning of the oil shock. We also noted whether the reported GDP effects
are cumulative over the elapsed period or point/average values.
Almost 160 different estimates representing 22 countries/regions, and a combination of the

factors identified above, were collected from the 14 studies. We computed the implied
elasticities by dividing the percentage change in GDP by the percentage change in price. The
resulting elasticities were then annualized using information about the data frequency, the length
of time since the start of the shock, and whether the study provided cumulative/non-cumulative
estimates. We categorized the estimates for each country into low, mean and high values to
account for the influence of the multitude of factors identified above. We attempted to separate
these estimates into short-run, medium-run, and long-run based on whether the length of time
since the start of the shock is less than or equal to 4 quarters, between 4 and 12 quarters, and
longer than 12 quarters, respectively. We also examined the data period represented by the
different studies. Most studies cover the period from 1980 to 2004, and a few included dates as
far back to 1970 and/or up to 2010. Given this, it was impossible to associate a time dimension to
these oil price-GDP elasticities. Figure A-10 illustrates the resulting estimates.
21
15%
Percent (%)
10%
5%
0%
-5%
Canada
France
Germany
Italy
Japan
UK
USA
Hawaii
Euro Area
India
Spain
Turkey
China
Switzerland
Australia
Norway
OPEC
Russia
Netherlands
Finland
Belgium
Belarusia
-10%
High
Low
Mean
Figure 9: Estimates of the Annualized Oil Price-GDP Elasticity from Recent Literature
Regression Analysis of the Oil Price- GDP Elasticity from Recent Literature
We implemented a model-based approach for extending estimates of the oil price-GDP
elasticities from the literature to countries/regions with no data, mainly the non-IEA economies.
We interpreted the elasticity values, GDP,oilprice, obtained from the literature as cross-sectional
data and specified a linear regression of the following form:
GDP,oilprice i i X i
n
Where: Xi and i are variables to explain differences in the value of the elasticities across
countries, and their associated coefficients, respectively.
The explanatory variables, Xi, in this equation are the energy intensity of GDP, oil share of
energy use, and import share of oil use. A limited set of variables was necessary given that our
cross-sectional data includes only 22 countries. These three variables were selected based on a
review of the literature on the determinants of vulnerability to oil price shocks in oil importing
economies (World Bank 2005, Gupta 2008). This literature suggested several indicators,
including the energy intensity of GDP, oil share of energy use, import share of oil use, per capita
22
GDP, as well as other supply and market indicators. Data to estimate the model was collected
from the World Development Indicators database (World Bank, 2012) and the EIA International
Energy statistics (EIA, 2012). These were used to test different versions of the equation before
settling on the above three variables. Given the short- to medium-run nature of the estimates of
the GDP impacts to be generated under the IEA study, we excluded data representing estimates
for periods longer than 24 months after the initial oil shock in the final version of the equation.
We fitted the equation separately to the mean, low and high estimates of the oil-GDP elasticities
from the literature. Despite this systematic approach the limited degree of freedom in the data
and the meta-data nature of the dependent variable (oil price-GDP elasticities) mean that this
equation is best interpreted as an interpolation, rather than an econometric model.
The final oil price-GDP elasticities were generated for four regional groups as follows:
For the three IEA sub-regions (United States, Europe-IEA, and Other IEA) we relied on
the estimates obtained from the literature. The regional oil price GDP elasticities were
computed as the 2005 GDP weighted averages of the individual country estimates.
The oil price-GDP elasticity for the non-IEA group was computed by adjusting the GDPweighted average elasticities for the IEA countries using the following formula:
non IEA
GDP
,oilprice
non IEA
GDP
,oilprice
IEA
GDP
,oilprice
IEA
GDP
,oilprice
Where: and stand for the literature- and regression-based GDP weighted elasticities,
respectively.
The resulting estimates used for simulations of the GDP impacts of oil shocks under the current
study are presented in Figure A-11. The mean estimate for the United States has the highest
magnitude with a value of -2.4% followed by the non-IEA estimate at about -2.3%. The mean
estimate for the EU-IEA and Other-IEA are about the same at -1.0 and -1.3%, respectively. The
low to high range of the estimates differ significantly across the four regions. The United States
has the narrowest range of -3.5% to -1%, whereas the Other-IEA group has a range of -4.1% to 0.2%.
23
2%
1%
0%
Percent (%)
-1%
-2%
-3%
-4%
-5%
-6%
-7%
United States
Other IEA
IEA Europe
Non IEA
High-Simple Average
Low-Simple Average
Mean-Simple Average
High-GDP Weighted
Low-GDP Weighted
Mean-GDP Weighted
Figure 10: Simple and GDP-weighted Average Oil Price-GDP Elasticities by Region
2.2 Net Benefit Estimation Approaches

Currently two benefit estimation methods are available in the BenEStock model. Benefits can be
estimated using Monte Carlo Simulations involving thousands of iterations or unique states of
the world or estimated using scenario analysis where the user can specify the values of a large
number of inputs thereby construct a world state and estimate the accompanying market
outcomes, benefits and costs
2.2.1 Monte Carlo Simulation Approach for Estimating 30-Year Benefits

Expected net benefits and other relevant variables can be estimated using Monte Carlo type
simulations. For each iteration, probabilistic disruption sizes and durations (3 to 18 months) are
sampled for the four at-risk supply regions, for every year over the roughly 30-year horizon.
Market outcomes for each year along this sample time path are calculated based on the random
events and stockpile responses. Output values, including benefits, are collected. A simulation
comprises thousands (typically 10,000 -20,000) of such iterations. This allows the determination
of expected values and confidence intervals around those average outcomes. The probabilistic
24
outcomes or input values can be stored and used for additional simulations, allowing for more
controlled comparisons across sensitivity cases.
2.2.2 Scenario Analysis Approach for Estimating Benefits for a Single Selected Year
BenEStock Scenario Analysis uses the same model equations but rather than simulating the
disruptions using probability distributions, the user can customize a disruption to their
specification (but still could, theoretically, reproduce one of the iterations from the simulation.
The user specifies the disruption for any given year by selecting:
disrupted region or regions,

gross disruption size (or sizes if multiple regions are disrupted),
length(s),
and year (only one year can be disrupted at a time).
Additionally, the user can specify other reference and disrupted market conditions including:
GDP Elasticity
Demand Elasticity
Oil Price Path (AEO version)
U.S. SPR Size
U.S. SPR Draw Down Rate Capability
Other IEA Stock Availability (expressed as draw rate capability and delay)
And others.
The results for each scenario are displayed graphically and in tabular form. The results include,
oil shortfalls across months, disrupted price paths, disrupted demand paths, remaining SPR sizes,
GDP losses and Net Import cost paths, etc.
3. COMPACT STATEMENT OF MODEL EQUATIONS

Our purpose in this section is to present the essential features of the DIS-Risk model, in the form
of a compact statement of model equations. In this summary description, we omit certain fine
points, such as the details of monthly model behavior, or what happens in the case of multiple
simultaneous or successive disruptions.
In each period, reference levels of oil price, world demand, and U.S. supply and demand are
assumed: Pr(t), Dwr(t), Sur(t), and Dur(t). The market is subjected to a either a specified
disruption scenario or a random gross disruption of size g(t), which follows either the EMF
semi-continuous distribution or Weibull distribution, e.g.:
25
()
100~(, )
()
1.
The exogenously assumed potential offsets So(t) (slack production capacity, and demand
switching) are applied to the gross disruption to yield the random net disruption size n(t):
() = { () (), 0}
2.
The SPR stocks (and other stocks if available) are applied to this net disruption, using the
specified drawdown rule. For example, below the drawdown rule calls for full offset up to the
maximum draw capability of the reserves, SSPRmax + SOthermax. The uncertain level of remaining
supply loss after drawdown is termed the net shortfall, sf(t):
}
() = min{ (),
+
() = max{ () , 0}
3.
The maximum draw from the reserves is a function of both the drawdown rate capabilities and
the achieved size of the reserves, Qi(t) (i = SPR, Other). The achieved size of the reserves
depends on the history of fills, refills and draws:
() = (0) + [ () ()]
=0
4.
The unaccommodated net shortfall in month m determines the disruption price of oil P(sf,t,m),
as world demand contracts along a variable elasticity of demand curve by the amount of the
shortfall:
1
( ,,)
( , , ) = (
)
()
5.
where elasticity varies with year t, disruption size , and month after disruption m:
(, , ) = + + +
6.
Paul N. Leiby
Oak Ridge National Laboratory
P.O. Box 2008
Oak Ridge, TN 37831-6205
(865) 574-7720
For each demand region, the costs of disruption are determined as a function of the disrupted oil
price, with essentially two components:
= {
0 = 0
(( )) + (( ))
7.
Where:
= (( ) ) ( (( ) )
( )
(( )) = [1 (
) ]
8.
are increased imports costs and GDP adjustment costs.

For each demand region, the net costs of emergency reserve activity and oil disruptions are
calculated for each period as the reserve net revenue minus the costs of the disruption Cd minus
any capital costs of oil expansion Ck, discounted by the discount factor (t):
() = {( , )[ () ()] ( , ) ()}()
9.
For the U.S., these discounted net costs are cumulated across years for each of the two SPR
programs considered in a single model run.20 The expected difference between the two programs
is reported as NPV, discounted with discount factor :
=
= [(, 2 ) (, 1 )]
10.
=0
Thus the benefits of one SPR program versus another are the avoided costs of disruptions and the
net benefits are those avoided costs net of SPR incremental construction, operation, and oil costs.
20
Depending upon the focus of the study, other demand regions could be included in the NPV equation as well.
References
Atkins Frank J. and S.M. Tayyebi Jazayeri (2004) A Literature Review of Demand Studies in
World Oil Markets, by Frank J. University of Calgary, Dept of Economics Discussion Paper
2004-07, April.
Brown, Stephen P A, and Hillard G Huntington (2010) Reassessing the Oil Security Premium,
RFF Discussion Paper Series, no. RFF DP 10-05, doi:RFF DP 10-05.
Cooper (2003) Price elasticity of demand for crude oil: estimates for 23 countries OPEC
Review, March.
Dourian (2011) Saudi Arabia sees output at 10.8 million b/d by 2030, Platts, April 20.
Gupta (2008) Oil vulnerability index of oil-importing countries, Energy Policy, 36, 1195
1211.
International Monetary Fund (IMF) Research Department (2011) World Economic Outlook,
Tensions from the Two-Speed Recovery Unemployment, Commodities, and Capital Flows,
April.
Jimnez-Rodrguez R. and Sanchez M. (2009) Oil shocks and the macro-economy: a
comparison across high oil price periods, Applied Economics Letters 16(16).
Leiby, Paul and David Bowman (1999) The Value of Expanding the U.S. Strategic Petroleum
Reserve, Oak Ridge National Laboratory, July 19.
Leiby, Paul and David Bowman, 2000a The Value of Expanded SPR Drawdown Capability,
Oak Ridge National Laboratory, Final Report, October 18.
Leiby, Paul and David Bowman, 2000b The Value of Expanding the U.S. Strategic Petroleum
Reserve, Oak Ridge National Laboratory, ORNL/TM-2000/179, January 23.
Leiby, Paul and David Bowman (2005) Economic Benefits of Expanded Strategic Petroleum
Reserve Size or Drawdown Capability, Oak Ridge National Laboratory, ORNL/TM-2006/5,
December 31.
Leiby, Paul and David Bowman (2007) Potential Costs of Diminished Drawdown Capability
from the Strategic Petroleum Reserve, and the Value of Site Protection and Recovery
Capability, Oak Ridge National Laboratory, November 8.
Smith, James (2009) World Oil: Market or Mayhem?, Journal of Economic Perspectives,
23(3), 145-64.
Stelter, Jan (2012) Discussion on IEA BenEStock Study Assumptions, May.
27
Stelter, Jan (2012) IEA Public Stock and Maximum Drawdown Data, file - IEA
pubstocks_maxdraw (From IEA_Stelter2012_03_12).xls.
U.S. Department of Energy/Interagency Working Group, 1990 Strategic Petroleum Reserve
Analysis of Size Options, DOE/IE-0016, February.
United States Energy Information Administration (2011) International Energy Outlook,
DOE/EIA-0484(2011), September.
United States Energy Information Administration (2012) International Energy statistics,
http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm.
World Bank (2005) The Vulnerability of African Countries to Oil Price Shocks: Major Factors
and Policy Options - The Case of Oil Importing Countries, Energy Sector Management
Assistance Program (ESMAP), Report No. 308/05.
World Bank (2012) 2011 World Development Indicators Database,
http://data.worldbank.org/data-catalog/world-development-indicators.
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Results of Drawdown Capability Benefits Study for DOE/EPSA

Paul Leiby1, David Bowman, Debo Oladosu, and Rocio Uria-Martinez

Corresponding author: leibypn@ornl.gov

2.0 Analysis Method Updated BenEStock Model

Current U.S. SPR

Figure 1: Flow Diagram of the BenEStock Model

Oil Supply Disruption

Projected Excess Production Capacity

Other Non-U.S. Stockholdings

Maximum Sustainable Rate: approximately equal to Reserve Size / Disruption Length

Alternative SPR Configurations and Benefits

3.0 Key Base Case and Sensitivity Model Assumptions

Table 1: Key BenEStock Assumptions

Number of months after

Default is 24 month delay

2-5 month delays considered.

U.S. drawdown profile

Current assumed strategy

Current assumed strategy

Years 2041 and 2042 are extrapolated.

AEO 2014 Oil

Reference Oil market prices,

AEO 2014 Base case.

AEO 2014 alternate projections

World and U.S. Demand

Default is Range of demand elasticities used in 2012 study for

U.S. GDP response to price

Default is Range based on distribution and mean values from

Severity of the net disruption

50% (IEA Study

None specified for this analysis

If Non-U.S. IEA stocks

None specified for this analysis

Base Case (without Foreign Draw)

Foreign Draw (with 5 Month Delay)

Foreign Draw (with 2 Month Delay)

AEO 2014 Lower U.S. Resources Case

AEO 2014 Higher U.S. Resources Case

Net Disruption Length (Months)

2030 Disruption Year

Base Case (without Foreign Draw)

Foreign Draw (with 5 Month Delay)

Foreign Draw (with 2 Month Delay)

Net Disruption Length (Months)

World Oil Price (1200 v 3200 MBD Draw Capability)

World Oil Price (1200 v 3200 MBD Draw Capability)

World Oil Price (1200 v 3200 MBD Draw Capability)

World Oil Price Differential Range (1200 v 3200 MBD Draw

Lower World Demand Elasticity, Higher GDP Response to Price

Higher World Demand Elasticity, Lower GDP Response to Price

World Oil Price Differential Range (1200 v 3200 MBD Draw

Lower World Demand Elasticity, Higher GDP Response to Price

Higher World Demand Elasticity, Lower GDP Response to Price

World Oil Price Differential Range (1200 v 3200 MBD Draw

Lower World Demand Elasticity, Higher GDP Response to Price

Higher World Demand Elasticity, Lower GDP Response to Price

Higher World Demand Elasticity, Lower GDP Response to Price

Lower World Demand Elasticity, Higher GDP Response to Price

Lower World Demand Elasticity, Higher GDP Response to Price

Higher World Demand Elasticity, Lower GDP Response to Price

Appendix B: BenEStock Documentation

BenEStock Model for SPR Analysis