US Opens SPR in Coordinated International Response to Oil Disruptions

Flooded Gulf Coast
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The U.S. Department of Energy began a Presidentially-directed sale of approximately 30 million barrels of crude oil from the nation's Strategic Petroleum Reserve as part of an international effort to bolster oil supplies in the aftermath of Hurricane Katrina.

The action is part of a 26-nation effort coordinated by the International Energy Agency to help mitigate disruptions in the global flow of crude oil while efforts are underway to restore operations of offshore oil rigs and refineries along the hard-hit coastal regions of the southeastern United States.

The U.S. oil sale will represent half of the 60 million barrel stock withdrawal agreed to unanimously by the IEA nations.

The sale is in addition to the 12.6 million barrels of crude oil from the government's emergency oil stockpile that the Energy Department previously agreed to lend to six companies in exchange for oil to be returned later (see below).

To begin the competitive process of releasing oil from the Reserve, the Energy Department issued a Notice of Sale today.

Companies have until Friday, September 9, to submit offers for the oil. The department will award sales contracts to the companies that submit the highest bids for the crude and can provide the necessary letters of credit to guarantee the purchases. Half of the crude oil to be offered will be "sweet," or low-sulfur, crude oil while half will be slightly higher-sulfur, or "sour," crude.

Contracts are expected to be awarded no later than Friday, September 16. Crude oil could begin moving into the market as soon as companies make arrangements for its receipt and transportation.

The department has activated all four of its oil storage sites two in Louisiana and two in Texas for the oil deliveries. Oil from one of the Louisiana sites is already flowing to refineries under the previous exchange agreements.

Although crude oil from the Reserve has been released several times to counter supply shortfalls, most releases have been relatively small oil exchanges to alleviate shortfalls at individual refineries. This is only the second time a major oil release has been ordered by the President. The previous one, involving 17 million barrels, took place in 1991 at the direction of President George H.W. Bush following the beginning of Operation Desert Storm following Iraq's invasion of Kuwait.

The Strategic Petroleum Reserve currently has 700 million barrels of crude oil stored in deep underground salt caverns along the Texas and Louisiana gulf coast.

Summary of Oil Exchanges from the Strategic Petroleum Reserve

  • ExxonMobil has contracted for 6 million barrels, half sweet and half sour from the Bayou Choctaw storage site. Oil began flowing on Saturday, September 3;
  • Valero has contracted for 1.5 million barrels of sweet crude oil. Its oil will follow the initial flow to ExxonMobil;
  • Placid Refining has contracted for 1.0 million barrels of sweet crude from the Bayou Choctaw site. The oil will start flowing the week of September 4, at a rate of no more than 50,000 barrels per day;
  • ATI (Total) has contracted for 600,000 barrels of oil from the West Hackberry storage site (150,000 barrels of sweet crude and 450,000 barrels of sour crude). This oil began flowing on Friday, September 2;
  • BP has contracted for 2 million barrels of Bayou Choctaw sweet crude;
  • Marathon has contracted for 1 million barrels of sweet crude and 500,000 barrels of sour crude from the Bayou Choctaw site.
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