By OGJ editors
WASHINGTON, DC, Aug. 9 -- The US Minerals Management Service Friday said it expects federal royalty oil to play a larger role in the Bush administration's effort to fill the Strategic Petroleum Reserve by 2005. Officials predicted that royalty in-kind oil volumes dedicated to the SPR will increase to 130,000 b/d in 2003; up from the expected 100,000 b/d levels first announced by the Department of Energy last week (OGJ, Aug. 5, 2002, p.27).
"Should this occur, both agencies will issue new solicitations for the additional volumes," MMS said.
Under the program MMS takes oil royalties in-kind, rather than cash, from offshore federal lease operators and delivers it to onshore market centers; DOE then takes custody of the oil. The agency then exchanges that RIK oil for crude better suited for the SPR stockpiles in Louisiana and Texas.
Since May, about 60,000 b/d from the offshore tracts has been exchanged for oil going into the SPR. In a request for bids issued June 26 DOE said it planned to increase the RIK exchange program by an additional 40,000 b/d.
Last February ChevronTexaco Corp., Equiva Trading Co., ExxonMobil Corp., and Williams Cos. Inc. each received 1-year term contracts to exchange seven packages of offshore royalty oil in return for delivery at Gulf Coast market centers of similar quantities of crude oil to the DOE (OGJ Online, Feb. 8, 2002)
In a coordinated two-phase contracting effort, DOE also announced its award of a single contract to exchange crude oil delivered by MMS under those four contracts for similar quantities of oil to be used to fill the SPR sites.
This month, MMS announced the award of 2 additional contracts to ChevronTexaco and Equiva for a 6-month term to exchange 38 packages, including about 44,000 b/d of offshore royalty oil. Koch Supply & Trading Co. will perform the exchange for DOE. It will receive the crude oil at the market centers and deliver "in-kind" crude to the SPR. DOE said that actual volumes arriving at the SPR are adjusted to account for transportation and quality differentials. Deliveries will begin in Oct and run through next April.
MMS said that combined with existing contracts, wellhead volumes involved in the project are expected to reach 104,000 b/d starting in October.
DOE officials say about 108 million bbl will be needed to fill the SPR to its current 700 million bbl capacity.
