update: US DOE reveals details of proposed heating oil reserve
US President Bill Clinton Monday ordered the Department of Energy to establish a temporary 2 million bbl northeastern US home heating oil reserve by October. DOE has now revealed further details of the planned reserve.
WASHINGTON, DC�US President Bill Clinton Monday ordered the Department of Energy to establish a temporary 2 million bbl northeastern US home heating oil reserve by October (OGJ Online, July 10, 2000). DOE has now revealed further details about the planned reserve.
DOE said the distillate reserve would be located at no more than four sites in the Northeast US.
It said New England states are dependent on imports for 45% of demand, while New York and New Jersey are 20% dependent. The Energy Policy and Conservation Act limits a distillate reserve to the sum of the three highest continuous months of imports within a 2-year qualifying period, so for the New England states, the maximum inventory would be 12 million bbl, and for New York and New Jersey, it would be 7.8 million bbl.
DOE says a 2 million bbl regional distillate reserve will provide relief from weather-related shortages for about 10 days, the time needed for ships to bring heating oil from Gulf of Mexico refineries to New York harbor.
It said, "The reserve would not be a significant deterrent to the creation of commercial inventories on which consumers must rely." The American Petroleum Institute offered a different opinion, however, stating that the stock build would prevent refiners from rebuilding much-needed gasoline inventories (see earlier story).
DOE said it would contract for storage at privately-owned commercial facilities.
"Preference will be given to storage facilities with the greatest distribution flexibility. While the ability to move the distillate by pipeline, barge, and ship will be highly desirable, it is critically important that the storage facility have access for trucks."
DOE will require the distillate to be rotated occasionally, because it will be will be stored in surface tanks subject to temperature changes, air contact, and bacteria.
It said the cost of commercial storage facilities will fluctuate with market conditions. "These costs historically average $3.60/bbl per year, which would equal $7.2 million/year for 2 million bbl of capacity." It said that, allowing for market conditions, transportation, exchange costs, and management expenses, the reserve will cost about $8 million/year.