DOE signs new leases with terminal operators for New England heating oil reserve

The US Department of Energy said it will sign new leases with the same storage terminal operators that currently manage the government's 2 million bbl Northeast Home Heating Oil Reserve.

By OGJ editors

WASHINGTON, DC, July 30 -- After reviewing industry bids this summer, the US Department of Energy said it will sign new leases with the same storage terminal operators that currently manage the government's 2 million bbl Northeast Home Heating Oil Reserve.

Leases will be signed with Motiva Enterprises LLC, Morgan Stanley Capital Group Inc., and Amerada Hess Corp.

DOE originally negotiated 1-year leases with the companies in 2000 and subsequently exercised 1-year extensions. This time, the department will sign 1-year leases with options to extend them for up to 4 years.

Amerada Hess currently maintains 1 million bbl of the government's heating oil reserve at Woodbridge, NJ, in the New York Harbor area; Morgan Stanley holds 500,000 bbl at the Williams Energy Services terminal in New Haven, Conn.; and Motiva maintains terminals at New Haven and Providence, RI, each with 250,000 bbl of emergency fuel oil.

Reserve context
On July 10, 2000, then-President Bill Clinton directed Energy Sec. Bill Richardson to establish a 2 million bbl home heating oil reserve in an effort to cushion US Northeast consumers from sudden supply interruptions caused by weather or market conditions.

Policymakers reasoned that 2 million bbl would give Northeast consumers adequate supplies for about 10 days, the time required for ships to carry heating oil from the Gulf of Mexico to New York Harbor.

"The Northeast is heavily dependent upon imports. During the winters of 1996 and 1999-2000, the Northeast experienced record low inventories of distillate, in part the result of crude oil price instability," DOE officials said in July 2000. "There were also reports of imminent outages, record high spot wholesale prices for distillates, and retail prices that went as high at $2.50/gal for heating oil."

The reserve stockpile has yet to be released although the current administration under President George W. Bush remains committed to maintaining inventory in the event oil is needed, DOE officials said.

When the reserve was established, DOE said the cost of commercial storage facilities would fluctuate with market conditions. These costs historically average $3.60/bbl/year, about equal to $7.2 million/year for 2 million bbl of capacity.

DOE boosting SPR fill rate
Seperately, the Bush administration said it is boosting the rate at which it is filling the Strategic Petroleum Reserve, the nation's emergency oil stockpile.

In a plan announced last November, DOE is exchanging oil produced from federal leases in the Gulf of Mexico for SPR oil that is stored for emergency protection against future supply disruptions. Since May, about 60,000 b/d from the offshore tracts has been exchanged for oil going into the SPR. Now, in a request for bids issued June 26, DOE plans to increase the royalty-in-kind (RIK) exchange program by an additional 40,000 b/d.

"More oil in the reserve is more energy insurance for American consumers," Energy Sec. Spencer Abraham said. "And the faster we can add oil to the reserve, the more energy security we can provide for all Americans."

President Bush has pledged to fill the SPR to its full 700 million bbl capacity. Using the RIK program, DOE said the government can meet the president's goal by 2005 without using taxpayer dollars to buy oil on the open market. The reserve currently holds about 580 million bbl of crude oil in deep salt caverns along the Texas and Louisiana coasts.

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