DOE nets more revenues for SPR assets

The U.S. Energy Department continues to press efforts to convert Strategic Petroleum Reserve assets into revenues. DOE has signed agreements with two pipeline companies to sell or lease Strategic Petroleum Reserve oil pipelines and a government-owned marine terminal. Meanwhile, DOE has approved the sale of 1.47 million bbl of oil from the Strategic Petroleum Reserve for $33 million. DOE will sell its 67-mile, 36-in. Weeks Island pipeline to Louisiana Intrastate Gas Co., Alexandria, La., for $22

Nov. 4, 1996

3 min read

The U.S. Energy Department continues to press efforts to convert Strategic Petroleum Reserve assets into revenues.

DOE has signed agreements with two pipeline companies to sell or lease Strategic Petroleum Reserve oil pipelines and a government-owned marine terminal.

Meanwhile, DOE has approved the sale of 1.47 million bbl of oil from the Strategic Petroleum Reserve for $33 million.

Pipeline deals

DOE will sell its 67-mile, 36-in. Weeks Island pipeline to Louisiana Intrastate Gas Co., Alexandria, La., for $22 million.

Ownership will transfer in 6-7 months, when DOE finishes transferring oil from its Weeks Island SPR storage site near New Iberia. La. When the site is closed, DOE no longer will need the pipeline.

It will lease its St. James terminal on the Mississippi River and a 37-mile, 36-in. pipeline to its Bayou Choctaw oil storage site in Louisiana to Shell Pipe Line Corp., Houston.

DOE said the lease proceeds will average $5-8 million/year the next 4 years, based on Shell's usage projections. The lease also will save DOE about $8 million/year in operation and maintenance costs.

The leases with Shell will enable DOE to use the terminal and pipeline to distribute crude from the SPR during an energy emergency.

The government had offered the facilities for commercial use last March and had completed negotiations with several companies. But the agreements were delayed when Congress failed to extend the Energy Policy and Conservation Act by June 30. That law gives DOE the authority to lease, sell, or dispose of real property at the Strategic Petroleum Reserve. Before adjourning, Congress extended the law for a year, allowing DOE to proceed with the agreements.

DOE had offered the facilities to the private sector in 1994 but failed to attract offers then. It blamed that partly on the requirements in its 100-page solicitation. The latest solicitation was only 3 pages long.

SPR crude sale

Congress, in the Omnibus Consolidated Appropriations Act, required DOE to sell $220 million worth of oil to pay for operating the 574 million bbl SPR in fiscal 1997.

The Defense Fuel Supply Center, which is managing the sales for DOE, plans to offer SPR crude on a weekly basis. Initially, it had planned a biweekly bidding cycle.

Successful bidders for sweet crude stored at the West Hackberry site near Lake Charles, La., were Conoco Inc., buying 100,000 bbl for $24.40/bbl; Ashland Petroleum Co., 75,000 bbl for $23.87/bbl; and Basis Petroleum Inc., 195,000 bbl for $23.70/bbl.

Buying West Hackberry sour were Fina Oil & Chemical Co., 200,000 bbl for $22.25/bbl; Coastal States Trading Inc., 300,000 bbl for $22.25/bbl and another 300,000 bbl for $21.90/bbl; and Mobil Oil Corp., 300,000 bbl for $21.80/bbl.