DOE - Fossil Energy Techline - Issued on: January 22, 2002
Energy Department Opens Bid Process To Begin Filling Strategic Oil Reserve
Solicitation for Royalty Oil Exchanges is Initial Step in Carrying Out President's Call for Greater Energy Security
Washington, DC - The first stage of President Bush's plan to fill the nation's Strategic Petroleum Reserve began today with the U.S. Department of Energy's call for offers from industry to exchange royalty oil produced from Federal leases in the Gulf of Mexico.
The Energy Department, working with the Department of Interior's Minerals Management Service (MMS), initially is asking industry to exchange up to 22 million barrels of federal royalty oil for oil that meets the Reserve's quality specifications. "Royalty oil" is the oil owed to the U.S. government by producers who operate on the federally-owned Outer Continental Shelf.
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"We are moving expeditiously to carry out President Bush's directive to strengthen our nation's emergency energy supplies," said Secretary of Energy Spencer Abraham. "The President is committed to ensuring that our emergency reserves are in a state of preparedness and increasing our oil reserves today protects us against potential supply disruptions of tomorrow."
Last November President Bush ordered the use of royalty oil transfers to fill the Strategic Reserve up to its 700 million barrel capacity, calling the Reserve "an important element of our nation's energy security."
Currently the Reserve holds 550 million barrels of oil stored deep within salt caverns along the Gulf of Mexico in Texas and Louisiana.
The Reserve's inventory is already scheduled to rise to 592 million barrels by January 2003 when deliveries of oil already under contract are completed.
To protect the nation from an imminent disruption in oil supplies, the President could order all or part of the oil released into the market.
The Energy Department's solicitation is accompanied by a companion solicitation also issued today by MMS. The MMS solicitation calls for the royalty oil to be delivered from offshore platforms to designated "market centers."
Companies awarded contracts under the Energy Department's solicitation would acquire the royalty oil at these "market centers" and exchange it for oil that meets the Strategic Reserve's specifications. The "exchange oil" would then be delivered to one of three storage sites in the Strategic Reserve's complex: the Big Hill and Bryan Mound sites in Texas, and the West Hackberry site in Louisiana.
Under today's solicitation, the 22 million barrels of royalty oil would be produced over a year beginning this April at a rate equivalent to 60,000 barrels per day. Ultimately, the Energy Department and MMS hope to increase the "royalty-in-kind" transfer volumes later this year. Should this occur, both agencies would issue further sets of coordinated solicitations for the additional production. The agencies also anticipate future solicitations next year and beyond.
Because Strategic Reserve crude oil typically exceeds the quality of most offshore crudes, companies will likely deliver somewhat less than the 22 million barrels of royalty oil to the Reserve after adjusting for the quality differences. The companies can also make adjustments to account for their costs to deliver oil to the Reserve sites.
The Energy Department will negotiate contracts with the companies that offer the ratios most favorable for the U.S. government.
The department has asked that offers be received at the Reserve's New Orleans Project Management Office by February 5, 2002. Exchange oil deliveries to the Energy Department could begin as early as April 1, 2002, and must be completed by April 30, 2003.
- End of Techline -
For more information, contact:
News Media: Drew Malcomb, 202/586-5806
Prospective Offerors: Rose Galliard, SPR Project Management Office, 504/734-4776 or M.G. Waggoner, SPR Project Mgmt. Office
504-734-4444
E-mail for questions: RIK0003@spr.doe.gov