DOE - Fossil Energy Techline - Issued on:  February 26, 1996

DOE Authorizes First Sales Contract for Weeks Island Strategic Petroleum Reserve Crude Oil

Sale will Help Finance Closure of Unstable Storage Site

Washington, DC - The U.S. Department of Energy (DOE) today approved the first sales contract for crude oil from the Strategic Petroleum Reserve Weeks Island site in Louisiana.

A single contract incorporating six individual batches of crude oil totaling 1.45 million barrels will be awarded to Phibro Energy U.S.A., Inc., of Houston, TX.

The contract will bring the Department $26.05 million, just over a quarter of the estimated $100 million the agency needs to pay for the decommissioning of the Weeks Island site and other facility upgrades necessary to maintain the readiness of the Strategic Petroleum Reserve, the nation's emergency oil stockpile.

The Weeks Island site -- one of five oil storage sites in the complex -- has been rendered geologically unstable by a naturally-occuring fracture in the salt formation above the 600-foot deep oil storage chambers. No crude oil has escaped, but DOE is concerned that unless the 72 million barrel oil inventory is removed, the site's geologic integrity could continue to deteriorate and pose a future threat to the Gulf coast environment.

DOE chose to sell up to 7 million barrels of crude oil -- less than 1.5% of the Strategic Petroleum Reserve's total 592 million barrel inventory -- as an alternative to seeking additional Congressional appropriations at a time of severe budget constraints.

DOE said today that it has authorized the Defense Fuel Supply Center (DFSC), acting as the Federal agent for the oil sales, to enter into a "non-emergency oil sale" of six batches of crude oil to Phibro at the following bid prices and delivery terms:

DFSC, the fuel purchasing arm of the U.S. Department of Defense, will continue to offer Weeks Island crude oil at approximately two week intervals. The next bid closing is scheduled for Monday, March 4 at 1 p.m. Eastern Time. DOE is working through the DFSC to offer this crude oil because of the Center's expertise in the oil market. In an energy emergency, DOE would sell Strategic Petroleum Reserve crude oil directly.

Sales and delivery of all of the oil being offered from the Weeks Island site will likely extend over several months, ensuring that the action will have no appreciable impact on the domestic oil market.

While the sales process is underway, DOE continues to move oil out of the Weeks Island site at about 230,000 barrels per day. Since the oil movement started on November 8, 1995, the Department has transferred more than 25 million barrels of the site's 72 million barrel original inventory. The crude oil is being transferred to other Strategic Petroleum Reserve sites in Louisiana and Texas.

Once the oil transfer is completed this fall, the Weeks Island site will be decomissioned.

Weeks Island is unique among the Strategic Petroleum Reserve storage sites, having once been a commercial salt mine. The other sites are much deeper caverns created by dissolving huge cavities in the salt domes along the Louisiana and Texas Gulf coast. The deeper salt caverns are much less susceptible to the type of naturally-occuring fracturing that has been experienced at Weeks Island.

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