First SPR Exchange Oil Shipment Begins; Heating Oil Reserve Now Full

Emergency Fuel Supply Plans 3 Weeks Ahead of Schedule, DOE to Reissue Exchange Solicitation on Monday, Oct. 16

Washington, DC - The first crude oil has begun moving from the Strategic Petroleum Reserve and the final shipment has been received for the government's Northeast heating oil reserve -- two major steps that have put the Administration's winter energy preparedness efforts well ahead of schedule, Secretary of Energy Bill Richardson announced today.

"We're getting a headstart in meeting the President's objectives of protecting Americans from possible fuel supply disruptions this winter," Richardson said. "Our goal was to have a fully-stocked emergency heating oil reserve by the end of October and to be moving crude oil from our Strategic Reserve during November. That was an ambitious schedule when we announced it, but aggressive efforts have now put us at least three weeks ahead of our plan."

The Strategic Petroleum Reserve (SPR) Office also said today that financial guarantees have been received for 23 million of the 30 million barrels initially offered when President Clinton directed that crude oil from the SPR be released in exchange for additional oil to be returned next year. The 23 million barrels of oil is required to be in the marketplace by the end of November, in time for the winter season.

On Monday, October 16, the Energy Department will re-issue its call for offers for the remaining seven million barrels that were not exchanged because two of the 11 companies receiving contracts could not provide the necessary letters-of-credit.

First Delivery of Strategic Reserve Oil

Friday evening, the Energy Department began transferring 500,000 barrels of crude oil from the Strategic Reserve's Bryan Mound site near Freeport, Texas, to Morgan Stanley Dean Witter, one of the 11 companies receiving an exchange contract last week.

The crude oil began moving into the Seaway pipeline which runs to a major oil distribution hub at Cushing, Oklahoma. Pumping will continue through Sunday, October 15.

The SPR exchange contract required that companies take oil from the Reserve no later than the end of November but the Energy Department said it would be prepared to move oil earlier. Morgan Stanley was able to arrange early shipment of the sour, or higher-sulfur crude oil and submitted a delivery request to the department on Thursday. Operators at the Bryan Mound site completed the necessary preparations and the oil delivery began on Friday evening.

As of today, Marathon Ashland had also requested expedited delivery for 250,000 barrels of sweet, or low sulfur, crude oil from the Reserve's West Hackberry site in Louisiana. This oil is scheduled to begin moving into the market next Thursday.

New Oil Exchange Solicitation Being Readied

The Energy Department also said today that it is readying a new solicitation for offers to exchange the final seven million barrels of oil that were not released to two firms. Euell Energy Resources and Lance Stroud Enterprises were awarded exchange contracts but did not produce the necessary letters of credit. The letters were required by the government for the value of the oil, assuring taxpayers of no loss of oil or money in the SPR exchange.

A third company, Burhany Energy Enterprises, completed contractual arrangements late Friday to transfer title to its three million barrels of Strategic Reserve oil to Hess Energy Trading of New York. The Energy Department received the necessary letter of credit for this transaction yesterday. The eight other companies that were awarded exchange contracts submitted the required letters-of-credit earlier this week. Eleven SPR exchange contracts were originally awarded including three small business firms.

The open bid process was structured in a way that encouraged speed and efficiency as evidenced by the fact that the first half million barrels of oil is already on its way to be refined and 23 million barrels of oil are being put into the marketplace. This represents the largest sale or swap conducted in the SPR's 25-year history. In 1991, the SPR Office solicited bids for the sale of 34 million barrels of oil and sold 17 million.

The new solicitation will be issued on Monday morning with bids due the following Monday, October 23. This seven million barrels of oil will have to be delivered to the marketplace by the end of December, although earlier delivery could be possible.

The department said that, unlike the initial solicitation, a requirement for a bid guarantee will likely be included in the new call for offers. The upfront requirement, however, will be structured in a way so that small traders and other businesses will have the opportunity to submit exchange offers. Details will be announced on Monday.

Once all 30 million barrels have been exchanged, the SPR will still contain about 540 million barrels of oil in its inventory and is capable of drawing down four million barrels a day.

Northeast Heating Oil Reserve is Full

Almost simultaneously with the first crude oil delivery out of the Strategic Reserve in Texas, the final shipment of heating oil was received for the government's heating oil reserve in the Northeast. A barge bringing the final 67,000 barrels of heating oil docked and began unloading last night at the Amerada Hess First Reserve terminal in Woodbridge, New Jersey. The terminal is one of the three the federal government is using to stockpile two million barrels of emergency heating oil as a supply cushion for consumers this winter.

The delivery completed the commitment of the Morgan Stanley Capital Group to supply one million barrels of heating oil to the government's reserve. Previously, Equiva Trading Company had delivered one million barrels of heating oil to two storage terminals in New Haven, Conn. The two companies will receive about 2.8 million barrels of crude oil from the Strategic Petroleum Reserve in exchange for the heating oil.

President Clinton established a Northeast Home Heating Oil Reserve on July 10 and asked the Congress to pass a trigger to use the oil. In New England, heating oil inventories are 65 percent lower than last year.

With the heating oil reserve now fully stocked, Energy Secretary Richardson called on Congress again to "put the final steps in place" by passing legislation that would set an appropriate trigger for releasing the emergency supplies if necessary this winter. The President can order the heating oil to be released under broad national authorities, but the Administration has urged Congress to define more regionally-specific circumstances that would warrant release of the fuel supply.

"We have done our part by creating and now filling the heating oil reserve," Richardson said. "Now we need Congress to do its part by ensuring that the reserve can be used most effectively."

On Friday, Secretary Richardson announced that four companies -- Motiva, Equiva, Shell and Hess -- have voluntarily agreed, based on the current market situation, to stop the export of heating oil.

- DOE -

Media Contacts:
Drew Malcomb, 202/586-4940 or 202/586-8100
Natalie Wymer, 202/586-4940 or 202/586-8100