13 March 2014, News Wires – The US Department of Energy is selling off about 5 million barrels of crude from the strategic petroleum reserve, SPR, in order to test the capabilities of the country’s distribution system in a rapidly changing domestic energy environment.
“Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred – including pipeline expansion, construction of new infrastructure, reversed flow of existing pipelines and increased use of domestic crude oil terminals,” department spokesman Bill Gibbons said in a statement.
The test will help authorities gauge how well the SPR’s existing distribution system works “in the event of a disruption”, he added.
Four million barrels of sour crude will be offered from the SPR West Hackberry site and another 1 million barrels will be offered from the SPR Big Hill site, both on the US Gulf Coast.
The volumes will be sold at no less than 95% of market value and will have “minimal” impact on oil markets, Gibbons said.
US oil and gas reserves and infrastructure have changed drastically in just the past few years, with as booming production coming from North Dakota and Texas.
A test of SPR’s distribution system through a drawdown has been discussed internally at the Energy Department for several months, according to Gibbons.
“The notice of sale is being issued today so refineries interested in purchasing crude oil from the SPR can plan accordingly for when their facilities come out of their annual maintenance cycle at Gulf Coast refineries when crude oil stocks are being replenished in preparation for switchover to summer grade gasoline,” he said.
Contracts will be awarded through a competitive sales process in the middle of this month for deliveries in April. The notice of sale can be found here (pdf).
The last release from the SPE came in 2011 as part of a co-ordinated International Energy Agency response to the crisis in Libya. The SPE contributed about 30.6 million barrels.
About 11 million barrels were released in 2005 as a response to Hurricane Katrina. The most recent test sale, comprising 4 million barrels, was in August 1990 prior to Operation Desert Storm. The first test sale, of 1 million barrels, was in 1985.
The SPR held 695.9 million barrels of crude oil at the end of 2013 and is said to be the world’s largest supply of emergency crude oil.