Statement of U.S. Secretary of Energy Bill Richardson on Oil Swap from Strategic Petroleum Reserve
The swap of oil from the United States' SPR is being taken primarily to avert a potential crisis in providing sufficient heating oil for the upcoming winter in the United States. This is a temporary step designed to address the current historically-low levels of energy stocks, especially heating oil. As noted in the statement, larger volumes of oil will eventually be returned to the SPR. Addressing the heating oil predicament in the United States will significantly reduce the risks of supply shortages here in the winter. It will also contribute to reducing pressures in the global oil market and help efforts by OPEC and major non-OPEC producers to stabilize the market by increasing production. This action does not substitute for the critical role of oil producers, and it is important that producers continue increasing oil production. At the same time, consumers need to take steps that help ease their own specific supply problems. We are convinced the SPR swap is such a step. We hope others will continue to look for ways to facilitate the availability of needed energy supplies.
STATEMENT OF SECRETARY OF ENERGY BILL RICHARDSON
Earlier today, the President directed me to exchange 30 million barrels of oil from the Strategic Petroleum Reserve over a period of 30 days. The President's reasons for taking this action are very clear. Portland, Maine will be in the 50's next week. So will Minneapolis. And it snowed in the Rockies yesterday. We need to make sure that American families keep warm this winter.
So the President will do everything within the power of the Federal Government to ensure that Americans have the fuel they need to heat their homes. It's the right time to do this.
Today, distillate inventories across the country - which include heating oil - are 19 percent lower than they were a year ago. On the East Coast - where 36 percent of families use heating oil to stay warm - distillate inventories are lower still: 40 percent less than last year's levels. In New England, that figure is closer to 65 percent lower than last year.
The underlying cause of these low inventories is an imbalance between supply and demand. Increased world demand has sent oil prices skyrocketing. We've worked to get supply up. This administration has encouraged OPEC and non-OPEC producing nations to increase oil production -which they did. We now have three-and-a half million more barrels of oil on the market than we did a year ago.
But still, tremendous demand is siphoning off those extra barrels before they can get into inventories, and U.S. crude oil stocks remain very low. The intended result of this exchange is simple - to increase oil supply.
The temporary infusion of 30 million barrels of oil into the market will likely add an additional 3-to-5 million barrels of heating oil this winter, if refineries could match higher runs and yields seen in the past. Increased supplies will also help our diesel truck drivers, who deliver the sole source of supplies for 70 percent of America's communities. If those rigs aren't rolling, a lot of us aren't going to eat.
And the supply boost will likely benefit everyone who drives a car. Finally, this action enhances our energy and national security. An exchange will ultimately result in more oil in the reserve, as our exchange contractors will be returning the SPR oil plus a premium. This will further increase the nation's protection against potential or actual energy supply disruptions. That's good energy policy. The Department of Energy will issue a solicitation on Monday. As has been the case in earlier exchanges, the response to our solicitation will reflect the needs of the market. Awards will be made based on the best deal for consumers, the taxpayer, and the management needs of the Strategic Petroleum Reserve.
We will assess the supply impacts of this exchange on an ongoing basis, along with the market impacts of OPEC's announced increase of 800,000 barrels of oil per day. We are prepared to take further action if necessary.
While this action is taken to address a specific concern about U.S. heating oil supply, we recognize that oil is a worldwide commodity. Internationally, we will continue our discussions with producing nations about the situation in the oil market.
We also want to work with our allies in Europe and Asia to share information about the establishment and management of reserves and to plan for severe supply disruptions. Finally, we will continue our efforts with producing and consuming nations and developing countries to improve oil market data for more efficient markets.
Again, we are taking this step to reduce the risk of heating oil shortages this winter. The President has already established a Northeast home heating oil reserve, to provide heating oil in the event of an energy emergency.
Through this exchange, we can help alleviate tight oil and heating oil supplies, help make certain that Americans can heat their homes this winter, and add to the nation's national oil insurance policy, all at the same time. That's a good 'rate of exchange' for taxpayers, consumers, and the nation."
FACT SHEET ON THE EXCHANGE
-- A solicitation will be issued Monday, September 25.
-- It will offer 30 million barrels for exchange.
-- Winning bidders will take the SPR oil no later than November.
-- Winners will be required to return oil next year plus a bonus percentage that they will bid.
-- The bids will be due on Friday, September 29.
-- Evaluation, negotiation and best and final offers will occur the following week.
-- Awards are scheduled for Friday, October 2.
-- The contract will specify the delivery date as the month of November.
-- Transportation of the oil from the reserve is the responsibility of the winning bidders.
-- SPR will be ready to deliver as soon as contracts are signed and transportation arranged.
-- Oil will be offered at three SPR sites:
Bryan Mound - sour crude
West Hackberry - sweet crude
Bayou Choctaw - sour crude
Both Bryan mound and West Hackberry are each capable of delivering more than 30 million barrels in a month. Bayou Choctaw can deliver about 15 million barrels in a month.
-- Awards will be made according to the best bids, which will determine the awards by location.
-- Winning bidders will be obligated to return oil to the SPR sites in 2001 when markets are expected to be less tight.