Topping up the U.S. strategic reserves

The U.S. Department of Energy has awarded contracts to Shell Trading and Vitol to replenish the U.S. Strategic Petroleum Reserve in underground salt caverns located along the Gulf Coast of Louisiana and Texas. The contracts authorize the purchase of 10.6 million barrels of oil from the two companies between February and April 2009 at a cost of $553 million. The funding is coming from revenues from the emergency sale of oil following Hurricane Katrina, DOE said.

This is the first direct purchase of oil for the Strategic Petroleum Reserve since 1994, DOE said.

DOE is obtaining an additional 6.1 million barrels of oil for the reserve from Shell Trading and Glencore under a royalty-in-kind transfer program with the Department of the Interior. That oil will be transferred to the reserve between May 2009 and January 2010.

“DOE was able to take advantage of the recent sharp decline in crude oil prices to acquire crude oil for the SPR on terms favorable to the nation while also increasing the nation’s national energy security,” DOE said. “Both acquisitions will have an insignificant effect on market prices.”

According to DOE the Strategic Petroleum Reserve has storage capacity of 727 million barrels and a current inventory of 202 million barrels.

—Alan Bailey