U.S. Energy Department Initiates Process to Refill Strategic Petroleum Reserve

The U.S. Department of Energy Office of Petroleum Reserves announced on Dec. 16 that it will begin repurchasing crude oil for Strategic Petroleum Reserves, or SPR, by buying oil at a lower price than the $96 per barrel average it was sold for. This will be the first fixed price replenishment, in order to secure a good deal for taxpayers and strengthen energy security. The notice will implement this new approach with an initial purchase of up to 3 million barrels of crude oil. The process will also benefit the producer to make investment with assurance that the produced crude will be bought by SPR will be locked in place, as per a plan announced by the Biden’s administration in October 2022.

The idea of the strategy is to address significant global supply disruption caused by Russia’s war on Ukraine and provision of a wartime bridge to increase domestic production. The ultimate advantage is transferred to the taxpayers and U.S. families in the form of lower gas prices. Current national gas prices are cheapest since September 2021 and are lower by $1.80 per gallon since June 2022 peak.

Earlier in October, the department amended its regulations on the procedures for the acquisition of petroleum products for the SPR for alignment in the regulatory language. The revision also removed outdated procedures for acquisition under the royalty program with addition of procedures for acquisition and enhanced flexibility in structuring the acquisitions. The department had also announced a notice of sale on Oct. 18, 2022, and contract awards to release 180 million barrels of crude oil; a total of twelve companies responded to the notice, submitting 110 bids.

The SPR was established by the Energy Policy and Conservation Act for storage of petroleum products to diminish the impact of disruptions on petroleum supplies and to carry out the obligations of the U.S. under the International Energy Program. The crude oil is stored in underground salt caverns at storage sites in Texas and Louisiana.

Bids are due by Dec. 28, 2022. Subsequently, the contracts will be awarded by the department no later than Jan. 13, 2023.