Between 2017 and 2025, U.S. Strategic Petroleum Reserve sales are expected to liquidate 190 million (mn) barrels (bbls) from storage caverns, leaving U.S. stocks just above 500mn bbls. In late January, the U.S. Department of Energy’s Office of Fossil Energy awarded the first contracts of Strategic Petroleum Reserve (SPR) crude in an effort to generate $2 billion to modernize the reserves, the DOE said in a statement.
The contracts awarded in January, totaling 6.4 mn bbls, were awarded to Shell Trading and Phillips 66, with deliveries expected to take place in March and April. The SPR Bryan Mound storage site was to supply 1.7mn bbls, while the remaining barrels were to be extracted from two more storage sites: 3mn from Big Hill, TX, and 1.7mn from West Hackberry, LA, the DOE said.
The SPR Bryan Mound site has waterborne access to Freeport, TX, where U.S. crude exports and domestic waterborne shipments ramped up starting in March after a ten-month hiatus, according to Genscape maritime data.
The loadings followed, but were not confirmed to be related to recent SPR crude sales. A Phillips 66 spokesman declined to comment on the increased waterborne loadings from Freeport, citing “competitive sensitivities.” A Shell spokesman said that the company had purchased from the SPR, but did not comment on the receipt or destination of that crude.
SPR oil can also move from the Bryan Mound site to points in Texas City, TX, and Jones Creek, TX. Freeport also has connectivity to the Enterprise-operated 850,000 barrels per day (bpd) Seaway pipeline system, which flows south from Cushing, OK.
As of May 26, nearly 4mn bbls were sent in seven shipments from Freeport to destinations in the U.S., the Caribbean, Colombia, and the Netherlands. In comparison, in 2016, only four vessels moved approximately 875,000 bbls to domestic destinations from Freeport.
Another set of SPR crude contracts were finalized on March 10, with a total of 10mn bbls scheduled for delivery in May and June. Contracts were awarded to Atlantic Trading and Marketing, BP, Marathon Petroleum, PetroChina International, Phillips 66, Shell Trading and Marketing, and Valero Marketing and Supply Company, according to the DOE. The recent sales were the first of many that are authorized as part of legislation including the 21st Century Cures Act, the Bipartisan Budget Act, and the Fixing America's Surface Transportation Act.
There is potential for more destocking. The White House 2018 Fiscal Year budget proposal includes “a mandatory budget proposal to sell approximately 270mn barrels of SPR crude oil by 2027, roughly half of the remaining SPR inventory after all sales currently authorized by law are complete,” according to a DOE budget fact sheet.
In the past three months, SPR inventories have already declined more than 7mn bbls, according to the May 24 U.S. Energy Information Administration inventory report.
The SPR is the largest stockpile of government-owned emergency crude in the world and was 97 percent full with 695mn bbls of crude in mid-January, according to the EIA. Roughly 40 percent of the SPR volume is light sweet crude with the remainder medium sour. The average acquisition cost for SPR crude was about $29.17/bbl, according to Ken Vincent, U.S. Department of Energy Economist, in a March 9 presentation. WTI front month prices closed at $49.66/bbl, $49.33/bbl and $50.60/bbl on May 30, April 29, and March 31, respectively.
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