Friday, October 14, 2011

The Northeast Home Heating Oil Reserve cut in half

The Northeast Home Heating Oil Reserve (NHHOR) will be reduced to one million barrels, half its original size, as the stockpile's holdings are converted to ultra-low-sulfur distillate (ULSD) fuel that will be stored only in New England States. The Department of Energy (DOE) chose to end leasing storage space for the reserve in New York harbor because that area is well supplied with commercial ULSD inventories. There are also several nearby refineries and a major pipeline that could quickly provide heating fuel this winter.

The reserve is switching to ULSD because several Northeast States will require the use of very low-sulfur fuel within the next few years. New York has already approved a reduction in the maximum sulfur content of heating oil from the current 2,000 parts per million (ppm) to 15 ppm by July 2012. New Jersey, Pennsylvania, Maine, Connecticut, and Rhode Island have legislation pending.

DOE awarded contracts to Hess Corporation to store 500,000 barrels of ULSD at the company's terminal in Groton, Connecticut and to Global Companies LLC to store 500,000 barrels in Revere, Massachusetts. DOE plans to sign contracts later this month for purchasing the one million barrels of ULSD that now will be delivered to the reserve by the end of November.

NHHOR was authorized in 2000 to provide the region with two million barrels of backup heating oil in case of a disruption in winter heating fuel supplies. The Northeast is the biggest heating oil market in the world, where 69% of U.S. households that use heating oil are located.

DOE earlier this year sold the two million barrels of heating oil in the reserve and decided to replace it with one million barrels of ULSD that will be stored at locations in New England to protect six States—Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont—that are most vulnerable to supply problems.

Total distillate fuel inventories for the central Atlantic region—Delaware, Maryland, New Jersey, New York, Pennsylvania, and the District of Columbia—were 35.4 million barrels at the end of September, down 19.4% from a year earlier. Similar distillate inventories for New England were much smaller at 12.2 million barrels, down 12% from a year ago.

U.S. Oil Inventories

Connecticut Heating Oil Reserve
Of the 7.7 million households in the United States that use heating oil to heat their homes, 5.3 million households, or nearly 70 percent, reside in the Northeast region of the country - making this area especially vulnerable to fuel oil disruptions.

Creation of an emergency reserve of heating oil was directed by President Clinton on July 10, 2000, when the President directed Energy Secretary Bill Richardson to establish a two million barrel home heating oil component of the Strategic Petroleum Reserve in the Northeast. The intent was to create a buffer large enough to allow commercial companies to compensate for interruptions in supply during severe winter weather, but not so large as to dissuade suppliers from responding to increasing prices as a sign that more supply is needed.

Two million barrels would give Northeast consumers supplemental supplies for approximately 10 days, the time required for ships to carry additional heating oil from the Gulf of Mexico to New York Harbor.

Immediately after the President's July 10, 2000, directive, the Energy Department, acting through the Defense Energy Support Center, issued a solicitation to exchange crude oil from the Strategic Petroleum Reserve for two million barrels of distillate heating oil stocks to place in leased storage facilities in the Northeast.

heating oil reserve perth amboy newjersey

An exchange using Strategic Petroleum Reserve crude oil was chosen because no appropriated funding was available to create the heating oil reserve.On July 19, 2000, the Defense Energy Support Center issued a solicitation to companies willing to provide the storage tanks, heating stocks, or a combination.

By October 13, 2000, all of the heating oil had been delivered. In November 2000, Congress amended the Energy Policy and Conservation Act of 2000 providing clear authority for the reserve.As Americans confronted the winter of 2000-2001, the Northeast Home Heating Oil Reserve was deemed ready.
The Bush Administration Endorses the Reserve
Although heating oil shortages did not materialize during the 2000-2001 winter, the existence of the Northeast Home Heating Oil Reserve provided an important safety cushion for millions of Americans.

Recognizing this, the incoming administration of George W. Bush reinforced the value of the Reserve. On March 6, 2001, Energy Secretary Spencer Abraham formally notified Congress that the Bush Administration would establish the Reserve as a permanent part of America's energy readiness effort, separate from the Strategic Petroleum Reserve.

In May 2001, President Bush issued his National Energy Policy which again endorsed the Reserve as a way to help ensure adequate supplies of heating oil in the event of colder than normal winters.
The Home Heating Oil Reserve Today

February 2011 Sale. On February 1, 2011, DOE announced its plan to convert the 1,984,253-barrel inventory of the Reserve to cleaner burning ultra-low sulfur distillate. DOE’s plan corresponds with recent actions by the State of New York and other Northeastern states that are implementing more stringent fuel standards that require replacement of high sulfur heating oil to the cleaner burning distillate.

On February 3, 2011, DOE conducted a competitive on-line sale for the new initiative, offering approximately 1,000,000 barrels of heating oil from the Hess First Reserve Terminal in Perth Amboy, NJ. Contracts were awarded to three companies for 984,253 barrels. Receipts from the sale total approximately $113 million.

On February 10, 2011, DOE conducted a second on-line sale, offering 1,000,000 barrels of heating oil from terminals located in Groton and New Haven, CT. The sale resulted in awards to four companies for the full amount offered. Recipts total approximately $114 million.

Successful execution of the sale of the Northeast Home Heating Oil stocks has completed the first part of the DOE initiative to convert the Reserve. DOE plans to use the receipts for purchase of ultra low sulfur heating oil prior to the 2011-2012 heating oil season.

Reestablishing the NEHHOR. On March 14, 2011, a solicitation was issued by the Defense Logistics Agency (DLA Energy) on behalf of DOE for new storage contracts for the Northeast Home Heating Oil Reserve. On August 18, 2011, DOE announced that new contracts were awarded to two companies for storage of 650,000 barrels of ultra low sulfur distillate in New England. Hess Corporation in Groton, CT will store 400,000 barrels, and Global Companies LLC in Revere, MA will store 250,000 barrels. A solicitation for storage of an additional 350,000 barrels will be issued in order to establish a one million barrrel Heating Oil Reserve prior to the 2011-2012 winter heating season.

Establishment of a one million barrel Reserve will provide supplemental supplies to the area most vulnerable to a supply disruption, New England. DOE announced that it would not reestablish a Heating Oil Reserve facility in New York Harbor because the area has abundant commercial stocks and connections to local refineries and a major pipeline for resupply.

Ultra low sulfur distillate will be purchased and delivered to the Northeast Home Heating Oil Reserve storage facilities before the heating season begins.

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