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Former President Bill Clinton directed the emergency reserve of heating oil on July 10, 2000, when he directed then-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 the companies from maintaining stock levels sufficient to respond to routine weather events or to recognize that increasing prices are an indicator that more supply is needed. The reserve 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.
In 2011, the Northeast Home Heating Oil Reserve (NEHHOR) was converted to a one million barrel Reserve and the fuel stored was changed from No. 2 heating oil to cleaner burning ultra-low sulfur distillate (ULSD).
Establishing the Reserve
Immediately after the President's July 2000 directive, the Energy Department, acting through the Department of Defense Energy Support Center, issued a solicitation to exchange a quantity of crude oil from the Strategic Petroleum Reserve for two million barrels of distillate heating oil stocks to place in leased commercial storage facilities in the Northeast. 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. Contracts were awarded and, by October 13, 2000, all of the heating oil had been delivered to the storage facilities. In November 2000, Congress amended the Energy Policy and Conservation Act of 2000 providing clear authority for the NEHHOR.
As Americans confronted the winter of 2000-2001, the NEHHOR was deemed ready.
Bush Administration Endorses the Reserve
Although heating oil shortages did not materialize during the 2000-2001 winter, the existence of the NEHHOR 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, then-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 NEHHOR as a way to help ensure adequate supplies of heating oil in the event of colder than normal winters.
2011 Sale and Conversion of the Heating Oil Reserve
Selling the Heating Oil
In February 2011, DOE announced its plan to convert the 1.98 million barrel inventory of the NEHHOR to cleaner burning ultra low sulfur distillate. The timing of the plan corresponded with the expiration of the heating oil storage contracts at the end of September 2011 and recent actions taken by the State of New York and other Northeastern States to implement more stringent fuel standards that require replacement of high sulfur heating oil to the cleaner burning distillate.
DOE conducted a competitive online sale for the new initiative, first offering approximately 1 million barrels of heating oil from the Hess First Reserve Terminal in Perth Amboy, New Jersey. Contracts were awarded to three companies for 984,253 barrels. Receipts from the sale totaled approximately $113 million.
DOE conducted a second online sale, offering an additional 1 million barrels of heating oil from terminals located in Groton and New Haven, Conn., which resulted in awards to four companies for the full amount offered. Receipts totaled approximately $114 million.
The NEHHOR completed deliveries to the purchasers on schedule and by April 1, 2011, the heating oil reserve was empty.
New Storage Contracts
On March 14, 2011, a solicitation was issued by the Defense Logistics Agency (DLA Energy) on behalf of DOE for new storage contracts. The solicitation requested bids for storage of two milllion barrels of ULSD.
DOE announced in August that two companies had submitted acceptable bids for storage of 650,000 barrels of ULSD in New England. Contracts were awarded to Hess Corporation in Groton, Conn., to store 400,000 barrels, and to Global Companies LLC in Revere, Mass., to store 250,000 barrels.
Converting to a One Million Barrel Reserve
Consistent with the President's Fiscal Year 2012 budget request, DOE announced that the Northeast Home Heating Oil Reserve would be reduced in size to one million barrels and storage locations would be established in New England only. No heating oil reserve stocks would be stored in New York Harbor because the area has abundant commercial stocks, connections to local refineries, and a major pipeline for resupply.
DOE announced on August 26, 2011, that storage for an additional 350,000 barrels of ULSD was being sought for delivery to New England. Awards were announced on September 30, 2011. The two contracts awarded were for an additional 100,000 barrels to Hess Corporation in Groton, Conn., and an additional 250,000 barrels to Global Companies LLC in Revere, Mass. These contracts, added to the companies' August awards, resulted in storage of 500,000 barrels at each of the locations. The contracts allowed for a one-year term with three option years.
Purchase of Ultra Low Sulfur Distillate to Restock the Reserve
The competitive purchase of one million barrels of ULSD was managed by the Defense Logistics Agency (DLA Energy) on behalf of DOE. On November 4, 2011, DLA Energy awarded a contract to Hess Corporation for delivery of 400,000 barrels of ULSD to the Hess terminal in Groton, Conn. A second contract was awarded on November 4, 2011, to Global Montello Group, LLC for delivery of 250,000 barrels to the Global terminal in Revere, Mass. Deliveries were completed in early December 2011.
Resolicitation by DLA Energy resulted in award of two final contracts for fuel in February 2012. On February 3, a contract to purchase 100,000 barrels was awarded to Hess Corporation for delivery to its terminal in Groton, Conn. On February 8, award was made to Global Montello Group, LLC, for delivery of 250,000 barrels to its facility in Revere, Mass.
By February 29, 2012, the one million barrel, ultra low sulfur distillate Northeast Home Heating Oil Reserve was fully established.