Of the 6.9 million households in the United States that use heating oil to heat their homes, nearly 80 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 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.
A two million barrel emergency 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.
During 2011, the Northeast Home Heating Oil Reserve 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 (diesel).
In 2012, the Reserve was used for the first time after Hurricane Sandy caused severe damage to the Northeast energy infrastructure.
Releasing Heating Oil
An on-line anonymous open bidding system would be used for emergency sales of product from the Northeast Home Heating Oil Reserve.
DOE Establishes a Two Million Barrel 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 Reserve.
As Americans confronted the winter of 2000-2001, the Northeast Home Heating Oil Reserve was deemed ready.
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, 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 Reserve 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
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. The timing of the plan to switch fuels 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.
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 totalled 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. Receipts totalled approximately $114 million.
The Northeast Home Heating Oil Reserve completed deliveries to the purchasers on schedule and by April 1, 2011, the heating oil reserve was empty.
Preparing for the New Reserve - Leased Commercial Storage Facilities. 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. The solicitation requested bids for storage of two milllion barrels of ultra low sulfur distillate.
DOE announced on August 18, 2011 that two companies had submitted acceptable bids for storage of 650,000 barrels of ultra low sulfur distillate in New England. Contracts were awarded to (1) Hess Corporation in Groton, CT to store 400,000 barrels, and (2) Global Companies LLC in Revere, MA to store 250,000 barrels.
Additional storage capacity would be sought to complete the planned one million barrel size of the heating oil reserve.
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. DOE also disclosed that the Reserve's 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 ultra low sulfur distillate was being sought for delivery to New England. Offers were received and evaluated, and awards were announced on September 30, 2011. The two contracts awarded were for an additional 100,000 barrels to Hess Corporation in Groton, CT and an additional 250,000 barrels to Global Companies LLC in Revere, MA. These contracts, added to the companies' August 18, 2011 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 ultra low sulfur distillate 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 ultra low sulfur distillate to the Hess terminal in Groton, CT. 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, MA. 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, CT. On February 8, award was made to Global Montello Group, LLC for delivery of 250,000 barrels to its facility in Revere, MA.
By February 29, 2012, the one million barrel, ultra low sulfur distillate Northeast Home Heating Oil Reserve was fully established.
Hurricane Sandy devastated the energy infrastructure of the Northeastern United States on October 29-30, causing massive fuel shortages. The Department of Homeland Security (DHS) needed additional fuel supplies to address the needs of first responders and for emergency generators being deployed. DHS sought help from the Department of Defense. In response, the Defense Logistics Agency-Energy contacted DOE to request emergency supplies from the Northeast Home Heating Oil Reserve.
President Obama declared on November 2, 2012, that Hurricane Sandy had created a severe energy supply interruption and directed the transfer of emergency fuel from the Northeast Home Heating Oil Reserve to the Department of Defense for use in emergency operations and support for those in the region affected by the storm. An agreement between the two federal agencies was put in place the same day.
On November 3, agents of the Defense Logistics Agency-Energy began loading trucks from the Reserve's stocks at the Hess Terminal in Groton, Connecticut. The fuel was distributed to state, local and federal responders in the New York/New Jersey area. DOE announced that additional supplies from the Reserve would be made available, as needed, to ensure continued response and recovery efforts. Two additional requests were received on November 7 after a major snowstorm hit the Northeast and compounded the fuel challenges there. Those requests were promptly approved and loading was accomplished on November 12 and 25, 2012. In total, over 120,000 barrels (more than 5 million gallons) of fuel were provided to support emergency relief efforts. The agreement between DOE and the Department of Defense required replenishment of an equal volume of ultra low sulfur diesel to the Northeast Home Heating Oil Reserve during December 2012, which was accomplished.
The Hurricane Sandy releases were the first emergency withdrawals from the Northeast Home Heating Oil Reserve.