DOE negotiating with oil companies to store excess supplies

With consumption far below normal, oil companies need a place to store excess supply. Some lawmakers want the DOE to buy oil while the price is low

Sen. Lisa Murkowski, R-Alaska, is among the lawmakers who say the Energy Department should fill the Strategic Petroleum reserve while prices are low. (Caroline Brehman/CQ Roll Call)
Sen. Lisa Murkowski, R-Alaska, is among the lawmakers who say the Energy Department should fill the Strategic Petroleum reserve while prices are low. (Caroline Brehman/CQ Roll Call)
Posted April 14, 2020 at 1:57pm

The Energy Department is negotiating contracts with nine companies to lease space at federal petroleum stockpiles to store their excess crude as weak global demand partly blamed on the coronavirus pandemic exacerbates oil market troubles.

The department said Tuesday the deal would make available about 23 million barrels' worth of space spread across the four Strategic Petroleum Reserve locations. The nine companies were not named.

The Energy Department is moving on with its plan even as some lawmakers continue to push for the federal government to buy oil at the currently low prices to help soak up the excess supply and fill up the federal stockpile.

The department first announced the plan on April 2, several days before a deal was reached between Russia and OPEC countries to stabilize oil markets by limiting their production. The countries agreed last week to end their weekslong price war and cut around 10 million barrels of crude starting in May.

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However, oil market analysts don’t anticipate that deal will have a significant impact until the coronavirus pandemic is contained and demand picks up as people return to work. And the deal did not help lift the price of oil; the U.S. benchmark, West Texas Intermediate, was trading at around $21.56 a barrel Tuesday morning, a price that hadn’t been seen in nearly two decades and isn’t sustainable for producers.

“When producing oil you have two options — you either use it or you store it. With the impacts caused by the COVID-19 pandemic, we are seeing an enormous decrease in demand as our country works to contain the virus,” Energy Secretary Dan Brouillette said in a news release. “Providing our storage for these U.S. companies will help alleviate some of the stress on the American energy industry and its incredible workforce.”

Some of the oil will be delivered to the stockpile sites as early as this month, although most will arrive in May and June, the agency said. Companies can schedule the withdrawal of their stored oil through March 2021. The DOE will retain some of the crude to cover the cost of the SPR storage.

Although some environmental groups have argued that such a plan may be illegal, the DOE says it does not require congressional approval to lease the space. The department said the Energy Policy and Conservation Act of 1975 gave it broad powers including to conduct its latest move.

'Initial step'

The DOE said the move to lease SPR storage is an “initial step” toward filling the stockpiles to its capacity.

“The Department continues to view purchasing oil, contingent on federal appropriations, and providing storage opportunities to industry as priorities,” DOE said.

Even as oil-state lawmakers welcomed the decision to lease SPR space and the OPEC deal, they continue to call for the DOE to pick up some of the extra oil at the current cheap prices and fill the reserve.

“We’ve been working with the Administration to support our energy industry and help them to weather the economic challenges from COVID-19, and we appreciate Energy Secretary Brouillette moving quickly to store U.S. crude in the SPR,” said Sen. John Hoeven, R-N.D. “At the same time, we’ll continue working to help U.S. producers during these historic times and to pass our legislation to fund the purchase of U.S. crude for the SPR.”

A spokeswoman for Senate Energy and Natural Resources Chairwoman Lisa Murkowski, R-Alaska, confirmed that the lawmaker also still wants the department to buy the oil at current prices. When the DOE announced earlier this month its plan to lease SPR space, Murkowski, a vocal supporter of the oil industry during the pandemic, said she supported the “creative initiative” to provide temporary storage for oil producers.

“It is important that we explore all lawful means of protecting our nation’s vital industries,” Murkowski said.

Several lawmakers have introduced still-unnumbered draft legislation to provide the DOE with $3 billion to purchase oil at current low prices to store at the national stockpiles.

They’re pushing for that legislation to be included in the next coronavirus relief package, although it would face pushback from farm-state lawmakers who want to drive biofuel use and from Democrats who want to phase out the use of fossil fuels.

In the meantime, as the country continues to grapple with excess supply and weak demand, the Texas Railroad Commission, which regulates that state’s oil industry, on Tuesday held a virtual hearing on whether it should limit the output of companies drilling there, a move it hasn’t taken in decades.

Oil firms Pioneer Natural Resources Company and Parsley Energy Inc. requested the limits, although the petition has received significant pushback, including from the American Petroleum Institute. The trade group argued in public comments that such interference is unnecessary and that the Energy Department's actions will provide “near-term relief that mitigates” the companies' concerns. 

“We remain confident that oil demand will be resilient once the effects of COVID-19 subside,” API said.