The US will set up its first strategic gasoline reserve, creating 1 million barrels of storage in the Northeast to protect against storms like Hurricane Sandy, which wreaked havoc on fuel supplies in the region, officials said Friday.
But analysts at ClearView Energy Partners said the move could discourage private stocks, noting that the US' Northeast Home Heating Oil Reserve, which now stores 1 million barrels of ultra low sulfur diesel, appears to have caused commercial inventories to fall in the region soon after it was created in 2000 as a 2 million-barrel reserve.
"At first blush, this analysis would imply that government investment in products inventories may have deterred private investment, potentially mitigating energy security benefits of a heating oil reserve," the analysts wrote in a note. "If this conclusion is correct, we would not rule out a similar result with the creation of a gasoline reserve in [New England]."
The East Coast PADD I refining region held 54.2 million barrels in gasoline stocks, representing 24.4 days of supply, as of April 25, US Energy Information Administration data showed.
The announced gasoline reserve will be in two locations: one in New York Harbor and the other in New England, likely Boston. Each will hold 500,000 barrels and be located at leased commercial storage terminals.
The US Department of Energy said it anticipates awarding contracts for the storage, service and product acquisition to launch the reserve by late summer, when the most intense part of hurricane season starts.
The agency did not say which grade or grades of gasoline would be stored, nor what conditions would trigger a release sale from the reserve. A message left with a DOE spokesman was not immediately returned.
One East Coast trader said he was eager to learn what the Reid vapor pressure would be for the stored gasoline, adding that he wanted more clarity of specifications for the gasoline and how it would be used.
"I am guessing that would have to be summer grade," he said.
Energy Secretary Ernest Moniz said gasoline held in the reserve "will be turned over as part of commercial transactions," he said. "We cannot store the same molecules for five years."
The DOE has committed to funding and maintaining the reserve for five years, but Moniz did not elaborate on what would happen after the five years are up.
He added that the DOE is studying the need for other regional product reserves to mitigate the impacts of natural disasters and other disruptions.
"This reserve is a step toward preventing another Sandy situation," Moniz said on a conference call with reporters.
Estimating that the reserve would cost about $200 million for the gasoline and lease storage, Moniz said the funds may come from the roughly $495 million that the DOE received from its recent test sale of 5 million barrels of crude from the Strategic Petroleum Reserve.
The plan comes six months after New York state made its own plans to create the first state-run gasoline reserve in the US, a 71,425-barrel, $10 million reserve on Long Island.
State officials could not immediately be reached for comment on how the US gasoline reserve would impact the state reserve.
BACKUP POWER
The US for the first time in November 2012 tapped the Northeast Home Heating Oil Reserve, releasing about 120,000 barrels of ULSD after Hurricane Sandy knocked out refineries and other infrastructure in the region. The barrels were replaced about a month later.
The heating oil reserve stores ULSD in terminals leased from Hess in Groton, Connecticut, and Global Companies in Revere, Massachusetts.
Observers pointed out at the time of Sandy that the big fuel issue was created by the lack of electricity to move the product out of storage and into service stations.
Senator Chuck Schumer, Democrat-New York, said federal funding has since been made available to service station owners to install emergency backup generators.
"Without gasoline, you can have all the generation you want, and it won't do any good for people who desperately need it," he said on the conference call. "We are providing help to our gas stations on Long Island and NYC, particularly those near the city, to make sure they have backup generators that are protected from flood storms."
