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Reuters: UPDATE 1-US awards 12.3 mln bbl royalty-in-kind SPRdeals

Thu Nov 8, 2007 6:44 PM GMT
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By Chris Baltimore

WASHINGTON, Nov 8 (Reuters) – The U.S. Energy Department on Thursday awarded contracts to units of Shell Oil , Sunoco and BP Plc to deliver 12.3 million barrels of royalty oil to the U.S. strategic reserve, the department said in a release.

Flows of oil will start in January at a rate of about 70,000 barrels per day and last about six months, the department said.

The department pressed ahead with its plan over objections of some Democrats in the U.S. Senate who want the royalty oil shipments delayed until oil prices fall below their recent highs near $100 a barrel.

The DOE has said that the royalty oil shipments represent only a fraction of the 21 million barrels per day used by U.S. consumers, and has rejected calls to delay the fill program.

The oil, which oil companies pay as royalties for the right to drill on federal land in lieu of cash payments, will be delivered to two SPR sites – West Hackberry in Louisiana and Bryan Mound in Texas.

Sen. Hillary Rodham Clinton of New York, a 2008 presidential candidate, has even called for the department to tap the government’s emergency crude oil and heating oil reserves to boost supplies and lower prices.

The White House has repeatedly said it will not use the reserve as a price lever and will hold it in reserve for supply disruptions like the hurricanes that plowed into the Gulf Coast oil patch in 2005.

Separately, the DOE said it had no immediate plans to issue bids to buy back 11 million barrels of oil it sold to U.S. refiners after the hurricanes.

Former President Bill Clinton was criticized for ordering the release of up to 30 million barrels from the crude oil reserve in September 2000 to boost available heating fuel supplies heading into the winter.

Republicans accused him of tapping the oil reserve just six weeks before that year’s November election to help then-Vice President Al Gore’s presidential campaign.

The Strategic Petroleum Reserve, created by Congress after the 1973-1974 Arab oil embargo, now holds 695 million barrels of crude at four underground storage sites in Texas and Louisiana.

The 2 million-barrel heating oil reserve is located in the Northeast, where about one-third of the households use the fuel as their main heating source. (Reporting by Chris Baltimore; additional reporting by Tom Doggett; editing by Jim Marshall) 

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© Reuters 2007. All rights reserved. 

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