US and Australia Sign SPR Lease Agreement

[ceo_energemsier + 1,818]

US and Australia Sign SPR Lease Agreement

 

The U.S. Department of Energy revealed Wednesday that the United States has finalized a Strategic Petroleum Reserve (SPR) lease agreement with Australia.

The deal, which was signed by U.S. Secretary of Energy Dan Brouillette and Australia’s Minister of Energy and Emissions Reduction Angus Taylor in a virtual ceremony, will allow Australia to lease space in the U.S. SPR to store Australian-owned oil and access this oil during an emergency.

According to the DOE, the agreement stems from discussions between U.S. President Donald J. Trump and Prime Minister Scott Morrison in Washington in September 2019. This is the first time the U.S. has leased excess capacity in the SPR to another country.

“Both ministers acknowledged the change in the energy landscape over the past few months, and how the Covid-19 pandemic has reiterated the importance of energy security and the strong U.S.-Australia relationship,” the DOE said in an organization statement, which was posted on its website.

“[The] agreement will deepen that relationship, advance the strategic interests of both nations, and strengthen global energy stability. It will also allow Australia to make progress on their sovereign energy goals and benefit from current low oil prices,” the DOE added.

Brouillette and Taylor stated that the agreement is a lasting sign of the U.S.-Australia partnership in energy security through both times of crises and times of prosperity, according to the DOE.

The SPR is the world's largest supply of emergency crude oil and was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program, the DOE states on its website.

The SPR, which comprises several underground salt caverns at four major oil storage facilities, is said to have an authorized storage capacity of 714 million barrels.

[markslawson + 1,057]

2 hours ago, ceo_energemsier said:

The U.S. Department of Energy revealed Wednesday that the United States has finalized a Strategic Petroleum Reserve (SPR) lease agreement with Australia.

You would think that for a strategic petroleum reserve Australia would have its own on-shore storage capacity but I don't recall reading anywhere it is building that capacity. As it is, the reserve is under another country's control and will take two weeks to get to Australia if required.. doesn't seem very satisfactory..

[ceo_energemsier + 1,818]

1 minute ago, markslawson said:

You would think that for a strategic petroleum reserve Australia would have its own on-shore storage capacity but I don't recall reading anywhere it is building that capacity. As it is, the reserve is under another country's control and will take two weeks to get to Australia if required.. doesn't seem very satisfactory..

This should be a no no.... with the US SPR, do not lease it to foreign countries, perhaps lease it if they buy enough US oil to store it, but preference should be given to help US producers in the time of glut and shortage of storage capacity.

Each country should have their own plan, Australia needs to build their own SPR. They have plenty of refineries that have been shuttered so the Gov. should buy or lease those sites and expand on their storage capacity and or build new ones.

[footeab@yahoo.com + 2,190]

If the SPR was expanded... Ok.  Otherwise this is bad for the US and bad for Australia.  Seems a lose lose situation.  What am I missing here?  Surely Australia has salt domes it can mine out... I mean come on, it is the size of the lower 48.   Can't be that difficult to do. 

[NickW + 2,714]

Longer term Oz should build its own SPR* - Ideally in the South. In a Country the size of Europe there must be some salt / limestone caverns somewhere that could be developed. 

No good having your oil in the USA if the Chinese Navy have cut off the Pacific route. 

[NickW + 2,714]

6 hours ago, footeab@yahoo.com said:

If the SPR was expanded... Ok.  Otherwise this is bad for the US and bad for Australia.  Seems a lose lose situation.  What am I missing here?  Surely Australia has salt domes it can mine out... I mean come on, it is the size of the lower 48.   Can't be that difficult to do. 

This is Oz (Im a dual Citizen)

They still haven't managed to build a gas pipeline from the Northern Territories to the SE

The SE is short of gas - talking about buying foreign LNG (but need to build a terminal) 

[Dan Clemmensen + 1,011]

The agreement appears to be for "Australian-owned oil". I think we can assume that this means US oil purchased by or on behalf of Australia, since if makes no economic sense for Oz to ship oil to the US.

I find it humorous that people on this forum now think of storage availability as the most important resource being provided by the SPR. For the entire 45-year history of the reserve prior to April 2020, the valuable resource, as indicated by it name, was the oil in the reserve. The worry was "there's not enough oil in there!". Now, it's "there's too much oil in there!".

[Jay McKinsey + 1,490]

Something always overlooked about the SPR is that it is divided into sweet and sour storage with 60% being sour. Most of the oil in the SPR is from other countries because that is the oil that would be unavailable in a crisis and gulf coast refineries are designed for heavy sour. US light sweet reserve is in the ground already, waiting to be pumped out.

So it is possible that the Aussies leased some of the sour storage space for Saudi oil with the sweet storage reserved for US oil.

Edited June 5, 2020 by Jay McKinsey

[Jay McKinsey + 1,490]

[NickW + 2,714]

1 hour ago, Dan Clemmensen said:

The agreement appears to be for "Australian-owned oil". I think we can assume that this means US oil purchased by or on behalf of Australia, since if makes no economic sense for Oz to ship oil to the US.

I find it humorous that people on this forum now think of storage availability as the most important resource being provided by the SPR. For the entire 45-year history of the reserve prior to April 2020, the valuable resource, as indicated by it name, was the oil in the reserve. The worry was "there's not enough oil in there!". Now, it's "there's too much oil in there!".

Australia is a net importer of oil so it goes without saying that any oil in a foreign SPR will be sourced from the most geographically convenient source. 

[El Gato + 254]

I'm speculating here, but might it be a favor to Aussies for US basing Troops there?

[Jay McKinsey + 1,490]

1 hour ago, El Gato said:

I'm speculating here, but might it be a favor to Aussies for US basing Troops there?

I wonder which country suggested the deal first? 

[ronwagn + 6,290]

16 hours ago, NickW said:

This is Oz (Im a dual Citizen)

They still haven't managed to build a gas pipeline from the Northern Territories to the SE

The SE is short of gas - talking about buying foreign LNG (but need to build a terminal) 

What is going on with the politics regarding the much needed pipelines and using natural gas rather than selling it at todays prices?

[Eyes Wide Open + 3,554]

16 hours ago, NickW said:

Longer term Oz should build its own SPR* - Ideally in the South. In a Country the size of Europe there must be some salt / limestone caverns somewhere that could be developed. 

No good having your oil in the USA if the Chinese Navy have cut off the Pacific route. 

Pure speculation on my part..i have somewhat of a different opinion. It would seem to be a very clear message to those all involved in such matters, That the US and Australia have announced a mutual interest to protect each other during a crisis..Interesting we are now best buds..thru the thick and thin.

[astros148 + 5]

This deal was announced awhile back when oil was trading at 17 dollars and everyone was concerned of an oversupply. dan brouillette went on tv and announced this Aussie deal and said they were doing it to help relieve the glut out there as Congress didnt give the Department to purchase it themselves. Aussie was doing us a favor.

 

So many uneducated people in this thread .

[ceo_energemsier + 1,818]

8 hours ago, NickW said:

Australia is a net importer of oil so it goes without saying that any oil in a foreign SPR will be sourced from the most geographically convenient source. 

Australia also still exports crude and condensate and a whole lot of LNG. Australia sold their minerals to the Japanese, Chinese and others, the very same mineral resources could have been used to save Australia and Australians , oil refineries in Australia have been dying like dead flies. Maybe Australia should institute some form of NATGAS-LNG policy that a certain %age is used in country for gas to liquids (fuels) and LNG fuels power gen etc. Dont get me wrong proper resource development and monetisation is great in any country. But if Aussies are going to "whine" about things or Aussie Gov wants to lease storage in the US, wake up, build your own on your own soil so you have it where and when you need it!!!! I have a project in Australia to build an ultra clean fuels-GTL and CTL plus an agri waste to fuel/lubes refineryplant in the Gladstone area. Hopefully we can get through the hurdles and make it happen. Great and beautiful country. I have spent a lot of time down under ..... years ago... had planned to visit earlier this year but those plans were put off because of COVID.

Foster's? hahahha or Bunda Rum?

[footeab@yahoo.com + 2,190]

3 hours ago, El Gato said:

I'm speculating here, but might it be a favor to Aussies for US basing Troops there?

Not a chance on that.  Aussies are the ones who need the USA to protect them, not the other way around.  Why?  If the world devolves back into empire... Australia is the biggest natural resource prize on the planet.  Near zero population where the resources are located and a gigantic population(most of the worlds pop) close by who needs those resources.  There is no one in the military of Indonesia, India, China, Japan, etc who do not see the need to conquer Australia.  Only thing stopping them?  USA led world order, of which said order, stopped being useful to the USA in 1990 at the end of the cold war.   

[NickW + 2,714]

8 hours ago, footeab@yahoo.com said:

Not a chance on that.  Aussies are the ones who need the USA to protect them, not the other way around.  Why?  If the world devolves back into empire... Australia is the biggest natural resource prize on the planet.  Near zero population where the resources are located and a gigantic population(most of the worlds pop) close by who needs those resources.  There is no one in the military of Indonesia, India, China, Japan, etc who do not see the need to conquer Australia.  Only thing stopping them?  USA led world order, of which said order, stopped being useful to the USA in 1990 at the end of the cold war.   

I generally agree although I believe Japan and India would prefer to trade. The Governments of China and Indonesia are more belligerent which would align with your observation. 

The Cold war is back on again. 

Edited June 6, 2020 by NickW

[NickW + 2,714]

9 hours ago, ceo_energemsier said:

Australia also still exports crude and condensate and a whole lot of LNG. Australia sold their minerals to the Japanese, Chinese and others, the very same mineral resources could have been used to save Australia and Australians , oil refineries in Australia have been dying like dead flies. Maybe Australia should institute some form of NATGAS-LNG policy that a certain %age is used in country for gas to liquids (fuels) and LNG fuels power gen etc. Dont get me wrong proper resource development and monetisation is great in any country. But if Aussies are going to "whine" about things or Aussie Gov wants to lease storage in the US, wake up, build your own on your own soil so you have it where and when you need it!!!! I have a project in Australia to build an ultra clean fuels-GTL and CTL plus an agri waste to fuel/lubes refineryplant in the Gladstone area. Hopefully we can get through the hurdles and make it happen. Great and beautiful country. I have spent a lot of time down under ..... years ago... had planned to visit earlier this year but those plans were put off because of COVID.

Foster's? hahahha or Bunda Rum?

Thats more to do with geography, proximity to refineries and the huge condensate byproduct from gas. 

Net imports of liquid crude  oil are approximately 400,000 BPD. 

Net import of refined products are around 550,000 BPD

Australia needs its own SPR capacity ASAP. Might as well build in South Australia - create some jobs in a relatively low wage state and far away from the potential aggressors. 

Edited June 6, 2020 by NickW

[Dan Clemmensen + 1,011]

After about 2014, the US government decided that we did not need so much oil in the SPR because we were producing a much larger percentage ourselves: you can count proven reserves in the US essentially as part of the effective strategic reserve. We started selling off the SPR oil. To the extent that this was the correct decision, it makes sense to lease out the capacity we no longer need.

The actual situation is complicated by the distinction between sweet and sour: If we can be strategically crippled by a sudden disruption of imports of heavy crude, we need to keep some reserve of heavy crude

Apparently, the Australian deal was actually the quickest way to use the SPR to help mitigate the US supply glut, because the paperwork for using US funds for this would have taken too long. The Australian government stepped in to solve the paperwork problem, not because they actually needed the oil. As a reward for this, they will probably make a killing on the contango. If so, they deserve it.

[ceo_energemsier + 1,818]

6 minutes ago, Dan Clemmensen said:

After about 2014, the US government decided that we did not need so much oil in the SPR because we were producing a much larger percentage ourselves: you can count proven reserves in the US essentially as part of the effective strategic reserve. We started selling off the SPR oil. To the extent that this was the correct decision, it makes sense to lease out the capacity we no longer need.

The actual situation is complicated by the distinction between sweet and sour: If we can be strategically crippled by a sudden disruption of imports of heavy crude, we need to keep some reserve of heavy crude

Apparently, the Australian deal was actually the quickest way to use the SPR to help mitigate the US supply glut, because the paperwork for using US funds for this would have taken too long. The Australian government stepped in to solve the paperwork problem, not because they actually needed the oil. As a reward for this, they will probably make a killing on the contango. If so, they deserve it.

The SPR capacity would have better served American oil producers to store their crude and then the American oil companies would have made a very good profit on the contango. Why let the Aussies profit and let the American oil producers take losses? on storing the sweet shale crudes!!!

[0R0 + 6,251]

On 6/4/2020 at 8:11 PM, ceo_energemsier said:

This should be a no no.... with the US SPR, do not lease it to foreign countries, perhaps lease it if they buy enough US oil to store it, but preference should be given to help US producers in the time of glut and shortage of storage capacity.

Each country should have their own plan, Australia needs to build their own SPR. They have plenty of refineries that have been shuttered so the Gov. should buy or lease those sites and expand on their storage capacity and or build new ones.

If the Australians and Japanese intend to sink the Chinese Navy then they also need storage away from the theater of war.

[Dan Clemmensen + 1,011]

43 minutes ago, ceo_energemsier said:

The SPR capacity would have better served American oil producers to store their crude and then the American oil companies would have made a very good profit on the contango. Why let the Aussies profit and let the American oil producers take losses? on storing the sweet shale crudes!!!

This may very well be true. However, we had no mechanism in place to permit this to happen, apparently, but we did have a mechanism to lease the space to the Australians. If the US administration had reacted to the demand crash more quickly (as we were discussing here at the time) then maybe the US companies would have benefited (or at least not lost as much). It's very easy to see what should have happened after the fact. It takes competence to put the mechanisms in place and do the contingency planning before the crisis occurs.

[Jay McKinsey + 1,490]

5 minutes ago, Dan Clemmensen said:

This may very well be true. However, we had no mechanism in place to permit this to happen, apparently, but we did have a mechanism to lease the space to the Australians. If the US administration had reacted to the demand crash more quickly (as we were discussing here at the time) then maybe the US companies would have benefited (or at least not lost as much). It's very easy to see what should have happened after the fact. It takes competence to put the mechanisms in place and do the contingency planning before the crisis occurs.

They did rent SPR space to US companies: https://www.reuters.com/article/us-global-oil-usa-spr/nine-companies-rent-23-million-barrels-worth-of-space-in-us-emergency-oil-reserve-official-idUSKBN22C03Q

[ceo_energemsier + 1,818]

1 minute ago, Jay McKinsey said:

They did rent SPR space to US companies: https://www.reuters.com/article/us-global-oil-usa-spr/nine-companies-rent-23-million-barrels-worth-of-space-in-us-emergency-oil-reserve-official-idUSKBN22C03Q

They did but the Admin should have left it open for US companies to lease and store their own produced/acquired crude not foreign govs.