This part establishes the procedures for acquiring petroleum products for, and deferring contractually scheduled deliveries to, the Strategic Petroleum Reserve. The procedures do not represent actual terms and conditions to be contained in the contracts for the acquisition of SPR petroleum products.

Backwardation means a market situation in which prices are progressively lower in succeeding delivery months than in earlier months.

Contango means a market situation in which prices are progressively higher in the succeeding delivery months than in earlier months.

Contract means the agreement under which DOE acquires SPR petroleum products, consisting of the solicitation, the contract form signed by both parties, the successful offer, and any subsequent modifications, including those granting requests for deferrals.

Contracting Officer means a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings, including entering into sales contracts on behalf of the Government. The term includes certain authorized representatives of the Contracting Officer acting within the limits of their authority as delegated by the Contracting Officer.

DEAR means the Department of Energy Acquisition Regulation.

Deferral means a process whereby petroleum products scheduled for delivery to the SPR in a specific contract period is rescheduled for later delivery, outside of that period, and encompasses the future delivery of the originally scheduled quantity plus an in-kind premium.

DOE means the Department of Energy and includes any of its subsidiary offices, such as the Office of Petroleum Reserves (OPR) and the Strategic Petroleum Reserve Program Management Office.

Exchange means a process whereby petroleum products owned by or due to the SPR are provided to an entity or requestor in return for petroleum products of comparable quality plus a premium quantity of petroleum products (in barrels)—or another form of premium as permitted by law—delivered to the SPR in the future, or when SPR petroleum products are traded for petroleum products of a different quality preferred by DOE for operational reasons based on the relative values of the quantities traded.

FAR means the Federal Acquisition Regulation.

Government means the United States Government and includes DOE as its representative.

OPR means the Office of Petroleum Reserves within DOE, whose responsibilities include the operation of the Strategic Petroleum Reserve.

Petroleum products means crude oil, residual fuel oil, or any refined product (including any natural gas liquid, and any natural gas liquid product) owned, or contracted for, by DOE and in storage in any permanent SPR facility, or temporarily stored in other storage facilities.

Premium means the additional amount of petroleum product (in barrels)—or another form of payment as permitted by law—that must be delivered to the SPR above the principal amount of petroleum product owed to SPR in the case of an exchange or a deferred contractually scheduled delivery. The premium may include a calculation based on a rate set by DOE and duration of time until the SPR receives the petroleum product.

Requestor is an entity that makes an emergency request under § 626.7(b).

Secretary means the Secretary of Energy.

Solicitation means the written request by DOE for submission of offers or quotations to DOE for the acquisition of petroleum products.

Strategic Petroleum Reserve or SPR means the reserve for the storage of up to 1 billion barrels of petroleum products established by Title I, Part B, of the Energy Policy and Conservation Act, 42 U.S.C. 6201 et seq.

The procedures in this part apply to the acquisition of petroleum products by DOE for the Strategic Petroleum Reserve through purchase or exchange, as well as to deferrals of contractually scheduled deliveries.

(a) Criteria for commencing acquisition. DOE shall consider the following factors prior to commencing acquisition of petroleum products for the SPR:

(1) The current inventory of the SPR;

(2) The current level of private inventories;

(3) Days of net import protection;

(4) Current price levels for petroleum products and related commodities, the ability to minimize costs and avoid incurring excessive costs in acquisition, and the possible effect on consumer and market prices of any SPR acquisition;

(5) The outlook for international and domestic production levels;

(6) Existing or potential disruptions in supply or refining capability;

(7) The level of market volatility;

(8) Futures market price differentials for petroleum products and related commodities;

(9) The need to protect national security; and

(10) Any other factor the Secretary deems necessary or appropriate to consider.

(b) Review of rate of acquisition. DOE shall review the appropriate rate of petroleum product acquisition each time an open market acquisition has been suspended for more than three months.

(c) Acquisition through other Federal agencies. DOE may enter into arrangements with another Federal agency for that agency to acquire petroleum products for the SPR on behalf of DOE.

(a) Notice of acquisition. (1) Except when DOE has determined there is good cause to do otherwise, DOE shall provide advance public notice of its intent to acquire petroleum products for the SPR. The notice of acquisition will, to the extent feasible, include the general terms and details of DOE's petroleum products acquisition and inform the public of DOE's overall fill goals.

(2) The notice of acquisition will generally include the:

(i) Manner of acquisition;

(ii) Time period for solicitations;

(iii) Quantity of petroleum products sought;

(iv) Minimum petroleum product quality requirements;

(v) Time period for delivery;

(vi) Acceptable delivery locations; and

(vii) Instructions for the offer process.

(b) Manner of acquisition. (1) DOE shall specify the manner of petroleum product acquisition, either purchase or exchange, in the notice of acquisition.

(2) DOE shall, to the greatest extent practicable, determine the manner of petroleum product acquisition after considering:

(i) The availability of appropriated funds;

(ii) Minimization of costs;

(iii) Minimization of the Nation's vulnerability to a severe energy supply interruption;

(iv) Minimization of the impact to supply levels and market forces;

(v) Whether the manner of acquisition would encourage competition in the petroleum industry; and

(vi) Other considerations DOE deems to be relevant.

(c) Solicitation. (1) To secure the economic benefit and security of a diversified base of potential suppliers of petroleum products to the SPR, DOE shall maintain a listing, developed through online registration, direct requests to DOE, and outreach to potential suppliers by DOE. Upon the issuance of a solicitation, DOE shall notify potential suppliers via their registered email addresses.

(2) DOE shall make the solicitation publicly available on the website of the OPR: www.spr.doe.gov.

(d) Timing and duration of solicitation. (1) DOE shall determine petroleum products requirements on nominal six-month cycles, and shall review and update these requirements prior to each solicitation cycle.

(2) Unless termination rights are explicitly waived by DOE, DOE may terminate any solicitations and contracts pertaining to the acquisition or exchange of petroleum products at the convenience of the Government, and in such event shall not be responsible for any costs incurred by suppliers, other than costs for petroleum products delivered to the SPR and for reasonable, customary, and applicable costs incurred by the supplier in the performance of a valid contract for delivery before the effective date of termination of such contract. In no event shall the Government be liable for consequential damages or the entity's lost profits as a result of such termination.

(e) Quality. (1) DOE shall define minimum petroleum product quality specifications for the SPR. DOE shall include such specifications in acquisition solicitations, and shall make them available on the website of the OPR: www.spr.doe.gov.

(2) DOE shall periodically review the quality specifications to ensure, to the greatest extent practicable, the petroleum product mix in storage matches the demand of the United States refining system.

(f) Quantity. In determining the quantities of petroleum products to be delivered to the SPR, DOE shall:

(1) Take into consideration market conditions and the availability of transportation systems; and

(2) Seek to avoid adversely affecting other market participants or petroleum product market fundamentals.

(g) Offer and evaluation procedures. (1) Each solicitation shall provide necessary instructions on offer format and submission procedures. The details of the offer, evaluation, and award procedures may vary depending on the method of acquisition.

(2) DOE may use relative values and time differentials to manage acquisition and delivery schedules to reduce acquisition costs.

(3) DOE may evaluate offers based on prevailing market prices of specific petroleum products, and shall award contracts on a competitive basis.

(4) Whether acquisition is by purchase or exchange, DOE may use a price index to account for fluctuations in absolute and relative market prices at the time of delivery to reduce market risk to all parties throughout the contract term.

(h) Scheduling and delivery. (1) Except as provided in paragraph (h)(4) of this section, DOE shall accept offers for petroleum products delivered to specified SPR storage sites via pipeline or as waterborne cargos delivered to the terminals serving those sites.

(2) Except as provided in paragraph (h)(4) of this section, DOE shall generally establish schedules that allow for evenly spaced deliveries of economically sized marine and pipeline shipments within the constraints of SPR site and commercial facilities receipt capabilities.

(3) DOE shall strive to maximize U.S. flag carrier utilization through the terms of its supply contracts.

(4) DOE reserves the right to accept offers for other methods of delivery if, in DOE's sole judgment, market conditions and logistical constraints require such other methods.

(a) General. For the purchase of petroleum products, DOE shall, through certified contracting officers, conduct petroleum product acquisitions in accordance with the competitive principles of the FAR and the DEAR.

(b) Acquisition strategy. (1) DOE solicitations:

(i) May be either continuously open or fixed for a period of time; and

(ii) May provide either for immediate delivery or for delivery at future dates.

(2) DOE may alter the acquisition plan to take advantage of differentials in prices for different qualities of petroleum products, based on a consideration of factors, including the availability of storage capacity in the SPR sites, the logistics of changing delivery streams, and the availability of ships, pipelines, and terminals to move and receive the petroleum products.

(3) Based on the market analysis described in paragraph (d) of this section, DOE may refuse offers or suspend the acquisition process on the basis of Government estimates projecting substantially lower petroleum product prices in the future than those contained in offers. If DOE determines there is a high probability that the cost to the Government can be reduced without significantly affecting national energy security goals, DOE may either contract for delivery at a future date or delay purchases to take advantage of the projected lower future prices. Conversely, DOE may increase the rate of purchases if prices fall below recent price trends or futures markets present a significant contango and prices offer the opportunity to reduce the average cost of petroleum product acquisitions in anticipation of higher future prices.

(4) Based on the market analysis described in paragraph (d) of this section, DOE may refuse offers, decrease the rate of purchase, or suspend the acquisition process if DOE determines acquisition will add significant upward pressure to prices either regionally or on a world-wide basis. DOE may consider recent price changes, private inventory levels, petroleum product acquisition by other stockpiling entities, the outlook for world petroleum products production, incipient disruptions of supply or refining capability, logistical problems for moving petroleum products, macroeconomic factors, and any other considerations that may be pertinent to the balance of petroleum product supply and demand.

(c) Fill requirements determination. DOE shall develop SPR fill requirements for each solicitation based on an assessment of national energy security goals, the availability of storage capacity, and the need for specific grades and quantities of petroleum products.

(d) Market analysis. (1) DOE shall establish a market value for each petroleum product to be acquired based on a market analysis at the time of contract award.

(2) DOE may consider prices on futures markets, spot markets, recent price movements, current and projected shipping rates, forecasts by the DOE Energy Information Administration, and any other analytic tools available to DOE to determine the most desirable purchase profile.

(3) DOE may also consider factors including recent price changes, private inventory levels, petroleum product acquisition by other stockpiling entities, the outlook for world petroleum product production, disruptions of supply or refining capability, logistical problems for moving petroleum products, macroeconomic factors, and any other considerations that may be pertinent relevant to the balance of petroleum product supply and demand.

(e) Evaluation of offers. (1) DOE shall evaluate offers using:

(i) The criteria and requirements stated in the solicitation; and

(ii) The market analysis under paragraph (d) of this section.

(2) DOE shall require financial guarantees from the contracting entity, in the form of a letter of credit or equivalent financial assurance.

(a) General. DOE may, through certified contracting officers, conduct petroleum product acquisitions through the exchange of petroleum products. Exchanges are conducted through emergency requests or by solicitation.

(b) Emergency requests. (1) Notwithstanding the requirements of § 626.5, the requirements of this subsection shall control all exchanges by emergency request.

(2) At any point, in the event of an emergency, a requestor may request, in writing, for an exchange of petroleum product from the SPR.

(3) All requests shall include the following:

(i) A justification of need that describes:

(A) The emergency event,

(B) The emergency event's impact on the requestor, and

(C) The requestor's inability to acquire petroleum product from an alternative source;

(ii) The quantity of petroleum product (in barrels) requested;

(iii) The quality specifications of petroleum product requested; and

(iv) The anticipated duration of the emergency event.

(4) Upon receipt of an emergency request, DOE will verify the emergency, evaluate the need, and assess the market to ensure there is no alternative source of petroleum products available to the requester. DOE, in its sole discretion, may approve or disapprove any emergency request.

(5) Upon approval of an emergency request, DOE may enter into contract negotiations with the requestor.

(6) Repayment to the SPR for an exchange by emergency request shall be in the form of barrels of petroleum products, or another form of repayment as permitted by law, and shall include the following to be returned to the SPR by the contracted date:

(i) The principal amount of petroleum products provided to the requestor;

(ii) A premium; and

(iii) Costs incurred by DOE in conducting the emergency request.

(c) Solicitation for exchange. (1) A solicitation for exchange:

(i) May be either continuously open or fixed for a period of time;

(ii) Shall advertise the quantity and quality specification of petroleum product available for exchange;

(iii) May provide either for immediate delivery or for delivery at future dates to a bidding entity;

(iv) May, in DOE's sole discretion, include a rate table from which offerors may offer dates for repayment; and

(v) May require financial guarantees from offerors in the form of a letter of credit or equivalent financial assurance to accompany their bids.

(2) In conducting the bidding and selection process:

(i) Offerors shall follow the instructions to offerors included in the solicitation;

(ii) DOE shall evaluate and select bids that best support national energy security goals, the availability of petroleum products and storage capacity, and need for specific grades and quantities of petroleum products; and

(iii) Upon selection of a successful bid, DOE shall notify the apparently successful offeror.

(3) Repayment to the SPR for an exchange by solicitation shall be in the form of barrels of petroleum products or another form of repayment as permitted by law, and may be calculated based on any rate table, if applicable, and shall include the following:

(i) Principal amount of petroleum product owed to SPR in the case of an exchange or a deferred contractually scheduled delivery;

(ii) Costs incurred by DOE in conducting the exchange; and

(iii) A premium for each prospective date for repayment.

(4) Based on the market analysis described in paragraph (c)(5) of this section, DOE may refuse offers, decrease the rate of acquisition, or suspend the exchange process if DOE determines acquisition will add significant upward pressure to prices either regionally or on a worldwide basis. DOE may consider recent price changes, private inventory levels, petroleum product acquisition by other stockpiling entities, the outlook for world petroleum products production, incipient disruptions of supply or refining capability, logistical problems for moving petroleum products, macroeconomic factors, and any other considerations that may be pertinent to the balance of petroleum product supply and demand.

(5) Market analysis:

(i) DOE shall establish a market value for each petroleum product to be acquired based on a market analysis at the time of contract award.

(ii) DOE may consider prices on futures markets, spot markets, recent price movements, current and projected shipping rates, forecasts by the DOE Energy Information Administration, and any other analytic tools available to DOE to determine the most desirable purchase profile.

(iii) DOE may also consider factors including recent price changes, private inventory levels, petroleum product acquisition by other stockpiling entities, the outlook for world petroleum product production, disruptions of supply or refining capability, logistical problems for moving petroleum products, macroeconomic factors, and any other considerations that may be pertinent relevant to the balance of petroleum product supply and demand.

(a) General. (1) DOE prefers to take deliveries of petroleum products for the SPR at times scheduled under applicable contracts. However, in the event the market is distorted by disruption to supply or other factors, DOE may defer scheduled deliveries or consider deferral requests from awardees.

(2) An awardee seeking to defer scheduled deliveries of petroleum products to the SPR may submit a deferral request to DOE.

(b) Deferral criteria. DOE shall only grant a deferral request for negotiation under paragraph (c) of this section if it determines that DOE can receive a premium for the deferral and, based on DOE's deferral analysis, that at least one of the following conditions exists:

(1) DOE can reduce the cost of its petroleum products acquisition per barrel and increase the volume of petroleum products being delivered to the SPR by means of the premium barrels required by the deferral process;

(2) DOE anticipates private inventories are approaching a point where unscheduled outages may occur;

(3) There is evidence that refineries are reducing their run rates for lack of feedstock; or

(4) There is an unanticipated disruption to petroleum product supply.

(c) Negotiating terms. (1) If DOE decides to negotiate a deferral of deliveries, DOE shall estimate the market value of the deferral and establish a strategy for negotiating with suppliers the minimum percentage of the market value to be taken by the Government. During these negotiations, if the deferral request was initiated by DOE, DOE may consider any reasonable, customary, and applicable costs already incurred by the supplier in the performance of a valid contract for delivery. In no event shall such consideration account for any consequential damages or lost profits suffered by the supplier as a result of such deferral.

(2) DOE shall only agree to amend the contract if the negotiation results in an agreement to give the Government a fair and reasonable share of the market value.

Where the Secretary has found that a severe energy supply interruption may be imminent, the Secretary may suspend any previously announced or contracted acquisition of any petroleum product by the SPR or injection of petroleum products into the SPR; or sell any petroleum product acquired for injection into the SPR that has not yet been injected into the SPR.