DOE spent $498M on crude oil purchases, with Shell Trading as the primary contractor
Contract Overview
Contract Amount: $498,020,035 ($498.0M)
Contractor: Shell Trading (US) Company
Awarding Agency: Department of Energy
Start Date: 2009-01-13
End Date: 2009-04-30
Contract Duration: 107 days
Daily Burn Rate: $4.7M/day
Competition Type: FULL AND OPEN COMPETITION
Number of Offers Received: 3
Pricing Type: FIRM FIXED PRICE
Sector: Energy
Official Description: PURCHASE UP TO TWELVE (12) MILLION BARRELS OF CRUDE OIL
Place of Performance
Location: NEW ORLEANS, JEFFERSON County, LOUISIANA, 70123
Plain-Language Summary
Department of Energy obligated $498.0 million to SHELL TRADING (US) COMPANY for work described as: PURCHASE UP TO TWELVE (12) MILLION BARRELS OF CRUDE OIL Key points: 1. The contract involved the purchase of up to 12 million barrels of crude oil, indicating a significant volume requirement. 2. The firm-fixed-price contract type suggests that the price was set at the time of award, potentially mitigating cost overruns for the government. 3. The duration of the contract was approximately 107 days, pointing to a short-term supply need. 4. The award was made under full and open competition, implying a robust bidding process. 5. The contract was awarded by the Department of Energy, aligning with its energy security and strategic petroleum reserve functions. 6. The geographic location of the contract execution was Louisiana, a key hub for oil and gas operations in the US.
Value Assessment
Rating: good
The total award amount of $498 million for up to 12 million barrels of crude oil translates to an approximate per-barrel cost of $41.50. This price point needs to be benchmarked against prevailing market rates for crude oil during the contract period (January to April 2009). Given the market conditions of that time, this price appears competitive, especially considering the scale and logistical complexities of such a large purchase. The firm-fixed-price structure further enhances value by locking in costs.
Cost Per Unit: Approximately $41.50 per barrel (based on maximum volume and total award)
Competition Analysis
Competition Level: full-and-open
The contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. The presence of 3 bidders suggests a reasonable level of competition for this significant crude oil purchase. This competitive environment is expected to drive more favorable pricing and terms for the government.
Taxpayer Impact: Full and open competition ensures that taxpayers benefit from the most competitive pricing and terms available in the market, preventing potential overspending that could occur with less competitive procurement methods.
Public Impact
The primary beneficiary is the U.S. government, specifically the Department of Energy, in fulfilling its strategic energy reserve or supply needs. The service delivered is the procurement of a substantial quantity of crude oil, essential for national energy security. The geographic impact is centered in Louisiana, a state with significant oil and gas infrastructure, facilitating logistics and delivery. The contract supports the broader energy sector by creating demand for crude oil, indirectly impacting related industries and employment within the energy supply chain.
Waste & Efficiency Indicators
Waste Risk Score: 50 / 10
Warning Flags
- Potential for price volatility in the crude oil market during the contract period, although mitigated by the fixed-price structure.
- Dependence on a single primary contractor (Shell Trading) for a large volume of a critical commodity.
- Logistical challenges associated with transporting and storing millions of barrels of crude oil.
Positive Signals
- Awarded under full and open competition, suggesting a fair and competitive bidding process.
- Firm-fixed-price contract type provides cost certainty for the government.
- Significant volume purchase may leverage economies of scale.
- Contract executed in Louisiana, a region with established energy infrastructure and expertise.
Sector Analysis
This contract falls within the broader energy sector, specifically the upstream and midstream segments related to crude oil procurement and supply. The market for crude oil is global and highly volatile, influenced by geopolitical events, supply and demand dynamics, and economic conditions. The Department of Energy's role in purchasing crude oil often relates to managing the Strategic Petroleum Reserve (SPR) or addressing national energy security needs. Comparable spending benchmarks would involve analyzing other large-scale crude oil purchases by government entities or major energy companies during the same period.
Small Business Impact
There is no indication that this contract involved small business set-asides. Given the nature of crude oil trading and the substantial volume, it is likely that the primary contractors are large, established energy companies. Subcontracting opportunities for small businesses might exist in ancillary services such as transportation, storage, or logistics, but these are not explicitly detailed in the provided data.
Oversight & Accountability
The Department of Energy is responsible for the oversight of this contract. As a firm-fixed-price contract, the primary accountability measure is the delivery of the specified quantity and quality of crude oil within the agreed-upon price. Transparency is generally maintained through federal procurement databases. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse related to the contract.
Related Government Programs
- Strategic Petroleum Reserve
- Energy Security Initiatives
- Crude Oil Procurement
- Commodity Trading Contracts
Risk Flags
- Market Volatility Risk
- Logistical Execution Risk
- Counterparty Reliability
Tags
energy, department-of-energy, crude-oil, commodity-purchase, firm-fixed-price, full-and-open-competition, louisiana, large-contract, shell-trading, strategic-petroleum-reserve
Frequently Asked Questions
What is this federal contract paying for?
Department of Energy awarded $498.0 million to SHELL TRADING (US) COMPANY. PURCHASE UP TO TWELVE (12) MILLION BARRELS OF CRUDE OIL
Who is the contractor on this award?
The obligated recipient is SHELL TRADING (US) COMPANY.
Which agency awarded this contract?
Awarding agency: Department of Energy (Department of Energy).
What is the total obligated amount?
The obligated amount is $498.0 million.
What is the period of performance?
Start: 2009-01-13. End: 2009-04-30.
What was the prevailing market price for crude oil during the contract period (January-April 2009)?
During the period of January to April 2009, crude oil prices experienced significant fluctuations. The market was recovering from the sharp decline seen in late 2008. West Texas Intermediate (WTI) crude oil prices, for example, ranged roughly from $40 to $53 per barrel during this timeframe. The approximate per-barrel cost of $41.50 for this contract falls within the lower end of this range, suggesting a potentially favorable acquisition price for the Department of Energy, especially considering the large volume and the fixed-price nature of the agreement which offered cost certainty.
How does the per-unit cost compare to other similar government crude oil purchases?
Benchmarking this contract's per-unit cost of approximately $41.50 against other similar government crude oil purchases requires access to historical data on other Department of Energy or Department of Defense fuel procurements during the same period. However, considering the market context of early 2009, where prices were generally lower than the peaks of 2007-2008 but recovering, this price appears competitive. Large-volume, fixed-price contracts often secure better rates than spot market purchases, especially if negotiated strategically. Without specific comparative contract data, it's difficult to provide a precise benchmark, but the price is within the expected range for the market conditions.
What were the primary risks associated with this large-volume crude oil purchase?
The primary risks associated with this large-volume crude oil purchase included market price volatility, although mitigated by the firm-fixed-price structure. Delivery and logistical risks were also significant, involving the transportation and potential storage of 12 million barrels of crude oil, which could be impacted by weather, infrastructure issues, or geopolitical events affecting supply routes. Counterparty risk, concerning the reliability and financial stability of Shell Trading (US) Company, was another consideration, though typically assessed during the pre-award phase. Ensuring the quality specifications of the crude oil met the government's requirements was also a critical risk factor.
What is the significance of Shell Trading (US) Company being the primary contractor?
Shell Trading (US) Company is a subsidiary of a major global energy company, Shell plc. Their involvement as the primary contractor for a significant crude oil purchase indicates their capacity and established position within the global oil trading market. Large energy trading firms possess the infrastructure, financial backing, market access, and expertise necessary to handle such large-volume transactions reliably. Their selection suggests they were deemed the most capable and competitive bidder among the three participants in the full and open competition.
How does this contract align with the Department of Energy's broader mission?
This contract directly aligns with the Department of Energy's (DOE) mission to ensure America's energy security and economic prosperity. Purchasing large quantities of crude oil, especially under a fixed-price agreement, can be part of managing the Strategic Petroleum Reserve (SPR) to cushion the impact of supply disruptions or price shocks. It also supports the stability of energy markets by demonstrating consistent demand and potentially influencing supply availability. The procurement process itself, utilizing full and open competition, reflects the DOE's commitment to efficient and responsible use of taxpayer funds.
What were the historical spending patterns for crude oil procurement by the DOE around 2009?
Around 2009, the Department of Energy's spending on crude oil procurement, particularly for the Strategic Petroleum Reserve (SPR), was substantial and subject to market conditions and government policy. The SPR aims to maintain a reserve of up to 713.5 million barrels. Purchases during periods of lower prices, like parts of 2009, were often strategic opportunities to fill the reserve. Historical data would show significant annual expenditures, varying based on market prices, filling goals, and potential sales from the reserve. This specific $498 million contract represents a notable single acquisition within that broader spending context.
Industry Classification
NAICS: Wholesale Trade › Petroleum and Petroleum Products Merchant Wholesalers › Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals)
Product/Service Code: ORES, MINERALS AND PRIMARY PRODUCTS
Competition & Pricing
Extent Competed: FULL AND OPEN COMPETITION
Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE
Offers Received: 3
Pricing Type: FIRM FIXED PRICE (J)
Evaluated Preference: NONE
Contractor Details
Parent Company: Shell Deutschland Gmbh (UEI: 423792808)
Address: 909 FANNIN ST, HOUSTON, TX, 90
Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business
Financial Breakdown
Contract Ceiling: $498,020,035
Exercised Options: $498,020,035
Current Obligation: $498,020,035
Contract Characteristics
Cost or Pricing Data: NO
Timeline
Start Date: 2009-01-13
Current End Date: 2009-04-30
Potential End Date: 2009-04-30 00:00:00
Last Modified: 2010-01-26
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