Introduction

On Friday evening, the Department of Energy (DOE) published its solicitation for an exchange for the Strategic Petroleum Reserve, part of the International Energy Agency’s (IEA) joint release of 400 million barrels. In total, the US will release 172 million barrels. 

The exchange announced Friday is for exchange of up to 86 million barrels, for delivery in April and May. It is the first exchange conducted by DOE since November 2021, when the agency solicited an exchange of 50 million barrels. 

Exchanges are different from SPR releases. They fall under the statutory and regulatory regime of the acquisition authority under 42 U.S.C. 6240 and 10 C.F.R. 626. They do not require findings of a “severe energy supply interruption,” but do require that awardees return barrels to the SPR with a “premium.” 

For more information on exchanges, please read our description of the exchange authority in this 2022 piece.

A Few Quick Reactions

The exchange is largely the same as previous exchanges but a few interesting details stand out from the solicitation: 

The “Premium Percentage” Of Returned Barrels Is High.

In the November 2021 exchange, DOE required a premium of barrels back into the SPR ranging from 3% to 8%. The premium has moved considerably higher, ranging from 18% to 22 percent. The higher premium reflects the steep backwardation in the current crude futures curve, meaning near-term prices are trading well above prices for delivery further out. As Rory Johnston of Commodity Context has written, backwardation effectively charges holders of inventory an opportunity cost for keeping barrels off the market; the steeper the curve, the greater the incentive to sell now rather than later. An SPR exchange works along the same logic: awardees take delivery of barrels today at elevated near-term prices but must return them (plus the premium) months down the road, when the curve says those barrels will be worth less. The steeper the backwardation, the more DOE can extract in return.  In November 2021, backwardation was more modest, which is why the required premium was only 3–8%.

One practical effect of the exchange is that the commitment to return barrels plus a large premium (possibly over 100 million barrels in total) could lift the back of the curve and flatten the backwardation. This could incentivize more investment (see our 2022 report for more). 

Tenders Will Be Awarded To Offerors Based On The Additional Premium Provided

The solicitation also invites that offerors provide an “additional premium.” This is the basis under which tenders will be awarded. This is in contrast to the November 2021 release which prioritized who could take delivery from the SPR the soonest. 

The SPR Will Not Deliver To The Market Till April At The Earliest

Given the prioritization of additional premiums over speed, it means that despite reports to the contrary, it appears from the solicitation that delivery will not come to the market until April at the earliest. 

Life Extension II Updates Are Complete Or Near Complete At Two Major Sites

The FY 2026 budget request for the SPR stated that at least two large sites, Big Hill and Bryan Mound, were scheduled to complete their Life Extension II (LE2) upgrades. LE2 is a modernization project that began in 2015 to upgrade equipment at the sites. 

The budget request stated: 

“the Bryan Mound General Contractor is near completion with punch list items remaining. Key Performance Parameters have been met for both the Bayou Choctaw and Bryan Mound subprojects. The Big Hill General Contractor continues to work with a focus on outage work since January 13, 2025, with an outage completion forecasted for May 26, 2026.” 

Per the exchange solicitation, Bryan Mound could deliver up to 42 million barrels over the months of April and May, a release rate of approximately 700,000 barrels per day. 

The solicitation also indicates that Big Hill is on track to be ready later this year, with return barrels scheduled to begin on November 1, 2026. This is a positive development for the long-term health of the infrastructure. Three of the four sites (including Bayou Choctaw) will have completed the decade-long modernization plan. 

Sweet, Sweet Relief

The acquisitions and exchange returns between 2022 and 2025 were entirely for medium sour crude. This reflected the need to maintain cavern integrity, and the regulatory requirement that grades of crude acquired match the profile of domestic refining capacity, which remains more oriented toward sour grades. 

However, our production capacity swung considerably because of the shale revolution, toward light, sweet. We’ve previously written that acquiring only in medium, sour crude limits the ability of SPR acquisition to fulfill its statutory purpose of maximizing domestic production. By acquiring more light, sweet, the SPR could serve as an affordable hedge for the swing producers that increase our production capacity. 

10 million sweet barrels will be released by (and returned) to Bayou Choctaw, but the DOE is also taking more sweet, light crude in than it is releasing. The DOE is exchanging some sour crude released at West Hackberry (the only site that hasn’t undergone LE2 upgrades) for sweet. A double asterisk on the release schedule states, “West Hackberry sour returns of 10MMB plus applicable premium will need to be returned to Big Hill as sweet.” 

Conclusion

The choice to conduct an exchange rather than a release is interesting. The required return delivery plus a premium is a source of demand down the curve that would incentivize production. But the exchange is more complex and the return requirement could limit participation, delaying the SPR’s inventory reaching the market. 

More generally, the indications that the LE2 project is complete at several sites is a positive development for the long-term health of the SPR.