The IEA Response System for Oil Supply Emergencies. Aad van Bohemen. Head, Emergency Policy Division International Energy Agency

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1 The IEA Response System for Oil Supply Emergencies Aad van Bohemen Head, Emergency Policy Division International Energy Agency For 38 th Meeting of the APEC Energy Working Group, Bali, Indonesia,16-20 November 2009 OECD/IEA -2009

2 The International Energy Agency 28 member countries Poland Australia Austria Belgium Canada Czech Republic Denmark Japan Finland France Korea Greece Germany New Zealand Hungary Ireland United States Italy Luxembourg Norway The Netherlands Portugal Switzerland Turkey Slovakia Sweden Spain United Kingdom

3 APEC IEA cooperation Energy Security Initiative (ESI) JODI To promote market transparency Real-time Sharing System Coordination of contingency plans Emergency responses; oil stocks 3 Cooperation with the IEA Members report arrangements on a voluntary basis

4 Impetus to establish the IEA 1973/74 oil crisis Avoid competition for limited supplies Go-it-alone, uncoordinated policy ineffective Coordinated action mechanism for response Safety net emergency reserves 90 days of net oil imports Demand restraint measures (7-10%) 4

5 Member Government Responsibilities Legislation to ensure participation in IEA decisions with appropriate emergency measures Emergency response team (NESO) Co-ordinate emergency operations Interface with domestic oil industry Interface with IEA emergency operations Data collection Monthly Oil Statistics Emergency questionnaire

6 Emergency Response Measures Supply Side Demand Side Stockdraw Production Surge Demand Restraint Fuel Switching 6

7 IEA Stockholding Obligation Total oil reserves cover at least 90 days Net-imports of previous year Crude and refined product The calculation excludes marine bunkers and naphtha deducts 10% for unavailable stocks Main types of stocks excluded: oil not yet produced stocks held in pipelines, tankers at sea, in service stations, retail stores, military stocks 7

8 Stockholding Options Industry stocks Compulsory stocks and commercial stocks held by companies Public stocks Government stocks Financed with central government budget, Held exclusively for emergency purposes or Agency stocks Maintained for emergency purposes Held/controlled by public bodies or agencies 8

9 Different Stockholding Structures in IEA Countries Industry Agency Government Agency/ Industry Government/ Industry Greece Germany Czech Rep. Austria Japan Italy Hungary New Zealand Belgium Republic of Korea Luxembourg Ireland Slovak Rep. Denmark Poland Norway US Finland Sweden France Turkey Netherlands UK Portugal (Australia) Spain (Canada) Switzerland Note: There is no stockholding obligation on industry in Australia and Canada. Australia is a small net importer, while Canada is a net exporter. r.

10 Financing Mechanisms Government/Agency Stocks A variety of financing methods Initial set-up/capital costs Financed from central government budget Bank loans also used Running costs of stockholding agencies Financed from central government budget Through a fee (levy) charged on product sales Through a fee charged to industry Compulsory Industry Stocks Relevant costs are included in consumer prices and borne directly by consumers

11 Public Stockholding - Choices What to hold? Crude vs. Product How to hold it? Own storage / rented Co-mingled / segregated How to release it? Loans, tender, sales Whatever the means for releasing public stocks, the process should be clear for all and regularly tested

12 Stockholding in IEA Countries mid-1980s to present Increase in total stocks From 3.1 billion bbls in 80s to 4.3 Increase in publicly held stocks From 0.8 billion bbls in 80s to almost 1.6 Public Industry 12

13 Public Stocks: A Clear Safety Net duration (months) Sep decision, 2 mb/d 1.56 billion barrels of Public stocks Theoretical decision, 4 mb/d draw rate (mb/d) 13 IEA Public Stocks alone could replace an oil supply disruption of 4 mb/d for 1 year

14 New Emergency Response System Initial Contingency Response Plan (ICRP) Standing procedure for Prompt, first reaction for 30 days Provides time to consider follow-up action Broad consultation Unanimous decision Executive Director can take initiative GB members decide No meeting required Attributes country shares of total response, based on normal oil consumption 14

15 IEA Emergency Oil Stock Policy The emergency oil stocks are not for price management ineffective over time masks important price signals are for short-term oil supply disruptions when market mechanisms break down temporarily provide liquidity for markets to recover 15 Strategic oil stocks cannot effectively replace market mechanisms, only mitigate short-term supply disruptions

16 Every disruption is different: Making the assessment What is the full extent of the outage? Will global supply be affected? How long will supply be off line? Are crude, products or both affected? Will there be a direct impact on consumption? Will spare capacity act as an offset? OPEC dialogue very important Does crude quality match lost supplies? What will be the market impact of intervention? Is a regional response necessary? Global market - outages rarely affect only one region

17 Similar disruptions can call for different responses kb/d US GoM Hurricane Outages Gustav & Ike Katrina & Rita July Aug Sep Oct Nov Dec Range yr avg Despite similar volume loss, 2008 was not just 2005 all over again In 2008, falling demand, higher stocks, higher spare OPEC capacity, plenty idle refining capacity elsewhere & prices going down So decision taken, with US colleagues, not to make coordinated release But market monitoring & impact assessment just as intense as in 2005 Good data, analysis & communications are an ongoing necessity, not just during crises

18 Strengthening Emergency Response Systems Emergency Response Reviews (ERR) Country peer reviews on emergency preparedness Checks procedures and institutional arrangements Contributes to identify and improve the weak points of response system Emergency Response Exercises (ERE) Test the processes for: decision making, communicating, hypothetical release 18

19 New Approach forward for ERE Biannual exercises continued (ERE5 in Paris scheduled in Nov.2010) Specific workshops for new or complex issues/policy Rollout of ERE to key NMCs

20 Thailand-IEA Joint ERE (18-19 May, 2009 in Bangkok) First time outside Paris, & with a non-member country Training Session (120 people) Simulation Exercise (60 people) Structure CNN-style videos Facilitator, game books Exercise was well tailor-made for Thailand Many lessons learnt to help Thailand enhance its energy security

21 Outreach is one of IEA core activities: Recent activities with ASEAN in energy security Sep.2007: Feb. 2008: IEA/MoEN Workshop for ASEAN on Oil Security and National Emergency Preparedness (BKK) IEA-ASEAN Training Course on Oil Emergency Preparedness and Statistics (Paris) June 2008: ERE4 (Paris) All 10 ASEAN countries, ACE, ASCOPE participated

22 IEA Publications Oil Supply Security 2007 ; chapters on ASEAN, China and India Translation of Brochure on IEA Response System for Oil Supply Emergencies into Chinese, Indonesian, Russian, Spanish & Thai Energy Policy Review of Indonesia World Energy Outlook 2007 ; China & India World Energy Outlook 2009 ; Southeast Asia

23 Outreach to APEC will take off Communiqué of IEA Ministerial Meeting (Oct.14-15, 2009) IEA Member Countries Ministers asked IEA to to expand the training and workshops it offers to partner countries in order to bolster their capacity to formulate sound energy policy. Enhanced coordination with regional bodies, such as APEC and the African Union would be fruitful.

24 The Energy Training and Capacity-Building Programme 2 year pilot programme, Flexible & Tailor-made Activities Seminars, workshops, training sessions of several days to a week To be held at Paris HQ or in host countries Secondments & internships Topics to be covered Energy policy development Emergency response capability Energy statistics, etc.

25 Concluding Remarks: Cooperation to be explored: Workshops Training Information sharing during disruptions Emergency contact points Emergency Response Exercises Emergency Response Reviews Coordination of use of measures during global disruptions 25

26 Thank you Contact details: Web site: 26