The IEA Response System for Oil Supply Emergencies

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

2. The International Energy Agency 28 member countries Poland Austria Belgium Australia Denmark Canada Czech Republic Japan Finland France Germany Korea Greece Ireland New Zealand Hungary Luxembourg United States Italy Norway The Netherlands Portugal Switzerland Spain Slovakia Sweden Turkey 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 • Cooperation with the IEA • Members report arrangements on a voluntary basis 3

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 • Legislationto 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 Stockdraw Supply Side Production Surge Demand Restraint Demand Side 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 Note: There is no stockholding obligation on industry in Australia and Canada. Australia is a small net importer, while Canada is a net exporter.

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. 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 Stockholding in IEA Countriesmid-1980s to present Public Industry 12

13. Public Stocks: A Clear Safety Net 1.56 billion barrels of Public stocks 2 Sep. 2005 decision, 2 mb/d Theoretical decision, 4 mb/d IEA Public Stocks alone could replace an oil supply disruption of 4 mb/d for 1 year 13

14. New Emergency Response System • 2002- 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 Strategic oil stocks cannot effectively replace market mechanisms, only mitigate short-term supply disruptions 15

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 • 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: IEA/MoEN Workshop for ASEAN on “Oil Security and National Emergency Preparedness” (BKK) Feb. 2008: 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, 2010-2011 • 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: aad.van.bohemen@iea.org epd@iea.org Web site: www.iea.org 26