In 1973, members of
the Organisation of Arab Petroleum Exporting Countries (OAPEC) stopped
selling oil to both the US and the Netherlands following their support
for Israel in the Arab-Israeli War. South Africa, Rhodesia and Portugal
were later added to the list of embargoed countries, resulting in a
global oil crisis.
The ensuing shortage of oil and spiralling
prices led countries to seriously examine their energy security (the
uninterrupted availability of energy sources at an affordable price)
for, at the time, many economies were heavily dependent on oil, many
countries were reliant on imports from only one region, and most had
failed to invest in developing other energy sources or substitutes for
oil.
The IEA was established in November 1974 in response to
this crisis to help countries to develop response measures, such as the
establishment of emergency reserves, and to co-ordinate a collective
response to any future major disruptions in oil supply.
What causes oil supply disruptions?The
three most common reasons for disruption in the supply of oil are
unforeseen technical problems, the weather – such as seasonal storms in
the Gulf of Mexico - and civil unrest - such as the civil war in Libya
in 2011. Military or terrorist attacks which target energy
infrastructure for political motives, or disputes between governments,
while rare, are other significant concerns for world oil markets.
What are IEA member countries committed to doing in the event of a disruption?They
are all committed to taking joint measures in the event of oil supply
emergencies in order to avoid economic damage to their countries. They
have all agreed to share energy information, co-ordinate their energy
policies and co-operate in the development of rational energy
programmes. Each of the 29 IEA member countries is also required to hold
oil stocks equivalent to 90 days of its prior year’s net imports.
What is the purpose of holding these oil stocks?Oil
stocks are in place so that, in the event of an oil supply disruption
likely to cause considerable economic damage to member countries, they
can make their stocks available to the market in order to offset any
physical shortage of oil and ensure a steady supply. A release is not
undertaken to moderate prices, although it can have that impact by
calming the market, and thus exerting downward pressure on prices.
Has there ever been a need to release these stocks?Yes,
on a global scale IEA member country stocks have been used three times.
IEA member countries released oil stocks in the build up to the Gulf
War in 1991; after Hurricanes Katrina and Rita damaged offshore oil
rigs, pipelines and oil refineries in the Gulf of Mexico in 2005; and in
response to the prolonged disruption of oil supplies from Libya in
2011.
What are the current levels of oil stocks in each member country? Click
here.
Who owns these emergency oil stocks?In
general, IEA member countries use three approaches to meet their
stockholding obligations: industry stocks, government stocks and agency
stocks. Most countries use a combination of these.
Are these oil stocks monitored?Yes.
All IEA member countries monitor oil stocks on a monthly basis to
verify compliance with the local stockholding obligations and with the
IEA and European Union (if applicable) obligations for the country as a
whole. This monitoring takes the form of reported stocks data, but can
be confirmed with inspections or spot-checks.
Can a country keep its emergency oil stocks abroad?Yes.
Member countries can arrange to store oil outside of their national
boundaries in other IEA member countries and include such stocks as part
of their minimum 90-day requirement.
What about countries outside IEA membership?Since
the IEA was established, there have been significant shifts in the
global energy landscape as other countries have emerged as major energy
consumers. Recognising this, the IEA work has evolved and expanded. The
IEA now works closely with non-member countries to find solutions to
shared energy and environmental concerns. Part of this work involves
sharing the IEA expertise in handling major oil supply disruptions. For
example, the IEA has been working closely over several years with China,
India, Indonesia and Thailand to highlight the benefits of maintaining
oil stocks and preparedness in the event of a major disruption in the
supply chain. Both China and India have announced a goal to hold the
same stock levels of 90 days as mandated by the IEA to its member
countries.
Can an IEA member country unilaterally use the oil stocks and, if it were to do so, what would happen? IEA
member countries have emergency stockholding schemes in place not only
to participate in an IEA collective action, but also to be able to
respond in the case of a domestic crisis. Whenever a country uses its
emergency stocks, it communicates to the IEA the details and
circumstances. The stock levels in member countries are typically well
above the minimum IEA level, so the use of emergency stocks does not
necessarily mean going below the 90 days threshold.
What is the IEA role in determining whether or not to release stocks?The
IEA has established the Initial Contingency Response Plan for a rapid
and effective collective response to an oil supply disruption. The plan
works as follows:
Assessments – In the early
hours of an oil supply disruption or in the build-up toward what appears
likely to be a disruption, the IEA Secretariat will send all member
countries preliminary assessments. This notice alerts countries to the
potential call for a collective action.
Call for collective action
– Should the IEA Executive Director determine that the situation
warrants a collective action, he/she will issue a detailed Initial
Assessment, including an Initial Response Plan for releasing a specific
volume of oil in the first 30 days of the crisis.
Consultation – The Initial Assessment will initiate a period of broad, wide-ranging and swift
consultations
on the need for activation. The IEA Executive Director and Deputy
Executive Director will be in direct contact with IEA Governing Board
representatives.
Activation – If member
countries agree or do not object to the proposal for joint action after a
predetermined (maximum reasonable) period, the Executive Director will
issue a Notice of Activation, accompanied by a public Press Release.
Member countries will submit responses to a Questionnaire of Intended
Contribution to the IEA and commence implementation of emergency
measures within 15 days of the Notice of Activation.
Governing Board Meeting
– This could be convened within a matter of days following the Initial
Assessment to evaluate the situation and consider any further actions to
be taken.
Follow-up/Termination – The IEA will
continue to assess the disruption and implementation of emergency
measures. When appropriate, the IEA will recommend bringing the action
to an end and will propose a schedule for re-establishing emergency
stocks in those situations where they have fallen below the mandatory 90
days.
Does the IEA speak with OPEC during major disruptions?Yes.
The IEA consults with OPEC and its major member countries to determine
their ability and willingness to bring additional oil to the market.
(This is a possibility because some OPEC member countries have spare
production capacity).
Does the IEA speak with other (non-IEA member countries) major oil consumers during major disruptions?Yes.
The IEA communicates with major consuming non-member countries. This
communication can include determining the ability and willingness of
partner countries to bring additional oil to the market, or refrain from
stockpiling during a release.
Other than releasing these oil stocks, what other response measures do IEA member countries have at their disposal?There are a number of other measures IEA member countries can introduce, including:
Demand restraint measures. These
can range from light-handed (e.g. public information campaigns to
promote voluntary actions) to more medium-and heavy-handed (e.g. driving
restrictions or fuel rationing). These measures can be applied
differently across various sectors, but road transportation is commonly
targeted due to the high proportion of oil consumption it represents.
Fuel switching. This
is the substitution of one form of fuel for another. Natural gas is a
possible alternative to oil in the event of an oil disruption,
particularly in those power generators capable of operation using either
fuel.
Surge production. This is the rapid activation (within 30 days) of spare crude oil production capacity to increase oil supply.
Fuel specifications, such as environmental or quality standards, can be temporarily relaxed by governments to increase flexibility of supply.
How does the IEA help countries prepare for major supply disruptions?Every
two years the IEA conducts two different types of Emergency Response
Exercises, in order to help countries practice, test, and review
emergency response policies and procedures.
The Exercise in Capitals
tests the ability of IEA member countries to participate promptly in
the Initial Contingency Response Plan (mentioned above). A hypothetical
crisis scenario and proposal for initial response activation is sent
without prior warning by the IEA to the Governing Board delegates of
member countries and to the delegates of the Standing Group on Emergency
Questions. Within a predetermined period (usually 24 hours), member
countries are expected to react to the IEA proposal. If the proposed
action is accepted, member countries are subsequently asked to indicate
the emergency response measures with which they would participate in the
proposed collective action.
The Disruption Simulation Exercise
is a two-day conference, usually preceded by a one-day training
session. Participants consist of emergency policy makers from member
countries, the IEA Industry Advisory Board, the European Commission,
representatives from some IEA non-member countries, traders and public
affairs persons from oil companies and the IEA. The training session
focuses on oil market basics, IEA emergency response mechanisms and on
evaluation of disruptions. During the Disruption Simulation Exercise
several disruption scenarios are presented, discussed and evaluated.
Each scenario starts with a newswire style video which presents the key
elements of the scenario. Participants break out into groups to discuss,
and their results are discussed in plenary with inputs from
representatives from industry and the media.
Where can I find more information?Click
here
What are the Emergency Response Policies of individual IEA countries? Click
here