IEA/China Seminar on
Oil Stocks and Emergency Response
(Beijing, China, 9th –10th December 2002)
Overview of
IEA Oil Emergency Response Policies
Klaus Jacoby
Head of Division
Emergency Planning and Preparations
International Energy Agency
(www.iea.org)
1. Introduction
Slide 1: Front page
It is my great pleasure to follow up a very important joint IEA/China Seminar on Oil Stocks and
Emergency Response here in Beijing. I wish to thank H.E. Mr. Zhang Guobao, Vice-Chairman of
the SDPC and his staff in the SDPC for co-hosting this workshop. I also should thank Mr. Han
Wenxiu, Deputy Director General, National Economy Department and Mr. Ma Xin, Deputy
Director General, Foreign Affairs Department of the SDPC for his hard work preparing this
seminar.
My presentation today is entitled, ”An Overview of the IEA’s Oil Emergency Response Policies”.
After a brief introduction of the IEA, I will first speak about oil supply security from a global
perspective, and then about the IEA’s emergency response system and policies.
2. International Energy Agency
Slide 2: What is the IEA?
The International Energy Agency, based in Paris, is an autonomous agency linked with the
Organisation for Economic Co-operation and Development (OECD).
The IEA, as an international governmental organisation, has objectives that are related to energy
policies and especially to energy and oil security issues.
The IEA is the energy forum for 26 Member countries. All members of the IEA are first members
of the OECD. IEA Member governments are committed to taking joint measures to meet oil
supply emergencies. They have also agreed to share energy information, to co-ordinate their
energy policies, and to co-operate in the development of rational energy programmes.
As members of the OECD, Poland and the Slovak Republic are actively engaged in membership
relations. The European Commission also takes part in the work of the IEA.
3. Global Perspectives on Oil Security
Slide 3: World Energy Demand
We notice that concerns about the security of China’s energy supply are increasingly voiced in
China. And the International Energy Agency (IEA) shares the same concerns. There are hard
facts to justify these concerns.
The “World Energy Outlook to 2030”, which has been recently published by the International
Energy Agency (IEA), projects that over the next three decades, total primary energy will
increase by 66%, at an average annual rate of 1.7%. It predicts that the reliance of the main
consuming regions on imported oil and natural gas will increase substantially.
Global oil demand will increase from 89 mb/d in 2000 to 120 mb/d in 2030. Oil will remain the
dominant fuel in the primary energy mix, with a share of 38% in 2030, as a result of 1.6% annual
growth.
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Slide 4: Increase in Primary Oil Demand by Region
The developing regions will account for 29 mb/d of the 45 mb/d increase in global oil demand
between 2000 and 2030.
The developing Asian countries will take the largest share. In particular, oil demand in China will
rise by 7 mb/d over the projection period to 12 mb/d in 2030. Other East Asian countries’ oil
demand will more than double, to 9.4 mb/d.
Slide5: Oil-import Dependence
Net inter-regional trade will increase from 32 mb/d in 2000 to 42 mb/d in 2010 and 66 mb/d in
2030.
All the net oil-importing regions import more oil at the end of the projection period, both in
absolute terms and as a proportion of their total oil consumption.
The increase is most dramatic for Asia, where imports jump from 4.9 mb/d (42% of demand) in
2000 to 24 mb/d (83%) in 2030. Net imports in China alone balloon from 1.7 mb/d (35%) in 2000
to 10 mb/d (83%) in 2030.
Slide 6: Oil Prices Development
Looking at the global oil market, developments in the oil market during the last five years have
been noteworthy in many ways. First, oil prices declined by 60% from January 1997 to February
1999, then increased by 300% from March 1999, reaching $35 per barrel in late 2000. This was
the highest level of oil prices since the Gulf War in 1991.
Second, solidarity of both decision-making and compliance within OPEC intensified after the low
single-digit price levels. And last but not least, volatility of oil prices put oil extremely high on
the social and political agenda for the first time since the oil shocks in 1973/74 and 1978/79.
Slide 7: World Oil Supply Disruptions
For most of the last century, oil supply has been critical to the world economy. We have
experienced 15 major world oil disruptions in the second half of the last century. Those
disruptions with gross oil supply loss of more than 500 000 barrels per day, were due to political
events, including major political crises or even wars.
Last April, 2.4 mb/d of Venezuelan oil export was disrupted for a few days due to an attempted
coup. Other factors, such as tanker and oil field accidents, have caused smaller disruptions which
have nevertheless lead to economic damage.
Slide 8: Iraq Oil Supply and Oil Price
As far as Iraq concerned, its oil export has fluctuated since the UN “Oil for Food” programme
was officially commenced in December 1996. Iraq often suspended its about 2.5 mb/d1 of oil
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Iraqi production was averaged 1.89 mb/d in September, including 1.14mb/d of “oil for food “exports and
0.75 mb/d for domestic consumption and border trade. However, Iraqi oil exports under the “oil for food”
program increased sharply to 3.03 mb/d in the week of 12 October.
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export under the UN oil for food programme for either political or technical reasons at the times
of the renewal of the programme around November/December and May/June each year.
It is true that we are surrounded by uncertainty, but the IEA is always capable to respond to any
unforeseen emergencies.
3. IEA Emergency Response Systems
Slide 9: The International Energy Program
Now, let me speak about the IEA emergency response systems and its policies.
At the turn of the year 1973/74, the oil importing countries faced a period of economic
dislocation in which they had to find solutions to the crisis and devise emergency response
mechanisms. Under that circumstance, the International Energy Agency was established in
November 1974 with the goals of automatic and effective emergency response, long-term
development of alternatives to oil, encouragement of energy conservation, research and
development, and co-operation with oil-producing and -consuming countries outside the OECD.
These goals and the mechanisms to achieve them were defined in the International Energy
Program (IEP), which the IEA was created to implement.
The International Energy Program Agreement is the treaty which established the IEA in 1974 and
which all members have signed. Core commitments include:
- The maintenance of oil reserves equivalent to at least 90 days of net oil imports,
- To have ready a programme of demand restraint measures equal to 7 % and 10% of
national oil consumption, and
- To participate in an oil allocation system in a severe supply disruption through these
measures (Emergency Sharing System), if necessary.
Slide 10: The IEA Emergency Response System
Key to our emergency system is the maintenance of oil reserves and a plan for coodinated use
(stock drawdown). The IEA Emergency Response System covers:
- the maintenance and monitoring of emergency reserves;
- other national measures, including demand restraint, fuel switching and surge oil
production;
- operation of effective National Emergency Organisations;
- a mechanism for industry advice and operational assistance (though the Industry
Advisory Board and the Industry Supply Advisory Group); and
- a system for re-allocating oil, if necessary.
Slide 11: Emergency Response Measures
The IEA has at its disposal a portfolio of emergency response measures.
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IEA emergency reserves and stockdraw are the principle and most effective of the emergency
response measures. IEA net importing countries have the obligation to hold emergency oil
reserves equivalent to more than 90 days of the previous year’s net imports, in accordance with
the International Energy Program.
The second IEA emergency response measure is demand restraint. This refers to short-term oil
consumption reductions that can be achieved during the period of a crisis. The measures to
achieve demand restraint fall into three main categories: persuasion and public information,
administrative and compulsory measures, and allocation and rationing schemes.
The third IEA emergency response measure is fuel-switching. This is the capability to switch
from oil to an alternative fuel on a sustainable basis with a short time frame. This measure is
concentrated in the transformation and industry sectors and is dependant on the volume of oil
consumed in dual or multi-fired installations.
The fourth IEA emergency response measure is increased indigenous production or ‘surge-
production’. This is a response whereby oil-producing countries have the ability to increase
indigenous production in a crisis situation. It is concentrated in major oil-producing countries:
Canada, Norway and the United Kingdom.
4. IEA Emergency Response Policy
Slide 12: Flexibility of IEA Emergency Measures
The traditional IEA policy has been to respond to only actual or imminent physical oil supply
shortfalls. The IEP defines an automatic trigger based on “volumetric criterion” which is a 7%
loss of normal oil supplies for IEA Member countries as a whole.
However, the objective of minimising macroeconomic damage from high oil prices is implicit in
the IEP. Moreover, the Governing Board, the key decision-making body in the Agency, has long
recognised the relevance of price and macroeconomic factors to its emergency response
decisions.
Slide 13: Evolution of IEA Response Policy
But, IEA members have not limited themselves to these procedures. With time and experience,
we have adapted our emergency response policy to try to meet the challenges of changing oil
markets.
These changes have culminated in the Governing Board Decision of 1995 that states that all
measures available will be adapted to the crisis. This decision is very important to us, because it
means that all the participants recognise that flexibility is a key strength of our emergency
system.
This evolution shows a clear willingness of the IEA to make its policies and procedures as
flexible as possible to meet any future crisis. Moreover, the IEA has come to recognise the
effectiveness of the use of stockdraw in crises, and the need for rapid political decision making.
Slide 14: IEA Co-ordinated Emergency Response Measures (CERM)
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These emergency response mechanisms are called “ Co-ordinated Emergency Response
Measures” (CERM). In these mechanisms, the IEA decided to create flexible response measures
for sub- and pre- oil crisis situation, recognising that the joint release of emergency oil stocks on
the market is the most rapid measure to mitigate the situation. While joint volume loss or threat of
volume loss still remains the main criterion for activation, potential economic damage could also
be considered as a criterion.
Slide 15: IEA 1991 Contingency Plan
The 1990s and the early part of this decade have kept the IEA on its toes with these emergency
response mechanisms.
We had a Gulf War Contingency Plan, in anticipation of possible supply shortfalls in the event of
hostilities in the Gulf. The IEA activated its Contingency Plan on January 17, 1991 to make
available 2.5 mb/d of oil to the market.
Slide 16: The IEA 2.5 mb/d Gulf War Contingency Plan
This slide illustrates how our members actually implemented a co-ordinated action. This
comprised 2 million barrels of stockdraw, 300 000 barrels of demand restraint and 200 000
barrels of fuel switching and surge production. In addition to the 20 IEA members at the time,
non-IEA Members, Finland, France and Iceland also participated in the joint plan.
5. IEA Response Capability (Stockholding Systems)
Slide 16:Assesment of Oil Supply Risks
We at the IEA believe there is no room for complacency for the following reasons:
- Much of the world’s oil reserves are concentrated in only a few countries in the
Middle East, which remains unstable, with increasing tension;
- Stock coverage in IEA countries continues to diminish and coverage in most non-
IEA countries is inadequate;
- There is an increasing potential of choke point disruption and cyber or conventional
attacks against oil facilities; and
- Virtually all world spare capacity exists within OPEC.2
Slide 18: IEA Oil Reserves
By IEA definitions, stocks in IEA net importing economies are estimated at about 3.8 billion
barrels, an amount equivalent to 116 days of net imports3. Stocks are low by historical standards,
particularly when compared to the peak levels of the mid-1980s. In recent years, the decline in
2
Sept 2002 OPEC spare capacity excluding Iraq is estimated to be 3.6 mb/d, including 3.2 mb/d in Gulf
OPEC (Saudi 1.7 mb/d, UAE 0.5 mb/d, Kuwait 0.4 mb/d, Iran 0.5 mb/d, Qatar 0.1 mb/d). Iraqi spare
capacity is estimated to be 0.9 mb/d, due to production decline.
3
1 July 2002
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industry stocks has accelerated, reflecting rationalisation and increased reliance on short-haul
crudes.
Slide 19: Oil Stocks of IEA Net Importers
Since March 1998, successive OPEC agreements have resulted in production cutbacks which
drove IEA industry stocks down to their lowest level. Such a low stock cushion makes the oil
market quite vulnerable to potential supply shocks and reduces the flexibility in responding to
such shocks.
As can be seen in this diagram, stocks have been declining steadily since the mid-1980s and are
now below the level of 1980. However, they are still comfortably above the 90-day obligation
and fully capable of responding to supply emergencies.
Slide 20: Maximum Drawdown Profile
Based on our most recent information, IEA public stocks can be drawn down at a maximum rate
of about 13 million barrels per day in the first month and about 9 million barrels per day in the
following two months. Thereafter, the rates decline rapidly until complete depletion after nine
months. The bulk of this drawdown would come from the US, Japan and Germany.
The information on industry stocks is less clear. This reflects the large number of operators, lack
of stockholding obligations in some countries and uncertainty about the size of usable stocks.
Slide 21: Response Capability
IEA stocks seem adequate for a medium-scale disruption of short to medium term duration.
Larger disruptions of up to 13 mb/d could also be handled adequately, but only for short periods
of time. Industry stocks are less reliable than public stocks as they are partly needed for operating
purposes and are less controlled by the governments4.
6. For Improving Global Oil Security
Slide 22: Future Challenge for IEA Emergency Response
We at the IEA believe there is no room for complacency for the following reasons:
As discussed before, the bulk of supply increases will come from the Persian Gulf, which is likely
to remain politically fragile, while the bulk of demand and import dependence will come from
non-OECD countries.
Also, there is decreasing oil stock coverage in IEA countries and lack of strategic stocks in non-
IEA countries. Furthermore, oil price volatility is a threat to the world economy.
There are little or no fuel substitutes for oil in the transport sector. Increasingly inter-fuel issues
will need to be addressed, especially the impact of natural gas on oil markets.
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32% of total IEA stock is public stocks (1.25 mb/d). With support of 2.65 mb/d of industry stocks, the
IEA could effectively manage to respond to a large-scale oil disruption.
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Finally, no one is certain of the impact of environmental and sustainability issues in future
markets.
Slide 23: Taking up the Challenge
There can be no sustained economic growth in the absence of a secure energy supply.
Fortunately, we are vigilant about IEA emergency response policies and measures as evidenced
by our continuous efforts to prepare for an emergency and evolve with the global market
conditions, including the Disruption Simulation Exercise and Y2K preparations in 1999, the
Millennium Conference in 2000 and Inter-fuels workshop last year. Responding to the new
challenge, we have conducted an Emergency Response Exercise this year.
But this is not all. New member countries will strengthen the IEA. Following the Czech
Republic’s accession, Korea, the fourth largest importer and the sixth largest consumer of oil in
the world, also joined the Agency last year. The Slovak Republic and Poland are actively engaged
in membership relations.
We are making efforts to improve transparency of oil market data since this is a key to stabilising
the market. The IEA is taking initiatives to increase the transparency of the oil market data in
close co-operation with various international organisations, including APERC, EUROSTAT,
OLADE, OPEC and the UN. In this regard, the IEA hosted the International meetings on Oil
Statistics in November last year and April this year. The six-month Joint Oil Data Exercise has
been going on since last June.
Finally, we continue to work with Non-member countries by sharing experiences and knowledge
of the importance of energy security. We attach a great significance to this joint “IEA-China
Seminar on Emergency Oil Stock Issues” in Beijing, in the context of our approach towards co-
ordinating China’s emergency response policies within the IEA energy security framework. We
will also be holding IEA/ASEAN workshop on oil security in June 2003 in the same context of
improving global energy security.
It is true that we are surrounded by uncertainty, but the IEA continuously monitors market
conditions and stands ready to respond as required, developing its response capability to any
unforeseen emergencies in the future.
Thank you for your attention.
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