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					Joint Stockpiling and Emergency Sharing of Oil:
  Update on the Situations in the ROK and on
   Arrangements for Regional Cooperation in
                 Northeast Asia


                       Asian Energy Security Workshop
                              May 13-16, 2005
                               Beijing, China

                              Eui-Soon Shin
                         Department of Economics
                            Yonsei University


                                                        1
Growing Energy Insecurity in Asia-
            Pacific
Most of the large oil consuming countries are located in the
Asia-Pacific region
Asia-Pacific imports about two-thirds of the oil it consumes
(Around 23 million barrels per day in 2004)
Energy insecurity in Asia-Pacific is closely related to the fast
oil demand growth of China and India
Aside from the vulnerability from oil imports dependence to
the Middle East, there is a tension among major oil-
importing countries stemming from oil shortage in the region
There is no regionalized energy security system in Asia-
Pacific
Energy security in Asia-Pacific remains a complex and
multifaceted challenge due to diverse scale scope of and
national interests
                                                               2
3
China’s Net Oil Imports since 1990s




In 2002, the net oil imports of china reached 71.85 million
tons, about 30% of the overall national oil consumption
                                                              4
   Oil Security Policy Measures
Long-Term
 Diversify oil import sources

 Improve oil use efficiency

 Develop alternative fuels to oil

 Cooperation with oil producing and consuming countries

Short-Term
 Mandatory restraining of oil consumption during emergency

 Fuel switching

 Disseminate accurate oil market information to discourage
  hoarding or panic purchase
 Drawdown of emergency oil stockpile




                                                              5
Emergency Oil Stockpile System
Government vs. Private Stockpile
   U.S. SPR is financed entirely by federal government
   Japan uses a small portion of oil tax revenue to cover the cost of
    government stockpile
   There are other varieties in Europe
Crude Oil vs. Petroleum Products
   U.S. holds only crude oil
   Small countries hold only petroleum products
   Most countries hold both crude and products
   Japan and ROK set separate reserve requirement for LPG
Joint vs. Individual Stockpile
   EU members are allowed for joint stockpile within EU and outside the
    member states by the EU Directive
   However, joint stockpile among EU member countries has not yet been
    widely observed




                                                                           6
7
Growing Concern over Strategic Oil
    Stockpile in Asia-Pacific
Countries in Asia-Pacific began to recognize the importance
of establishing strategic oil stocks as a reserve against
sudden cut or shortfalls in oil supply
Some recent cost benefit analyses have found that, for
smaller Asian oil-importing economies, a stockpile covering
around 30 days of net imports is optimal
These studies also recommended a joint stockpiling scheme
sharing a common large-scale facility for the APEC region
Overall trend of decreasing oil stocks among IEA members for
the past 15 years and a steady decline in OPEC spare
capacity have also served to reinforce the importance of such
strategic reserve



                                                            8
              Petroleum Stockpiling System in Japan



                  Government stockpiling

                 ・ Started in 1978
 Petroleum       ・ All in the form of crude oil
Stockpiling
  in Japan       ・ Target Volume 50 million kl ⇒ 50.98 million kl (As of Oct.2003)
                 ・Owned by Government,Managed and operated by JNOC


                   Private industry stockpiling
                 ・Obligatory inventory :70-day of consumption
                 ・Trade inventory
                 ・Owned,Managed and operated by each private-company


                                                                              9
Petroleum Stockpiling System in Japan




                                        10
Historical Change of Petroleum
   Reserve Stocks in Japan




                                 11
  Impacts of Oil Crises to the Korean
              Economy




Measures taken after the two worldwide oil crises
  Established the KNOC (Korea National Oil Corporation)
  Began strategic oil stockpiling
  Dues are imposed on all imported oil
  Established the three-phase contingency plan as a short-term
  emergency measure
                                                                 12
History of Strategic Oil Stockpiling
            Plan in ROK




                                       13
Oil Stock Level as of Sep. 2002 (ROK)




 Started government strategic oil stockpiling from 1980.
 Started mandatory stockpiling of private enterprises from 1992 (40 days of
 domestic sale volume to crude oil refiners and oil products importers; 30
 days requirement to LPG importers and petrochemical enterprises).
 As of September 2003, there are 107 days of oil stocks which account for 49
 days of strategic and 58 days of private stocks (based on IEA standards).
 Target for strategic oil stockpile: 141 million barrels of oil stocks by 2007 and
 146 million barrels of storage facilities by 2008.


                                                                               14
15
Joint Oil Stockpiling: the case of ROK
<Basic concepts>
   KNOC leases unfilled storage facilities to petroleum producing countries
   KNOC holds the preemptive right to purchase the stored crude oil in case of
   emergency

<Diverse benefits>
   Improve the ability to cope with the oil crisis
      Increase the volume of stockpile
      Contribute to diversify supply source and to ease Asian premium
   Decrease the financial burden of oil stockpiling
   Petroleum producing countries can develop or expand market share in
   Northeast Asia




                                                                             16
   Lease Contract with Statoil
KNOC started the joint stockpiling business with
Statoil (Norway’s state oil company) in July 1999.
It expanded the contract volume in July 2000 from
8 mmb to 11.3 mmb.




                                                 17
 Lessons from ORNL Cooperative
         Stock Analysis

All the oil consuming regions in the world remain quite vulnerable to
supply disruptions
Oil stockpiling provides benefits not only to the stockpiling
economies but also to other economies with no stake in the
stockpile
This public good aspect of stockpiling justifies collaborative
initiatives in oil stockpiling
All oil consuming regions could benefit from more stockpiling
Collective groups of countries sharing a reserve prefer larger size
and achieve greater benefits than the sum of individual countries
acting alone
Asia-Pacific study shows sharply increasing benefits from the
expansion of collective reserve size


                                                                   18
Public Good Aspect of Stock Expansion Cooperation
  Benefits Much Greater than Independent Action




                                                    19
Asian-Pacific (APEC excluding U.S.) Study
    Shows Sharply Increasing Benefits




                                            20
Talks on Joint Stockpiling and Emergency
    Sharing of Oil in Asia-Pacific (1)
  IEA/China Oil Stocks and Emergency Response Seminar,
  Beijing, China, 9-10 December 2002
  APEC-EWG Oil Emergency Response Workshop, Portland,
  Oregon, USA, 18 June 2003
  APEC Joint Oil Stockpiling Workshop, Seoul, ROK, 2
  December 2003
  Second ASEAN+3 Oil Stockpiling Forum, Philippine, February
  2004




                                                          21
       Dialogues on Joint Stockpiling and
          Emergency Sharing of Oil (2)
 Second Meeting of the Asia Cooperation Dialogue (ACD) –
Energy Working Group, Manila, Philippine, 19-20 May 2004
 - ACD- Energy Working Group was established in 2001 with the
objective of exploring possibilities of creating cooperation within the
energy sector. The working group's member-countries are Bahrain,
Bangladesh, Brunei, China, Cambodia, India, Indonesia, Japan,
Kazakstan, ROK, Kuwait, Laos, Malaysia, Myanmar, Oman, Pakistan, the
Philippines, Qatar, Singapore, Sri Lanka, Thailand and Vietnam.
 - ACD members agreed to study the possibility of joint stockpiling as
one of the measures in ensuring the reliable supply of oil.

 - The ACD declaration, said a seven-member panel will be formed to
examine "the possibility of joint stockpiling among interested member
countries.

                                                                          22
       Dialogues on Joint Stockpiling and
          Emergency Sharing of Oil (3)
   ASEAN+3 Ministers Meeting, Manila, Philippines, 9 June 2004
 - The ASEAN+3 consists of the 10 ASEAN countries -- Brunei,
Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines,
Singapore, Thailand and Vietnam - and Japan, China and South Korea.
  - The ministers see the need for a joint oil stockpile in the region, saying
the move will ensure "greater energy security and sustainability" in a
region expected to become the largest energy consuming area in the
world.
 - The ministers noted the existing oil stockpile programs of Japan and
South Korea and also welcomed the initiative of China to establish a
national oil stockpile program.
 - Philippine Energy Secretary said Southeast Asian countries might set
up a regional stockpile. It was announced that the Philippines had
proposed the former US naval base at Subic Bay north of Manila as a
storage facility for Libyan oil for distribution in Asia.
                                                                             23
    Dialogues on Joint Stockpiling and Emergency
                  Sharing of Oil (4)
  First Roundtable of Asian and Middle East Ministers on Regional
Oil and Gas Cooperation, New Delhi, India, 6 January 2005
- Gulf producers and Asia's oil-importing economies face growing mutual
dependence, as expanding economies like China and India seek more oil abroad
and producers look to rising regional demand to justify investment in higher
production capacity.
 - Asia already takes some 60 percent of crude exports from the Middle East,
home to nearly two-thirds of the world's oil reserves, and its reliance is set to rise
as the region leads global demand growth and its own resources dwindle.
 - "Asia should build a joint oil storage facility for an emergency stockpile to enjoy
uninterrupted supply. The storage depots would give both sellers and buyers
security of supply and demand", India's Petroleum Minister said.
 - ROK officials proposed the idea of creating a joint stockpile for Asia, storing
supplies in countries where facilities are available. They stressed the need for an
Asian energy policy forum at the ministerial level, saying that organizations such as
the International Energy Agency do not take care of Asian interests.
                                                                                         24
       Dialogues on Joint Stockpiling and
          Emergency Sharing of Oil (5)
 29th APEC Energy Working Group (EWG) Meeting, Hanoi, Viet
Nam, 16-17 March 2005
- The United States presented a proposal for implementing Best
Practices for the Establishment and Management of Strategic Oil Stocks,
as endorsed at EMM6. A workshop will be held in Honolulu, USA, in the
second half of 2005 and prior to EMM7. Its objective is to discuss and
refine implementation, including implementation in the context of varied
stockpile models and economy specific situations, the feasibility of joint
or regional oil stocks, how to use the IFAT model, and the identification of
priority principles. Members endorsed the proposal.




                                                                           25
             Many Talks but No Action, Why?

   There is no regionalized energy security system in Asia-Pacific.
 Absence of recognized common goal, which makes the pledges
for joint strategic reserves unfulfilled promises.
 Although the ASEAN is a dynamic, populace region, its total
economy and oil consumption are not significant compared to
Northeast Asian countries. ASEAN can do very little in terms of
supply to East Asia.
 OECD countries like Japan and ROK already have government
stockpiles, but China and India are only now building theirs.




                                                                       26
Options Towards Regional Cooperation (1)

   Enhance cooperation with IEA (International Energy Agency)
- Most of the major growth in world oil demand and imports come from
the Asia-Pacific region.
  - As China and India have embarked on stockpiling programs, it is a
right time for IEA to enhance cooperation with them.
  - The IEA actually seeks to cooperate and complement the work of
regional organizations such as APEC and ASEAN, and promotes the
shared goals of energy security.
   - In terms of oil stockpiling, the IEA's Agreement on an International
Energy Program (IEP) requires participating countries to maintain
emergency oil reserves equivalent to at least 90 days of net oil imports,
and to participate in a crisis-allocation system through an Emergency
Sharing System.




                                                                            27
Options Towards Regional Cooperation (2)

 Create new regional organizations and build regional joint stocks
(consumer-consumer cooperation)
- ASEAN+3 based: Japan and ROK proposed to construct a joint oil
stockpile facility to ASEAN. The ASEAN recognized the importance of oil
stockpile for supply security. They waits for Japan to provide a financial
assistance for feasibility studies for oil stockpiling. They also wish to get
technical assistance from Japan and Korea for planning, establishing
and/or maintaining stockpiling programs in the region as stated in the
ASEAN+3 Ministers Meeting in Manila in June 2004.

 - APEC based: In a METI report containing international energy strategy
up to 2030, Japan proposed to establish an Asian IEA after China and
India set up their national stockpiling plan, to jointly deal with growing oil
import dependency of China and India, pointing out that only Japan and
South Korea are members of IEA.

                                                                                 28
Options Towards Regional Cooperation (3)

 Enhance cooperation with producing countries (consumer-
producer cooperation)
- Middle East oil producers and major Asian consumers:
Middle East producers are basically against strategic oil stockpiles.
Propose a joint stockpile, jointly owned by member producers/consumers,
held in Asia at targeted level. Require exporters to deposit proportion of
incremental exports into a regional stockpile.
- Russia and NEA Consumers:
Russia once considered to stockpile one third of 2001 oil exports
according to Nihon Gezai Shimbun. Russian Energy Minister had also
mentioned EU-Russia joint oil and gas stockpile utilizing harbor storage
and/or salt cavern near Caspian Sea. It will be possible to build a regional
oil stockpile in the Russian Far East financed by Russia and NEA
countries.
                                                                           29
                          Then What Now?

 Combination of the three approaches mentioned above will be
useful to Northeast Asia
- Establish an Asian version of IEA when each country in the region
accomplish certain level of emergency stockpile.
-Start with Japan, ROK, China, Russia (RFE) and then extend to other
Northeast Asian and ASEAN countries.
-During the interim period, lease spare storage capacity of Japan and
ROK to China and other countries.
-   Eventually expand fully to account for all APEC member.
-Promote joint cooperation with IEA and oil exporting Middle East
countries.



                                                                        30
                              References
APERC, “Emergency Oil Stocks and Energy Security in the APEC Region”, Tokyo, March 2000.
Ehara, Norio, “Recent Developments in Stockholding by Non-Member Countries”, IEA Seminar on
Oil Stocks and New Challenges in the Oil Market”, Berlin, 9th September 2003.
Houssin, Didier, “Emergency Stock Holding and Oil Stocks in France”, IEA Seminar on Oil Stocks
and New Challenges in the Oil Market”, Berlin, 9th September 2003.
Iwahara, Tatsuya, “Topics of operational aspects of Japan‟s emergency stockpiling”, „APEC Joint
oil Stockpiling Workshop‟ Seoul, 2nd December 2003.
KNOC, “Korea‟s Strategic Oil Stockpiling”, IEA/China Oil Stocks and Emergency Response Seminar,
Beijing, 9-10 December 2002.
KNOC, “Need for Launching Joint Stockpiling to Enhance the Oil Security in the APEC region”,
December 2003.
Kurumada, Naoaki , “Outline of Petroleum Stockpiling and Emergency Response in Japan”,
IEA/China Oil Stocks and Emergency Response Seminar, Beijing, 9-10 December 2002.
Leiby, Paul N. , “Economics of Energy Security Policy – Oil Shocks and Strategic Oil Stocks”,
USAEE Policy Symposium – Energy (in)Security in the 21st Century, MIT, 4th December 2003.
LIU, Xiaoli and ZHANG, Yousheng, “China Petroleum Security and Regional Cooperation”,
„International conference on Cooperative Measures Enhancing Oil Security in Northeast Asia‟, Seoul,
6th September 2003.
MOCIE, “Korea‟s Emergency Response Measures in Perspective: short-term vs. mid & long-term
energy security policy and programs”, IEA/ASEAN Workshop, September 2003.
 Morse, Edward L., "The US and the Changing Geopolitics of Asian Energy: Security and Foreign
Policy Interests," paper presented at the Conference on Asian Energy Security and Implications for
the United States, National Bureau of Asian Research and The Pacific Northwest Center for Global
Security, Seattle, September 29, 2004.


                                                                                               31
Thank You!




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