What are the IEA emergency response mechanisms?
The IEA emergency response mechanisms were set up under the 1974 Agreement on an International Energy Programme (IEP). The Agreement enables co-ordinated and collective action by requiring IEA countries to hold oil stocks that equate to no less than 90 days of their net imports in the previous year. This basic oil stockholding obligation was formulated to establish “a common emergency self-sufficiency in oil supplies”.
When evaluating a country’s compliance with the 90-day obligation, the IEA applies a 10% deduction to total stocks to account for any volumes not available for technical reasons. Net oil exporters – presently Canada, Denmark and Norway – are exempt.
What specific actions can be taken in the event of a supply disruption?
In the event of a significant oil supply disruption, the IEA has elaborated flexible arrangements for co-ordinated use of stockdraw in response. But IEA emergency preparedness emphasises more than just oil stocks. A good energy security strategy should also draw on the other pillars of the IEA response system: plans for a surge in production where possible; for restraint of demand, ranging from public campaigns to compulsory programmes; and for fuel switching. One critical element of an IEA collective action is that the goal is to stabilise markets, not manage prices.
How important are emergency oil stocks for security of supply?
As world energy markets continue to be vulnerable to disruptions precipitated by events ranging from geo-political strife to natural disasters, emergency response remains a pillar of the IEA, and emergency stocks are a critical element of member – and non-member – countries’ preparedness. That is because emergency oil stocks are a very powerful policy tool for mitigating short-term physical supply disruptions and for providing liquidity to allow market recovery. IEA experience is clear: the stockholding system has undeniably worked well in the past (see When has the IEA engaged in collective actions, and what were the results? below).
And emergency stocks have economic value as well. The most recent IEA review of member countries’ abilities to react quickly and effectively to significant energy supply disruptions valued their stockholdings’ global benefits at USD 3.5 trillion over 30 years.
How do IEA member countries keep emergency oil stocks?
The IEA offers its member countries varied manners to hold emergency stocks: in crude oil or in product form; held by government or industry or some combination of the two; and stored in a variety of locations, even in another IEA member country on the precondition of a bilateral agreement between the two countries.
More than four-fifths of member countries’ publicly held stocks are in the form of crude oil. By contrast, industry holds roughly 45% in crude oil and the majority in oil products. Government-owned stocks are typically financed through the central government budget, while the costs of industry stocks are imposed on companies through minimum requirements. Many IEA member countries have a stockholding arrangement that involves establishing a separate agency endowed with the responsibility of holding all or part of the stock obligation and financing their stocks via a special fee or levy.
How does the IEA advise member and non-member countries on stockholding?
The IEA now has 40-plus years of experience in designing rules for oil stockholding and the emergency use of those stocks, experience gladly shared with member and non-member countries alike through publications as well as Emergency Response Exercises, like one held in Ningbo, China, in early 2015.
IEA experience and analysis shows that these elements of the Agency’s emergency response policy can apply as well to other energy security concerns, which for the IEA now includes preparedness for disruptions to natural gas or electricity supply.
How does the IEA maintain preparedness?
To evolve in response to changing energy security priorities, IEA emergency measures are kept in constant readiness through regular peer assessments of emergency response mechanisms in each member country, a process that includes identifying best practices. The IEA shares those practices with member and non-member countries alike, strengthening energy security worldwide.
When has the IEA engaged in collective actions, and what were the results?
There have been three collective actions in the more than 40-year history of the IEA: 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. All were concluded when markets were adequately stabilised. The IEA assessed the efficacy of each action afterwards, and in the case of the 1991 release of oil supplies, the first one, revised its Emergency Management Manual.