Part of Oil Security Toolkit
IEA (2022), Lithuania's legislation on oil security, IEA, Paris https://www.iea.org/articles/lithuania-s-legislation-on-oil-security
Lithuania’s ability to respond to oil supply shortages has a legal basis in the Law on State Stocks of Petroleum Products and Oil, (Law No. IX-986, Law on State Stocks). The Law on Stocks includes secondary legislation regarding procedures to respond to an oil supply disruption, and on maintaining oil emergency stocks.
The decision-making procedure for activating emergency response measures, as according to Government Resolution 12 (Procedure for Supplying Consumers with Energy and/or Energy Resources in the Event of an Energy Emergency), enables Lithuania to contribute to an IEA collective action with the use of emergency oil stocks, since its amendment on 25 November 2020.
In the case of an oil crisis, the Ministry of Energy, the Emergency Situation Operations Centre (ESOC) would prepare an assessment and recommendations for emergency response to the Minister of Energy, who could decide to lower the stockholding obligation of industry. In order to use the public stocks of LEA or to activate the legal basis for implementing oil demand restraint measures, the Minister would submit a proposal to the Council of Ministers for decision.
There are two scenarios in which such a decision to use emergency stocks are envisaged:
1) when Lithuania’s domestic market is not directly impacted and there is no need to declare an energy emergency in the country; and
2) the Lithuanian domestic market is affected by the oil supply disruption, and therefore the Government makes a decision to declare an energy emergency.
In the first case, when the country's energy emergency is not declared, the decision on the use of stocks is envisioned to be made by an order of the Minister of Energy, such a decision would take about 2-3 days. Otherwise, when a state of energy emergency is declared in the country, the decision on the use of stocks is made by the Government, and the decision would take no more than about 48 hours. Recommendations from the IEA or the European Commission would be taken into account when decisions on the use of stocks are made by either the Government or the Minister of Energy.
The Ministry of Energy is responsible for overseeing national emergency preparedness and for proposing specific response measures in a crisis for approval by the Council of Ministers. Within the Ministry of Energy, the Emergency Situation Operations Centre (ESOC) is the team responsible for the energy crises’ response, including for oil. The ESOC, which consists of 16 representatives in the Ministry and is responsible for all forms of energy crisis, would be convened in the event of a crisis or in the expectations of a crisis. In normal times, the Energy Security Policy Group within the Ministry serves as the core NESO.
The Law on Stocks establishes the level and manner in which emergency oil stocks are to be held and provides the legal powers for activating emergency response measures.
Ministerial order no 1-107 forms the basis for the Administration’s Plan for implementing restrictions on the supply and use of oil products in addition to the release of emergency stocks. The purpose of this Plan is to lay out the possible measures which could be proposed to the Government in order to stabilise the supply and/or consumption of petroleum products when an energy emergency is declared.
Secondary legislation under the Law on Stocks, the Government Resolution 12 (Procedure for Supplying Consumers with Energy and/or Energy Resources in the Event of an Energy Emergency), regarding procedures for responding in an oil supply disruption, was amended on 25 November 2020 in order to include the decision-making steps in the participation in an IEA collective action. The Resolution also requires all energy “undertakings” (i. e. producers, suppliers/importers, storage and transportation operators, etc.) to maintain emergency plans, which ensure operations in a crisis while maintaining optimal energy supplies to consumers through the use of alternative energy sources, reducing consumption and/or limiting supplies.
The Lithuanian Energy Agency (LEA) is responsible for overseeing emergency oil stockholding as well as to advise the Ministry on a national energy strategy, including the development of demand restraint measures, renewable energy sources and the implementation of energy efficiency measures.
Expenses for the accumulation, storage, replacement and management of the specific stocks held by the LEA are financed from the state budget. Depending on the consumption of petroleum products and projected amount of emergency stocks required under the Law on Stocks, the LEA submits data on the need for funds for accumulation and management of specific stocks to the Ministry of Energy one year in advance. The Ministry reviews the LEA information and, based on this, submits a request to the Ministry of Finance, to include necessary funding into the draft state budget for the coming year. After the Parliament adopts the state budget for the coming year, the Ministry of Energy concludes an agreement with LEA for the management of the specific stocks for the coming year. During the year, the Ministry of Energy transfers funds to the Agency to cover stocks’ operational expenses and to acquire additional amounts of stocks if required.
When the LEA provides obligated companies services related to managing their obligated stocks, the Ministry of Energy approves and updates each year the rates applied by the Agency.
The stockholding obligation set on industry is calculated each year, based on Lithuania’s total 90-day net import obligation minus the 30 days of consumption of specific stocks held by LEA. There are 17 companies with stockholding obligations in Lithuania, and by the 30 April each year the Ministry’s Energy Security Policy Group informs each company of the quantity of stocks it must hold as of 1 July, as according to Resolution 1901. Obligated industry stocks can be held in the form of crude oil, intermediate or refined products or blending components intended for refining into finished products. Rules for converting between refined products and crude oil equivalent are set out in the annex to Resolution 1901, using crude oil equivalent conversions consistent with IEA methodology.
The obligated industry stocks are not required to be held separately, thus companies may hold these comingled with commercial and operational stocks. The obligated stocks can be owned and held directly by the company or covered through the use of stockholding ticket agreements arranged with other Lithuanian companies, the LEA, or with entities in other EU countries. Companies can fully cover their stockholding obligation with tickets, however no more than 30% of the obligation may be coved by stocks held outside of Lithuania. Lithuania has signed a bilateral agreement with Latvia for reciprocal cross-border stockholding; additionally, some of Lithuania’s emergency oil stocks are held in Finland.
Availability of stocks
All of the Lithuania Energy Agency’s emergency stocks are held in Subacius oil terminal and all are in the form of refined oil products. Government Resolution 1901, as part of the Law on Stocks, (Rules for the Building, Regulation, Management, Accumulation, Use and Maintenance of the State Stocks of Petroleum Products and Oil), defines the building and maintaining of emergency oil stocks. Resolution 1901 was amended on 9 December 2020 to align reporting requirements with IEA reporting requirements, including in an emergency, and to enable participation in IEA emergency exercises.
Sale of excess stocks
Emergency response for oil crises has a legal basis in the Law on State Stocks of Petroleum Products and Oil, Law No. IX-986 (Law on State Stocks). The law establishes the level and manner in which emergency oil stocks are to be held and provides the legal powers for activating emergency response measures. This law transposes the EU Directive on oil stocks (2009/119/EC). On 25th June 2020 the Lithuanian Parliament adopted amendments to the Law on Stocks, which allow Lithuania to activate emergency measures in order to participate in an IEA collective action.
In the event of a drawdown of emergency oil stocks under a national declared emergency, both obligated industry stocks and LEA’s specific stocks could be used and the choice would be decided on at the time of emergency. In both instances, the stocks would be sold at the prevailing market price. Loading and transportation rates for petroleum products in a national emergency must not be higher than the rates valid prior to its declaration, and the prices of petroleum products must not exceed NWE (North West Europe) market prices or the Rotterdam region prices (taking into account transportation, loading and insurance costs). If prices are to be regulated, all conditions apply to both LEA and obligated industry stocks. In the case of specific stocks, their use and reestablishment would be decided by the Government. In the case of obligated industry stocks, the decision to involve all companies or only some companies would be decided based on the specific circumstances of the emergency.
In an IEA collective action, specific stocks managed by LEA could be sold by open market tender. In the case of industry stocks, stocks would be sold on the oil market. The decision on re-establishing emergency stocks would be taken based on the individual case of the crisis.
Ministerial Order No 1-107 previously forms the basis for the Administration’s demand restraint programme, providing legal powers to implement restrictions on the supply and use of oil products. This Ministerial Order (Plan for Applying Restrictions on the Supply and Consumption of Petroleum Products) has been revised in order to meet IEP requirements; it is expected to reach final approval and enter into force in mid-March 2021 [Lithuania: Please update].
Heat and electricity generators’ stock reserves
Separate from the emergency oil stocks described above, a stockholding obligation is also placed on heat and electricity generators of over 5MW capacity, to maintain back-up reserves during the cold season sufficient to cover 10 days of operations (Law on Energy, article 29). The most common stocks to meet this requirement are biofuels, heavy fuel oil, shale oil and diesel (natural gas is not considered as a backup fuel in any of the companies required to hold these backup fuels). During the warm period of the year (1 April to 31 October), the energy backup requirements and quantities are determined by the energy companies themselves.
Resolution 1901 was amended on 9 December 2020 to align reporting requirements with IEA reporting requirements, including in an emergency, and to enable participation in IEA emergency exercises.
Auditing of obligated industry stocks is periodically carried out by the National Energy Regulatory Council, either through physical inspections or by verifying the stockholder’s accounts.
Non-compliance of obligated industry stock levels can be punished by a fine of up to EUR 6,000 and the revoking of the company’s permit to operate on the wholesale or retail market.
As a Member State of the European Union, Council Directive 2009/119/EC obliges Lithuania to maintain a minimum volume of emergency oil stocks corresponding to 90 days of average daily net imports or 61 days of average daily inland consumption, whichever of the two quantities is greater. In the case of Lithuania, the relevant obligation level is 90 days of net imports. The Directive also imposes strict requirements concerning the composition and location of the emergency oil stocks, so as to guarantee their availability and accessibility in case of need, among other provisions.
Under the Law on State Stocks, the Lithuanian Energy Agency is responsible for maintaining 30 days of publicly held emergency oil stocks and an obligation is set on industry to maintain the remaining 60 days. When including industry’s commercial and obligated stock holdings, Lithuania’s total level of oil stocks is well above the IEA 90-day minimum requirement. All of the LEA’s emergency stocks are held in Subacius oil terminal and all are in the form of refined oil products.
As a Member of the IEA, Lithuania is obliged, pursuant to article 2 of the International Energy Programme (IEP), to maintain oil reserves equal to 90 days of net imports of the previous year. IEA Members are obliged to submit information concerning their emergency measures to the IEA secretariat (article 32 IEP) on a continuous basis and the IEA monitors Member countries’ compliance with the IEP.