Emergency reserves of crude oil and/or petroleum products
As crude oil reserves fall and the world-wide consumption of petroleum products surges with global economic growth, oil supply crunch could loom on the horizon if future global output falls short of rising energy consumption in the European Union and beyond. There is risk of supply disruption due to the growing instability in the geopolitical environment where the balance between supply and demand is difficult to keep, there are new consumers with massive energy appetite such as China and India, and Europe is increasingly dependent on imports of petroleum products. Consequently, the state of play of Europe’s energy system and planning its energy future is a daunting task for all of us. Even a temporary disruption in supply that would lead unexpectedly to cutting back crude oil supply or deliveries of petroleum products from third countries could result in a serious set-back to the European economy and lives of its inhabitants. There could also be interruptions in oil supply also within the European Union and against these scenarios, the benefits of holding emergency oil stocks to offset supply losses and limit significant price increases clearly exceed stockholding costs.
With the aim to put in place the arrangements for fail-safe supply of crude oil, the EU Member States have undertaken to maintain minimum stocks of crude oil and/or petroleum products available to the Member States to tap into in the event of supply disruptions.
The setting up of compulsory (emergency) stocks of crude oil and petroleum products dates back to 1968 when the European Council adopted the directive imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products. At first, an obligation was imposed on Member States and members of the International Energy Agency to maintain at all times oil stocks at a level corresponding to at least 65 days’ average daily internal consumption in the preceding calendar year for each of the three categories of petroleum products:
- Motor spirit and aviation fuel (aviation spirit and jet-fuel of the gasoline type),
- Diesel oil, gas oil – extra light, jet-fuel of the kerosene type,
- Fuel oils (medium, heavy).
Following the substantial growth in the oil requirements of the Community entailing an increasing dependence on supplies of crude oil and/or petroleum products from third countries, the Council Directive from December 1972 amending the Council Directive from December 1968 imposed an increase in stocks to a minimum of 90 days.
Since imported crude oil and petroleum products continued to play an important role in the Community’s energy supplies and any difficulty affecting supplies of such products would hit hard the economic activity of the Community, Council Directive from December 1998 amending the 1968 Directive took the obligation imposed on Member States to maintain minimum stocks of crude oil and/or petroleum products to the next level by obliging Member States to ensure that stocks of petroleum products maintained at the level corresponding for each category of petroleum products shall be fully at the disposal of Member States should difficulties arise in obtaining oil supplies. In order to comply with this obligation, Member States shall ensure that they have the legal powers to control the use of stocks in such circumstances. Furthermore, at all other times, Member States shall provide for the availability and accessibility of these stocks, and they have to out in place arrangements to allow the identification, accounting and control of the stocks. Moreover, the Directive also opened the door to the countries to meet their stockholding obligations by keeping stocks within the territory of other Member States on the basis of the signed bilateral agreements subject to the mandatory terms and conditions that such delegated stocks (ticket arrangements) shall meet.
In 2009, the directive laying down rules serving to ensure a high level of security of oil supply by maintaining minimum stocks of crude oil and/or petroleum products was adopted. Under the new Emergency Oil Stocks Directive (EOS Directive), Member States had just over two years to comply by the end of 2012 and their emergency preparedness and related stockholding could be verified by the Commission. The task of acquiring, maintaining and selling oil stocks for the purpose of complying with international agreements concerning oil stocks maintenance (emergency stocks) is assigned to central stockholding entities set up by Member States and Slovenia already has such a stockholding system in place. Member States should hold the bulk of their emergency stocks within their respective territory. In addition, in order to ensure that the emergency stocks are readily available, they should be the property of the entity tasked with the maintaining those stocks so that the volumes held on the basis of ticket trading (delegated stocks) would be reduced to a minimum. The Directive elaborates on the issue of reporting the figures regarding the levels of the stocks of petroleum products in each country – both emergency and commercial stocks. The Directive also tasks Member States with drawing up action plans serving to mitigate potential disturbances arising from significant drop in crude oil or petroleum product supplies. However, Slovenia should not experience any difficulties in relation to meeting the targets laid down in the Directive thanks to the on-going activities aimed at raising the share of its own stocks held within the territory of the Republic of Slovenia. The Government, that is, the ministry responsible for economic affairs and energy, is in charge of ensuring energy security and protecting the country from the effects of energy crises by promoting rational consumption and reliable supply of petroleum products in the event of disturbances and oil market volatility.
The stockholding model in place in Slovenia has a central stockholding entity tasked with the acquisition, maintaining and releasing the stocks of petroleum products referred to as “Zavod” – the Agency. The sole shareholder of the Agency is the Republic of Slovenia. The decision to comply with the stockholding obligation imposed on Member States is yet another guarantee that the stockholding model in place is reliable and independent of commercial stocks.
Slovenia’s successful track record in establishing emergency stocks of petroleum products starts in 1999 within the framework of the nation-wide activities undertaken with the aim to achieve full-scope harmonisation of the national legislation with the acquis of the European Union. In order to take the steps necessary for compliance with the requirements set out in the Directive, Slovenia successfully negotiated with the EU bodies a transitional period that gave it time to comply. In accordance with the terms of the agreement, Slovenia was gradually but steadily establishing emergency reserves of petroleum products and in 2005 it reached the target of 90-day minimum/emergency stocks. Since then, Slovenia has been in full compliance with the obligation laid down in this Directive.
Currently, most activities carried out by the Agency are channelled to the maintenance of the mandatory quantity and quality of the fuel stocks and constant improvement of storage conditions, logistics and financial terms for stock maintenance. The Agency also carries out activities in the area of international cooperation, working out solutions to be activated in case of a crisis – releasing reserve stocks – and other areas connected with the role a stockholding entity and on-going interaction with the oil industry.
The greater part of the emergency stocks of petroleum products is held as physical – real stocks and these stocks are owned by the Agency, whereas the smaller part is held on the basis of ticket arrangements (delegation of stockholding obligations).
To comply with the obligation to maintain emergency stocks calls for a number of complex logistics operations such as renting storage space in Slovenia and abroad, adapting that space to specific needs of each product, purchasing, selling and replacing fuel stocks, making arrangements for the delegated quantities (tickets) and occasionally also blending and transporting fuel. The control of the quality of fuel stocks is highly important and it includes analysing the quality of fuel, predicting fuel aging, monitoring fuel quality and the aging processes, as well as taking part in the acceptance of newly delivered fuel at the tank farms. All activities prescribed in connection with the quality control apply also to the activities associated with the replacement of the fuel stocks and storing.