Energy security - Emergency response

for oil in IEA countries

Cuauhtemoc Lopez-Bassols (consultant)

26-28th June 2018 , EU4Energy Policy Forum, Issyk-Kul, Kyrgyzstan

© IEA 2018

On no one quality, on no one process, on no one country, on no one route, and on no one field

must we be dependent….. Safety and certainty in oil lie in variety, and variety alone.

Winston Churchill

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Table of content

1. Energy security

2. Energy security risks

3. Collaborative response

4. Supply side measures

5. Demand side measures

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ENERGY SECURITY

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ES – Definitions

“[…is the ] uninterrupted availability of energy sources at an affordable price” IEA

“[…is the ] effective management of primary energy supply from domestic and external sources, reliability of energy infrastructure, and ability of energy providers to meet current and future demand” WEC

“Adequate energy supplies at reasonable and stable prices to sustain economic performance and growth…. assess[ed] in terms of availability, accessibility, acceptability and affordability” APERC

“Sustainable production and use of energy at reasonable costs in order to facilitate economic growth and improve the quality of people’s lives” WB

“Continuous availability of energy in varied forms, in sufficient quantities and at reasonable prices” UNDP

“Secure adequate energy at reasonable prices necessary for the people’s lives, and economic and industrial activities of the economy” IEEJ

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ES - How it is measured

Global Energy

Institute

Global fuels

Fuel imports

Energy expenditures

Price and market

volatility

Energy use intensity

Electric power

Transportation sector

Environmental

World Energy Council

Security of supply and energy delivery

Diversity of primary energy supply

Energy consumption in relation to GDP

growth

Import dependence

Resilience

Diversity of electricity generation

Energy storage

Preparedness (human factor)

Internal

International agreement oil emergency

Local stability

Piracy threat

Primary energy diversity

Ease of doing business

External

Chokepoint

Export stability

Piracy threat

Oil export over GDP

APERC (not exhaustive)

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ES – Temporal dimension

• Long-term energy security deals

with timely investments to supply

energy in line with economic

developments and sustainable

environmental needs

• Short-term energy security

focuses on the ability of the energy

system to react promptly to sudden

changes within the supply-demand

balance Lack of energy security is thus linked to the negative economic

and social impacts of either physical unavailability of energy, or

prices that are not competitive or are overly volatile

Source: IEA

Short-term Long-term

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SUPPLY RISKS

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SR– Many risks

Social unrest Sabotage

Climatic events Accident Cyber

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SR–Energy issues monitor 2009-2017

10

Source: WEC

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2.0

2.0

4.3

5.6

4.1

4.3

2.1

2.6

2.3

1.5

1.3

1.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Nov 1956 - Mar 1957

Jun - Aug 1967

Oct 1973 - Mar 1974

Nov 1978 - Apr 1979

Oct 1980 - Jan 1981

Aug 1990 - Jan 1991

Jun - Jul 2001

Dec 2002 - Mar 2003

Mar - Dec 2003

September 2005

September 2008

Feb - Oct 2011

Gross peak supply loss (mb/d)

Libyan Civil War

Hurricanes Gustav/IkeHurricanes Katrina/Rita

War in Iraq

Venezuelan strike

Iraqi oil export suspension

Iraqi invasion of Kuwait

Outbreak of Iran-Iraq warIranian Revolution

Arab-Israeli War and Arab oil embargo

Six-Day War

Suez Crisis

SR– Major oil supply disruptions

• Disruption severity is not only measured in oil lost

• Other factors are key in evaluation:

- Commercial inventories, duration, spare capacity, lost crude quality, seasonality, logistics etc.

• Each disruption must be assessed individually – market context is critical

Source: IEA

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COLLABORATIVE RESPONSE

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Large

Small

Imp

act

of

dis

rup

tio

n

Industry / market copes

Scope of disruption

District Country Region

Global

Local Govt

emergency

measures

National emergency

measures

Regional

group

emergency

measures

IEA Collective Action

CR–Who deals with an oil disruption?

Source: IEA

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CR–IEA Emergency Response

Industry

Increased

indigenous

production

Surge

Production

Supply Side

Stockdraw

Public: government or

Agency

Light-handed: Persuasion/ Public

campaigns

Medium: Driving restrictions,

speed reductions

Heavy-handed: Driving bans,

rationing

Multi-fired installations: Use of other

fuel source

Demand

restraint

Fuel switching

Demand Side

Adding liquidity to the market with extra barrels Constraining demand to rebalance market

Source: IEA

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SUPPLY-SIDE MEASURES

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SSM - Measures

• Stock-draw - Most commonly used & most effective

measure

- Obligated to hold at least 90 days net-imports

- 4.2 billion barrels: 1.5 public stocks for emergency

• Production Surge - Very limited for non-OPEC

- Little or no spare capacity outside OPEC

- Good oilfield practices limit extent of short-term surge

Total oil stocks in IEA regions

Source: IEA

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SSM - Stockholding systems

• Regimes vary across IEA countries

- Reflect differences in market structure, geography & national policy

- EU members need to comply with both IEA & EU systems (but same stocks can be used for both obligations)

- Two general approaches:

- Industry (compulsory & commercial stocks)

- Public stocks (held exclusively for emergencies):- ∙ Government stocks (financed by government budget)

∙ Agency (held / controlled by public bodies including industry owned / operated)

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Industry obligation

Estonia Belgium Germany Hungary Ireland Slovak

Republic

Czech Republic New Zealand

USA

Government Luxembourg

Greece Italy

Norway Sweden Turkey

UK

Austria Denmark

Netherlands Portugal

Switzerland Finland France Spain

Japan Korea

Poland

Commercial & operational stocks

Agency

SSM: Stockholding Options 3/3

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DEMAND SUPPLY MEASURES

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Demand side measures

Demand restraint

Most policies focus on transportation sector

Some potential in heating

Fuel switching

Significant decline since 1970s

Virtually no potential for short-term switching in transport

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DSM - Demand restraint

- Car- and ride-sharing

- Driving restrictions (e.g. speed limits, driving bans)

- Multi-fuel light-duty vehicles

- Pricing and parking policies

- Eco-driving

- Public transit (service upgrades & fare reductions)

- Employer and institutional measures

- Freight trucking…

- Fuel allocation (most extreme)

OECD Oil consumption by sector 1973-

2014

60

%

Source: IEA

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DSM - Demand restraint

• Short-term supply disruptions require different responses and measures than long-term energy savings promotion

• Oil price signals can help consumers respond to a disruption and subsidies distort price signals

• Rationing should be a last resort

• Most measures require advanced planning

• “Pull” measures preferable to “push” measures

Speed limits

Driving bans

Congestion charging

Parking pricing

Public Transit (upgrades & fare cuts)

Telecommuting

Flexible work hours / Compressed work week

Parking ‘cash-outs’ / Public transit vouchers

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DSM: Regional differences

Oil c

on

sum

ed

in

th

e R

oad

Sect

or

(th

ou

san

d B

PD

)

Total on-road fuel consumption (billion litres gasoline equivalent)

Potential savings across all measures

Potential savings omitting ‘high impact’ measures

2000

1000

0

12000

9000

6000

3000

0

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DSM - Demand restraint - Example

Measure (note that different measures can overlap,

so savings cannot be added)

Potential range of oil

savings

Car / ride sharing ～ 15%

Driving restrictions - light ～5-7%

Driving restrictions - heavy ～25% - 34%

Ecodriving ～4% - 10%

Freight / logistics ～1% - 4%

Employer / institutional measures ～1% - 4%

Public transit / mode shift ～1% - 2%

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DSM: Building a policy

• Steps / considerations to building a policy implementable in an emergency:

- Primary legislation

- Secondary legislation

- Implementation / operational manual

- Identification of stakeholders

- Definition of roles, procedures

- Communication & public strategy

- Testing & exercises

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DSM: Fuel switching (oil)

• Seeks to reduce the use of oil during a supply disruption

• Encourages the use of other energy sources alternative to oil: - e.g. coal or natural gas instead of oil in electricity production

• Significantly less potential since 1970s

• Oil-fired electricity generation worldwide has declined since 70s: - 1973 - 21%

- 2012 - 4%

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DSM - Fuel switching (oil)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

World electricity output by source

1971-2015

Coal, peat and oil shale Primary and secondary oil

Natural gas Nuclear

Renewables (incl hydro)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

IEA electricity output by source

1971-2015

Coal, peat and oil shale Primary and secondary oil

Natural gas Nuclear

Renewables (incl hydro)

Source: IEA

4% 2% 21

%

21

%

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Discussion questions

• Has your country experienced a severe oil supply

disruption?

• How did your country deal with it?

• What measures exist in your own country to increase

supply/reduce demand in an oil supply emergency?

• What is the scope for regional cooperation in a crisis?

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