Presentación enmarcada dentro del Summer Seminar Funseam 2014.

1. © OECD/IEA 2014© OECD/IEA 2014
Energy Supply Security:
Emergency Response of IEA Countries 2014
Cuauhtémoc López-Bassols| Emergency Policy Division
Madrid | 10 July 2014

2. © OECD/IEA 2014
Content
1. Context.
• Creation of IEA
• Evolving energy landscape
2. IEA emergency mechanisms for oil
• Supply side measures (incl. Stocks –Stockholding
arrangements)
• Demand side measures
3. Natural gas security in the IEA

3. © OECD/IEA 2014
Key findings / messages
 Stockdraw a proven powerful mechanism available to IEA
 Progress has been made in other areas too:
• Demand restraint, particularly in transportation.
 In electricity market, oil replaced by natural gas (no longer
the “back-up fuel”!)
• Supply disruption of one fuel could spill over to another
• IEA have developed natural gas measures
• IEA monitors markets and progress of members
 Rapidity to dispatch measures as important as having them –
real-time communication with members and major players;
well tested and updated decision-making process

4. © OECD/IEA 2014© OECD/IEA 2014
1. Context

5. © OECD/IEA 2014
Establishment of IEA
 IEA established against
backdrop of 1973-1974 oil
crisis
• Need to increase energy
security while avoiding
competition for limited
resources
• Coordinated mechanisms for
response
 Today, energy security as
urgent as ever
• Oil security remains
cornerstone
• IEA moving to a more
comprehensive approach
“The uninterrupted availability of energy
sources at an affordable price”

6. © OECD/IEA 2014
Evolving energy landscape
 Share of oil in world energy mix declined but will still remain
most important fuel in foreseeable future
 Natural gas has an ever greater role
• Gas markets more integrated; more shipped via long pipelines and
LNG -> increasing distances lead to increased potential for
vulnerabilities
 Electricity: demand is set to grow faster than any other final
form of energy (more than 2/3 expansion 2011-2035)
• Increased share of VRG must be integrated without jeopardizing
security
• Natural gas gaining prominence in providing base load flexibility and
peak power = gas and electricity market intertwined in security, cost
and reliability

7. © OECD/IEA 2014© OECD/IEA 2014
2. IEA emergency mechanisms
for oil

8. © OECD/IEA 2014
World oil demand & imports
Non-OECD demand
overtook OECD in
mid-2013 (will be
54% in 2018)
Total oil net imports, 2000-2035
World oil demand, 1990-2018

9. © OECD/IEA 2014
Oil consumption by sector
Increased concentration of oil use in transportation sector (60%) and expected to rise
Accentuates potential economic impact of a disruption
Low price elasticity
Increased fuel costs rapidly passed to other sectors of economy
OECD Oil consumption by sector 1973-2011

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Major oil supply disruptions
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/Ike
Hurricanes Katrina/Rita
War in Iraq
Venezuelan strike
Iraqi oil export suspension
Iraqi invasion of Kuwait
Outbreak of Iran-Iraqcivil war
Iranian Revolution
Arab-Israeli War and Arab oil embargo
Six-Day War
Suez Crisis
 The severity of a disruption is not only measured
in the oil lost
• Other factors are key in evaluation:
 Level of commercial inventories, likely duration, available spare
capacity, quality of lost crude, seasonality, logistics etc.
• Each disruption must be assessed individually

11. © OECD/IEA 2014
Objectives of an IEA collective
action
 To mitigate economic damage by temporarily replacing
disrupted supplies
 Re-establish supply/demand balance at lower price
 Managing prices is not the purpose of IEA collective action
• Distorted market signals
• Underlying causes that a temporary release could not address
 In 1970s: physical unavailability addressed (7% threshold)
 Liberalised markets: price effects; rebalancing might require
prices to increase substantially in response to relatively
small disruption
 Purpose of IEA action: limit extent and impact of a sudden
supply disruption
• Replace lost supplies but market still allowed to set price
• Stabilise the market rather than manage prices

12. © OECD/IEA 2014
IEA emergency response
measures

13. © OECD/IEA 2014
Measures to increase oil
supply
 Stockdraw
• The most commonly used
measure
• Most effective
• IEA countries have
obligation to hold at least
90 days
• 4.2 billion barrels: 1.5 public
stocks for emergency
 Production Surge
• Limited in current market
climate
• Little or no spare capacity
• Good oilfield practices limit
extent of short-term surge
Total oil stocks in IEA regions
Total oil stocks at year end

14. © OECD/IEA 2014
Stockholding systems
 Regimes vary across IEA countries
• Reflect differences in market structure, geography
and national policy
• For EU members, need to comply with both
systems
• In general three approaches:
 Industry
 Government
 Agency

15. © OECD/IEA 2014
Estonia
Belgium
Germany
Hungary
Ireland
Slovak Republic
Czech Republic
New Zealand
USA
Industry
obligation
Government Luxembourg
Greece
Italy
Norway
Sweden
Turkey
UK
Austria
Denmark
Netherlands
Portugal
Switzerland
Finland
France
Spain
Japan
Korea
Poland
Different stockholding structures in IEA countries
Commercial & operational stocks
Agency
Stockholding option

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Financing and fees

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IEA stocks
23%
77%
37%
63%
Public
Public
Industry
Industry
1984 2013
Industry vs public stocks as share of total IEA

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Crude oil vs product
 IEA obligation does not specify
 EU legislation requires 1/3 products
 Choice depends on several factors:
• Price of storing products can be significantly higher
• Countries with large refining industry will store more crude for
flexibility

19. © OECD/IEA 2014
Location and availability
 Stocks can be held in other countries for logistical purposes
 Stocks held under bilateral agreements
 Efficiencies in stockholding
 Most IEA countries allow use of bilateral stockholding arrangements to
meet obligation
 Large part of stocks abroad is held as tickets
Countries with stocks held in other countries

20. © OECD/IEA 2014
Stock drawdown
 Release of stocks varies among members
• Most common among countries with industry obligation –
reduction of the obligation by % or specified number of
days of supply
• Volumes made available through regular market channels
 Some exceptions: allocation according to individual company
needs, govt/industry committee setting the release and pricing
• For government/agency stocks, various approaches as
well:
 Tender bidding process
 Sell at market price
 Government sets the price
 Loan

21. © OECD/IEA 2014
Measures to reduce oil use
 Demand restraint
• Potential in reduced heating
• Most policies focus on transportation sector
 Wide range of measures, from light to heavy
 Fuel switching
• Significant decline since 1970s
• In 2012 only 3% oil in electricity generation (25% in 1973)
• In transportation, virtually no potential for short-term
switching
 Other
• Relaxation of regulation, e.g. on quality specifications

22. © OECD/IEA 2014
Regional differences in potential
savings
 Estimated effectiveness of available measures varies among regions
 This reflects variations within the transportation sector itself
• Different travel modes, varying flexibility of travelers to change modes in crisis
• Extent of public transit infrastructure
• Carpooling less effective where high use of public transit and vice versa
• Driving bans less effective in countries with higher car ownership per household

23. © OECD/IEA 2014© OECD/IEA 2014
3. NATURAL GAS SECURITY IN
THE IEA

24. © OECD/IEA 2014
Growing significance of gas for energy
security (1)
 NG playing ever-growing role in energy
balances of IEA countries
• NG security becomes key element in energy
security
• But no framework for taking collective action
• No treaty basis for response mechanisms
 Emergency Response Review, about:
• Understanding current situation
• Assessing exposure
• Sharing best practices

25. © OECD/IEA 2014
Growing significance of gas for energy
security (2)
 NG seen as more secure fuel for decades
• Sourced close to consumption
• Transport by pipelines based on long-term contracts
• European markets well supplied despite political tensions
• LNG to Korea and Japan also stable for years
 BUT:
• Rise of NG share in IEA TPES (19% in 1973, 26% in 2012) (in Europe,
share of NG in power generation mix: 6% in 1990, 24% in 2012!)
• Demand in residential sector = security of supply important in winter
months
• NG market becoming increasingly global – longer pipelines, rise of LNG
trade.
 Global impact => supply disruptions no longer
limited to one or two countries

26. © OECD/IEA 2014
Trends in natural gas supply and
demand
 Global gas production: 2.1% growth in 2012 (2.7% in 2011)
• First time since 2001 OECD gains at parity with non-OECD
• Main contributors in 2012-2018 will be US, Australia, FSU region
• Global gas trade expected to expand by 30% (2012-2018) and reach 700 bcm.
Inter-regional NG trade in 2018 (bcm)

27. © OECD/IEA 2014
How emergency response for oil
and gas differ?
 Oil policies can be useful reference
 However, measures can differ substantially as
gas has unique nature
• Capital-intensive transportation/distribution
• Limited demand-side response in some large
consumer sectors (e.g. household heating)
• Limited variability of transportation to end users;
lower resilience
• Transport more difficult to scale up

28. © OECD/IEA 2014
Possible emergency response
measures for natural gas?
 Emergency gas stocks
 Alternatives - other measures
• Supply response
• Demand response
• Interruptible contracts
• Fuel switching

29. © OECD/IEA 2014
Emergency gas stocks
 Gas stocks are central to gas industry structure
• Seasonal, daily fluctuations
• Emergency stocks: not available to market under normal
conditions
• Government-owned or industry obligation
 Underground / Aboveground
• Different rates of injection/withdrawal
 Operating costs well beyond oil => impediment to
developing sizeable gas storage facilities

30. © OECD/IEA 2014
Alternative measures
 Supply response
• Depends on available capacity/infrastructure
 Demand response
• Price-induced; in some cases time lag
• Short-term gas saving measures (gov’t action)
• Rationing – demand restraint
 Interruptible contracts
 Fuel switching
• Obligation to hold stocks of alternative fuel

31. © OECD/IEA 2014
Role of natural gas in IEA
countries
 Very varied:
• over 40% of TPES in the Netherlands vs. 2% in Sweden
 Over 10% of TPES in 26 countries, over 30% of TPES in 7
• Power sector:
 over 20% in 15 countries, over 40% in 6
• Peak demand: can reach 100% of average in more than half IEA
countries

32. © OECD/IEA 2014
Import dependency/
diversification
 Most IEA countries depend on imports
 But also most countries benefit from relatively
diversified sources
• Greatest exposure to a single supplier: Eastern Europe
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Estonia
Finland
Sweden
SlovakRepublic
Ireland
Poland
CzechRepublic
UnitedStates
Hungary
Switzerland
Portugal
Austria
Greece
Luxembourg
UnitedKingdom
Germany
Turkey
Belgium
Italy
Spain
France
Japan
Korea
Canada
Denmark
Australia
Netherlands
NewZealand
Norway
Import diversity of supplies (Herfindahl-Hirschman index -2011)
HHI
Import dependence
*net exporter or no imports
*not applicable

33. © OECD/IEA 2014
Gas storage capacity
0%
10%
20%
30%
40%
50%
60%
Estonia
Luxembourg
Switzerland
Norway
Finland
Sweden
Greece
Canada
Ireland
Belgium
Australia
Turkey
UnitedKingdom
Japan
NewZealand
Poland
Korea
Netherlands
Portugal
Spain
UnitedStates
Italy
Germany
Denmark
CzechRepublic
France
SlovakRepublic
Hungary
Austria
LNG storage, as % annual demand
Underground storage, as % annual
demand
82%
 Valuable to address demand swings and disruptions
• Some European IEA impose a gas storage obligation
• Underground storage most common; depends on geology
 LNG is alternative; limited in size due to costs
 Some IEA countries
rely on storage in
other countries
 Growth of LNG
regasification
terminals – in
Japan, Korea,
Greece practically
all storage

34. © OECD/IEA 2014
External infrastructure
resilience
 Interconnections to neighboring countries is
another means to improve resilience
• 8 IEA countries pipeline inflow capacity exceeding
peak demand
• Several countries connected to storage capacity
beyond borders
 LNG vital to isolated markets (Japan, Korea)
• Five IEA countries able to cover peak demand with
LNG alone

35. © OECD/IEA 2014
Policies and emergency
measures
 Majority of IEA countries have developed
emergency policies
• Gas-specific NESO
• Interruptible contracts (9 countries)
• Fuel-switching policies (6 countries)
 Roll-out of CCGT plants = decreasing % of fuel switching
plants
• Many countries: stockholding obligation (all in
Europe) – on domestic players or major industrial
consumers, public stocks in one case (Hungary)

36. © OECD/IEA 2014© OECD/IEA 2014
Gracias
epd@iea.org