SUMMER SEMINAR:

IEA Role in Global Energy Security

Martin Young

Head, Emergency Policy Division, IEA

© OECD/IEA 2013

IEA Role in Global Energy Security

Martin Young

Head, Emergency Policy Division, IEA Madrid, 5th July 2013

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What is the International Energy Agency?

Autonomous agency linked to Organisation for Economic Co-operation & Development (OECD);

28 Member Countries; o Asia Pacific: Australia, Japan, Republic of Korea & New Zealand

o North America: United States, Canada

o Europe: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey & United Kingdom

o European Commission also participates in IEA work / committees

o IEA Candidate Countries: Chile & Estonia

Acts as energy policy advisor with some 230 staff based in Paris.

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Goals: o Energy security

o Environmental protection

o Economic growth

o Engagement worldwide

Activities: o Co-ordinates efforts to ensure energy security

o Conducts policy analysis

o Links research activities and governmental directives

o Compiles energy statistics

o Reviews energy policies and programs

o Convenes, mobilizes science and technology experts

o Promotes co-operation with key non-member countries

IEA – the “4Es”

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Energy security relies upon well functioning markets

Market balances supply & demand smoothly

Sufficient interconnections

Diversity of supply (countries & fuels)

Robust infrastructure for seasonal fluctuations (ports, pipelines, storage)

Appropriate Government regulations (e.g. Public Service Obligations)

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1973/74 oil crisis

Avoid competition for limited supplies

o “Go-it-alone”, uncoordinated policy ineffective

Coordinated action

oMechanism for response

Safety net

o Emergency reserves ≥ 90 days of net oil imports

oDemand restraint measures

Impetus to Establish the IEA

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IEA - operational role for oil security

Emergency response to oil supply disruptions - raison d'être for IEA & remains core IEA mission o IEA Countries obligation to hold 90 days of net-imports o Mandate to coordinate stock release in global supply

disruption

Emergency oil stocks cannot effectively replace market mechanisms, only mitigate short-term supply disruptions o Provide liquidity for markets to recover

Emergency stocks are not for price management o Finite so ineffective over time o Distort market signals / discourage investment making longer

term tighter demand/supply balance o Reduce cover for genuine emergencies

Only 3 IEA coordinated releases - 1991, 2005 & 2011 o But emergency stocks used for individual domestic crises

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Member Gov. Responsibilities

Legislation:

o to ensure participation in IEA decisions with appropriate emergency measures

National Emergency Strategy Organisation (NESO)

oCo-ordinate emergency operations

o Interface with domestic oil industry

o Interface with IEA emergency operations

Data collection

oMonthly Oil Statistics

o Emergency questionnaire

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Production

Surge

Emergency Response Measures

Supply Side

Stock-draw

Demand Side

Demand

Restraint

Fuel

Switching 9

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Light-handed

Medium

Heavy-handed

Persuasion/ Public campaigns

Multi-fired installations

Driving restrictions, speed

reductions

Driving bans, rationing

Demand restraint

Fuel switching

Demand Side

Emergency Response Measures 2

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Stockholding Options

Industry stocks

o Compulsory stocks & commercial stocks held by companies

Public stocks

o Government stocks held exclusively for emergency purposes

o Financed with central government budget

Agency stocks

o Maintained for emergency purposes

o Held/controlled by public bodies or agencies

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Germany Hungary Ireland

Agency

Czech Republic Slovak Republic

New Zealand USA

Government

Industry obligation

Luxembourg Greece

Italy Norway Sweden Turkey

UK

Austria Belgium Denmark

Netherlands Portugal

Switzerland Finland France Spain

Japan Korea

Poland

Stockholding Options 2

Different Stockholding Structures in IEA Countries

Commercial & operational stocks

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Design of Emergency Stock System

What is pipeline & transportation capability?

Where are refineries? Where are demand

centres?

Where do imports come from & where are delivery points?

What is inventory in supply system?

How much domestic refining capacity is available?

What will demand be for each major product?

What is risk of contamination?

Where to hold storage? Required release capacity?

Crude or products?

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Stockholding in IEA Regions

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Oil emergency response – key considerations for action

Need to respond promptly to those oil supply disruptions which appear capable of causing severe economic harm

Market will always balance supply & demand, given time & freedom of price movement… But will disruption cause severe economic harm?

Need to understand market context of disruption: o Analysis helps answer whether market can cope with

disruption using available resources (commercial stocks and/or OPEC spare capacity)?

If action is needed, speed & unity of response are key factors o Delayed/hesitant response can exacerbate situation o Decision on action will likely need to be made before all

necessary information is available

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Key Elements of IEA Response

Continuous assessment of oil market o Monthly Oil Market Report (OMR) but monitor market daily

o Size of disruption; OPEC spare capacity; stocks in OECD

o Necessity of IEA action, impact on market

Rapid decision making framework o Need for fast & decisive response as market reaction immediate

o Delayed, weak or uncoordinated response can cause market confusion & exacerbate problem

Flexibility in response measures o Stocks are key, but other measures possible

o Make oil available to market, not directing – market allocates oil

Communication o Dialogue with Members, key NMCs & OPEC

o Media strategy to deal with markets

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But the world has changed since 1974…

Oil remains lead fuel but increasing importance of natural gas & renewables that collectively meet almost two-thirds of incremental energy demand in 2010-2035

Source: WEO 2012

World primary energy demand by fuel

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US/Gulf of Mexico

Hurricanes ’05 & ‘08

Venezuela

Resource

Nationalism

since ‘02

Nigeria

Civil

Unrest

since ‘03

Brazil

Hydro

Power ‘09

Iraq

Sabotage

since ‘03

North America

Blackout

‘01 &‘03

Italy

Blackout

‘03

Thailand

Gas

Supply

‘09

Belarus

Transit

Jan ‘07 & ‘10

Ukraine

Transit

Jan ‘06 & ‘09

Iran

Nuclear

Ambition

since ‘02

Strait of

Malacca

Piracy

Strait of

Hormuz

Chokepoint

Norway

Hydro Power

’03/04

Germany

Wind

Power ‘05

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Libya

Political

Unrest ‘11

Japan

Nuclear

Accidents‘11

Chile

Gas pipelines

cut since ‘04

Somalia

Piracy

Energy security remains key & concept has broadened

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Energy security wider than oil

IEA has broadened concept of energy security to cover natural gas & electricity

Similar to oil security framework, emergency policies for gas & electricity need to be: o For defined emergencies only o Not for seasonal fluctuations o Designed for specific situations of country / region o Set out in Code of Operations or equivalent

But significant differences: o Regional rather than global markets

o Regulation of distribution / public service obligations

IEA working with member countries on emergency response policies for gas & will extend into electricity later this year

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Gas Emergency Response Measures

Use of alternative supply routes

Diversity of supply routes & sources is key

Pipeline (inc reverse capacity), LNG (spot cargoes)

Stocks (storage)

Industry and/or public stocks

Underground and/or LNG storage

Spare capacity

Domestic production, gas in pipelines)

Demand-side measures

Interruptible contracts (pre-negotiated)

Public appeal (Government campaigns)

Fuel-switching

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Power system security

Ability of power system to maintain reliable power supplies in face of unexpected shocks & sudden disruptions in real-time, such as unanticipated loss of largest generation or network components or rapid changes in aggregate, load & fuel supply conditions.

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Strengthening Emergency Response Systems

Emergency Response Reviews (ERR)

Country peer reviews on emergency preparedness

Checks procedures & institutional arrangements

Contributes to identify & improve weak points

Emergency Response Exercises (ERE)

Test processes for: decision making, communicating, hypothetical release

Broadening of energy security concept

Emergency policies for natural gas

Electricity security issues

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ERR

Stockholding Regime ,

Legislation & Financing Location &

Quality of Oil

Stock Drawdown Procedures

Other Response Measures

(Demand Restraint, etc.)

Emergency Response Policy &

Legislation

Stockholding Regime & Legislation

Data System

Emergency Response

Organisation

(NESO)

Emergency Response Policy &

Legislation

Infrastructure

(Storage capacity, pipelines, ports)

Refining

Capacity

Supply &

Demand

Emergency

Oil Reserves

Domestic

Oil & Gas

Markets

Natural Gas

Emergency

Policy

Policy &

Organisation

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Emergency Response Reviews (Oil/gas)

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ERR- Electricity Security

System Security Assessment Checklist

o Rules & standards

o Asset management

o Emergency response resources

o System operating practices

o Situational awareness

o Coordination

o Communication

o Training & capacity building

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Emergency Response Exercise

Biannual exercises continue (ERE6 took place in Paris in November 2012; ERE7 being planned for 2014)

Specific workshops for new or complex issues/policy

Rollout of EREs to key Non-Member Countries

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1974 – the IEA Treaty

Oil market in early-70s

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Countries outside IEA Membership

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OECD Total51%

Non-OECD

Total49%

World Oil Demand in 2011

89.1 million barrels per day

Growing importance of consuming countries outside IEA

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Emerging economies continue to drive global energy demand

Growth in primary energy demand in WEO New Policies Scenario

Global energy demand increases by one-third from 2010 to 2035, with China & India accounting for 50% of growth

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

2010 2015 2020 2025 2030 2035

Mto

e

China

India

Other dev. Asia

Russia

Middle East

Rest of world

OECD

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Demand growth driven by non-OECD economies

Global energy demand rises by over one-third in period to 2035, underpinned by rising living standards in China, India & Middle East

Source: WEO 2012

20%

40%

60%

80%

100%

1975 2010 2035

Middle East

India

China

OECD

Rest of non-OECD 6 030 Mtoe 12 380 Mtoe 16 730 Mtoe

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Different trends in oil & gas import dependency

Net oil & gas import dependency in selected countries

While dependence on imported oil & gas rises in many countries, the United States swims against the tide

Source: WEO 2012

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Changing oil import needs to shift concerns about oil security

Net imports of oil in WEO New Policies Scenario

US oil imports drop due to rising domestic output & improved transport efficiency: EU imports overtake US around 2015; China becomes largest importer around 2020

0

2

4

6

8

10

12

14

China India European Union

United States

Japan

mb

/d

2000

2010

2035

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Increasing need for cooperation during oil supply disruptions

0%

10%

20%

30%

40%

50%

60%

70%

-

10

20

30

40

50

60

70

day

s o

f w

orl

d o

il d

em

and

co

ver

IEA stocks in terms of global oil demand with China with India with ASEAN Share of non-OECD in global oil demand

Growing share of non-OECD oil demand results in declining global demand cover from IEA emergency oil stocks

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Work with Partner Countries

Active programme with non-member countries (joint statements/ MoU/ work programmes):

o China (workshops, possible ERE)

o India (workshops, ERE, ERA)

o ASEAN/APEC (workshops, ERE)

o Thailand (workshops, ERE, ERA)

o Indonesia (planned ERA)

o Others (other PC, accession).

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Energy security framework

Model of Short-Term Energy Security (MOSES)

• MOSES identifies set of indicators for risks & resilience • MOSES aims to help IEA countries understand their energy security

profiles in order to identify energy policy priorities

IEA has developed model to assess short-term energy security

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MOSES output

%TPES Group 100%

Oil Fuel Percentage

Motor Gasoline 4% A Motor Gasoline 3.9%

Middle Distillate 21% A Middle Distillate 21.3%

Other oil prods 19% B Other oil prods 19.3%

Natural Gas 20.0% B Natural Gas 20.0%

Coal 12.5% C Coal 12.5%

Biomass & Waste 4.5% C Biomass & Waste 4.5%

Bio-ethanol 0.2% B Other 3.4%

Bio-diesel 1.2% B Bio-diesel 1.2%

Hydro 2.1% C Hydro 2.1%

Nuclear 11.9% D Nuclear 11.9%

Geothermal 0.0%

Other 3.2%

Maritime Entry Points

Diversity of suppliers

Proportion Offshore production

Storage Capacity

Natural Gas Intensity

FINAL

Motor Gasoline

Middle Distillate

Other oil prods

Natural Gas

Coal

Biomass & Waste

Other

Bio-diesel

HydroNuclear

ABCDE

Other: Bio-ethanol, Geothermal, and other smaller fuels

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Summary Messages

Demand growth driven by non-OECD – changing energy security perspectives

Global & more integrated energy markets create new energy security challenges

Need for greater dialogue & cooperation

Threats to energy security come from many sources

Flexibility is crucial with efficient & transparent markets

Government policies must complement efficient markets

o Policy, legal & regulatory certainty / consistency

o Support for clean & innovative technologies

o Promotion of energy efficiency & demand response

o Effective emergency response varies by energy source

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Issues to think about

1. Rising non-OECD oil demand with supply being shifted to east of Suez;

2. Refinery consolidation & its implications; and

3. Increasing gas use & potential LNG infrastructure bottlenecks.

© OECD/IEA 2013

Thank you

epd@iea.org