Auxiliary Report
Final
Australia's Emergency Liquid Fuel
Stockholding Update 2013:
Ticket Markets
Prepared for the Department of Industry, Canberra
23 October 2013
This report was produced using data, forecasts and price information
current at the time of writing (2013). It should be noted that these inputs
are likely to change over time and users of this report should refer to
report updates where available or consider the age of the report when
reviewing the results presented.
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This document was written by:
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Executive Summary
Ticketed stock (tickets) is the name given to a stockholding arrangement under which the seller
agrees to hold (or reserve) an amount of oil on behalf of the buyer in return for an agreed fee.
The buyer is purchasing an option to purchase physical oil that can only be exercised in an oil
supply emergency declared by the International Energy Agency (IEA). The purchaser of the ticket
gets the right to count the reserved stock as part of its IEA stockholding commitment, and the
seller of the ticket does not count the stock in its commitment.
Tickets were developed in Europe as a flexible way for companies to manage their compulsory
stock obligations which is why they are linked explicitly to being exercised in an IEA disruption
event and counting towards stock obligations. Tickets can be between parties in different
countries as long as the respective countries have a bilateral agreement allowing such deals (also
referred to as government to government agreements).
The National Energy Security Assessment (NESA) Identified Issues: Australia’s International
Energy Oil Obligation report (2012 Report) provided details of the ticket market and ticket
contracts. All four stockholding models developed in the 2012 Report included at least a portion of
ticket stock. This is because tickets provide a flexible way to manage a target that can change
annually and where the physical stocks are likely to be added in large increments. Ticket stock
has the advantage of being:





Relatively short term (normally 3 months to a year) which is useful in managing a
changing emergency stock requirement;
Traded openly (although not on a regulated market) giving transparency to buyers
and sellers;
International in nature where ticket stock can be held in other countries if the
respective governments have bilateral agreements;
Cost effective (in limited volumes), especially when compared with the long term
commitment needed for physically holding emergency stock; and
Simple to manage as the ticket seller continues to own and manage the stock on
which the ticket is sold.
Developing a ticket market in non-IEA countries
Ticket contracts between entities in different countries have historically been restricted to IEA
countries as they are the countries with the stock obligations. The IEA rules note that there must
be a bilateral agreement between the participating countries which is defined in the Agreement on
an International Energy Program (IEP).
The IEA has recently allowed IEA member countries to hold ticket stock in non-IEA countries who
are European Union members as the European Union members also have a stock obligation.
The majority of IEA members are European (see Figure 1 in Background Section) so are not a
logical place for Australia to hold emergency stocks. However, of the other three Asia-Pacific IEA
members, New Zealand is short of stock and South Korea restricts how stocks are released in an
emergency so would not be able to sign a bilateral agreement, leaving only Japan as a possible
offshore stock location in the region. It would make sense for Australia to look at developing a
ticket market in some other (non-IEA) Asian countries if it can be done in a way such that the IEA
is prepared to count the stock held.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
The requirements that the IEA might set for a non-IEA country to be allowed as an emergency
storage location are not known but may include:



A bilateral agreement between Australia and the other country that no impediment
will be imposed on the transfer of stocks in an emergency (this will be a definite
requirement);
Monthly reporting of the stocks (at minimum the stock held under the agreement);
and
Acceptance of the non-IEA country as a suitable location for an IEA country to hold
stock by the IEA Governing Board.
The ticket contracts are commercial contracts between two entities and not dependent on whether
those entities are in IEA countries so could be used in the same form for securing stock in a nonIEA country. As with any ticket contract, the counterparty risk on the contract being honoured will
need to be assessed, along with the country risk that the country will honour its bilateral
agreement in a supply disruption.
The non-IEA country would get benefit from allowing ticket stock to be held on its territory as it
would provide an income stream to its petroleum industry. It would need to evaluate how it allows
tickets to be sold as it would not want the sale of tickets to affect its own supply security. This
means the country is likely to require the stocks on which tickets can be sold to be additional to
the normal commercial supplies to the domestic market (e.g. they are sold on traded volumes).
Ticket market in Australia
This report updates and expands discussion on the option of developing a ticket market in
Australia. Development of such a market in Australia would provide benefit for most of the
stockholding models being considered by Australia. However, the structure of the domestic ticket
market will depend on the particular model.
For a model where the government has the task of securing the required emergency stock
through ticket contracts, while the bulk of these are likely to be offshore, there will be benefit in
developing an internal market to:



Hold some of the emergency stock within Australia, providing more prompt
emergency response stock and protection against domestic disruption;
The opportunity to use excess/ underutilised storage facilities that may be more cost
effective than new facilities; and
Increase the pool of locations where stock can be held increasing the availability of
ticket stock.
Models that use an industry obligation as part of the stockholding model, typically require each
market participant (companies supplying petroleum) to hold a certain minimum number of days'
supply. Companies' inventory cycles depend on a number of factors including supply frequency
and method, storage facility availability, market opportunities and demand variation. Using tickets
allows companies to manage the short term variation. For example if a company was doing
maintenance on a storage facility which meant they could not hold their normal stock level for a
period, it could buy a ticket to ensure it continued to meet its obligation level.
The ticket market in this case is primarily providing flexibility to market participants rather than a
means of actually increasing physical stock holdings, although it could also do that if a central
stock agency purchased ticket contracts from companies holding more than the minimum stock
obligation for a period.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Ticket costs
For this report ticket costs have been updated based on current market information. There have
been some changes to the ticket market following changes to more closely align the European
Union compulsory stock obligations with those of the IEA at the end of 2012. In addition, the
market structure of oil markets over the last couple of years has, in general, not favoured storing
oil (it is favourable when forward prices are generally lower than current prices providing a
financial incentive for companies to hold stock). A lack of incentive to store oil has been reflected
in higher ticket prices.
Table 1: Ticket cost assumptions
2012 report
Update
(USD/tonne/month)
(USD/tonne/month)
Up to 300,000 tonnes
1.00-2.00
2.75
300,000-500,000 tonnes
3.50
3.50
500,000-1,000,000
5.50
5.50
1,000,000+
7.50 (5.00-9.00)
9.00
The price for volumes above 1 million tonnes has been increased to USD 9.00/tonne/month from
the USD 7.50/tonne/month used in the 2012 Report. While this is well above where ticket
contracts are currently trading, like any commodity market, if a large new buyer comes into the
market prices will rise. Ultimately the price will rise to the cost of providing more supply, hence
the assumption of a similar cost to holding physical stock for large volumes. Exactly how much
volume purchased would shift the market this high will not be known until Australia enters the
market. Ticket prices could go above the level assumed above (the cost of physical stock holdings)
if there is a demand spike exceeding current supply or if companies are expecting a higher return
on their assets than assumed in this cost estimate.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Table of Contents
Executive Summary .......................................................................................................... i
1.0
Introduction ......................................................................................................... 1
2.0
Background .......................................................................................................... 1
3.0
Methodology ......................................................................................................... 3
3.1
Scope of Work ..............................................................................................................3
4.0
Summary of ticket markets .................................................................................. 5
4.1
Ticket market changes ..................................................................................................6
4.2
Ticket costs and availability ...........................................................................................6
5.0
PART A: Using a non-IEA country as a provider of ticket stock ........................... 8
5.1
Current IEA rule for counting stock ................................................................................8
5.2
Possible IEA requirements for acceptance of a non-IEA country as a ticker provider .........9
5.3
Factors in considering a non-IEA country ..................................................................... 10
5.4
Benefits and issues for the host country ....................................................................... 10
5.5
Ticket contract structure ............................................................................................. 11
5.6
List of actions to develop a ticket market in a non-IEA country ...................................... 12
6.0
Case Study: Republic of Singapore as an example of a non-IEA country
providing ticket stock ......................................................................................... 13
6.1
Assessment of Singapore as a ticket location ................................................................ 15
6.2
Singapore summary .................................................................................................... 16
7.0
PART B: A domestic ticket market within Australia ........................................... 18
7.1
A domestic ticket market ............................................................................................. 18
7.2
Market incentives ........................................................................................................ 21
7.3
Ticket contract structure & pricing ............................................................................... 21
7.4
Links to global market ................................................................................................. 22
7.5
Rules for release ......................................................................................................... 23
7.6
Summary ................................................................................................................... 23
Associated Reports ........................................................................................................ 24
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Glossary
APEC
Asia Pacific Economic Cooperation
ASEAN
Association of Southeast Asian Nations
Bbl
Barrel (measure of petroleum volume = 159 litres).
Backwardation
A term used in commodity markets where the price for prompt delivery is
more expensive than future delivery.
Bilateral
agreement
Agreement between two countries allowing one country to hold stock (and
count it towards its obligation) in the other country (also known as
government to government agreement).
Central stock
agency
An agency established specifically to manage emergency stocks in a country.
May be government or industry owned.
Contango
A term used in commodity markets where the price for prompt delivery is
cheaper than future delivery.
EU
European Union
IEA
International Energy Agency
IEP Agreement
IEA Agreement that covers the coordination of petroleum in an emergency
along with minimum stock holding requirements
LNG
Liquefied Natural Gas
OECD
Organisation for Economic Co-operation and Development
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
1.0 Introduction
This report is one of a number of reports updating the work covered in the National Energy
Security Assessment (NESA) Identified Issues: Australia’s International Energy Oil Obligation
report (2012 Report) produced by Hale & Twomey (H&T) for the then Department of Resources,
Energy and Tourism in 2012. This auxiliary report updates the information on ticket markets,
including updating the likely cost of tickets, before analysing two specific areas:


PART A: Using a non-International Energy Agency (IEA) country as a provider of
ticket stock
PART B: Creating a domestic ticket market within Australia
Using a non-IEA country as a provider of ticket stock is a new subject whereas the section on a
domestic ticket market expands and clarifies work in the 2012 Report.
2.0 Background
Australia is a member of the IEA where, as a signatory to the Agreement on an International
Energy Program (the “IEP Agreement”), it benefits from the coordination of crude oil and
petroleum product supply in the event of a major disruption to international oil markets. Under
the IEP Agreement, member countries accepted a treaty commitment to hold crude oil and
petroleum product stocks equivalent to a minimum of 90 days of the previous year's daily net
import demand, and participate in collective actions 1 initiated by the IEA during a liquid fuel
emergency.
In the last few years Australia has not achieved the minimum inventory commitment set by the
IEA. With local production of crude and condensate falling and petroleum demand increasing, the
commercial stocks held by market participants are no longer sufficient to cover the minimum
commitment which is based on 90 days of daily net imports.
The IEA includes 28 member countries and was founded in response to the 1973/4 oil crisis. The
majority of members are in Europe as shown in Figure 1. Australia, Japan, New Zealand and the
Republic of Korea (South Korea) are the only IEA members in the Asia-Pacific region.
IEA collective actions cover a range of options including the joint release of stock as an initial response to
market disruption. Other responses include demand restraint, fuel switching and surge production. The
actions chosen are tailored to each situation, involve widespread consultation and co-operation and can be
instigated rapidly.
1
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 1
Figure 1: IEA membership map
The majority of IEA member governments hold emergency stocks, although there are a wide
variety of approaches to holding physical stock and obtaining storage facilities. Some governments
have developed and own storage facilities; others lease storage from the market and leave it to
private providers to own and manage the facility. In this case, storage facilities are normally
secured through a tender process (which is applicable for both existing and new facilities).
With regard to physical stock, many governments own the oil even if the storage is leased, unless
they devolve the obligation to hold stock to the petroleum industry operating within the country.
Even where industry is responsible for holding stock, there is usually some approved central
structure (e.g. stock agency) to ensure the facilities and stock are developed and held in the most
efficient way.
Some IEA countries fund emergency stock from the general government budget, particularly nonEuropean countries. However, many of these countries established reserves over a long period
when petroleum prices were at lower levels. Direct funding via a consumer levy is common in
Europe, and most IEA countries tax petroleum in some way. The levy provides an annual income
stream to the government or stock agency. Large upfront costs associated with initial fuel
purchases are funded by loans to the stock agency, which are repaid through the levy income.
In the 2012 Report, four stockholding models were developed to cover a range of options that
might be suitable to help Australian meet its IEA obligations. All four models used stock ticketing
as a proportion of the stocks held because of the flexibility provided by stock tickets.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 2
3.0 Methodology
This report reviews the status of the ticket market, notes any market changes since the 2012
Report was produced, and updates the ticket pricing to be used in the stockholding models cost
analysis in associated H&T reports. Using a non-IEA country as a location for Australian entities to
hold ticket stock is then assessed, as non-IEA countries may provide a more logical and cost
effective place for Australia to hold stock than other IEA countries, while still providing Australia
with appropriate supply security.
The 2012 Report briefly covered setting up a ticket market in Australia, whereas this report
reviews options in more detail. Issues covered include:






Benefits of domestic ticket stockholdings;
Options for how ticket stock could be held in country;
Market incentives to offset any deadweight costs of a domestic ticketing system;
Length and pricing of ticket contracts;
How a domestic ticket market could be integrated with other countries; and
How ticket stock would be released in a disruption event.
The scope of work for this report is outlined in the Terms of Reference at section 3.1. This report
uses H&T’s knowledge of ticket markets developed through assisting with New Zealand’s stock
ticket tenders, along with information available from the IEA on ticket markets and how individual
IEA countries participate in ticket markets. Some central stock agencies also publish information
around their activities in the ticket markets.
3.1
Scope of Work
This report required the extraction of relevant material (updated as required) from the 2012
Report, re-organisation of topics into a logical hierarchy, expansion or elucidation of identified
sections or issues, and new work, as noted below.
PART A: Using a non-IEA country as a ticket stock provider (with Singapore as a case
study)
Work addressed in the 2012 Report is further developed, and issues associated with Australia
storing ticketed stock in a generic non-IEA member country are assessed.
Pages 5 and 6 of the 2012 Report, for example, note that:
“Storing and owning stock in another country only makes sense if there
is a strong cost driver…a lower cost is only likely if a country has underutilised facilities that could be leased at significantly lower costs than the
cost of a new domestic facility”.
Ticketing arrangements are examined via (i) the Australian Government (government-togovernment agreement), and (ii) industry. Any implications associated with arrangements related
to the ticket holder entity are noted.
Other issues are also investigated, including (not limited to) shipping availability, reliability and
cost, storage availability and cost, security of supply routes, other costs, emergency situation
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 3
protocols (to prevent gazumping of supply and/or vessels, for example, and to guarantee
delivery), and sovereign risk2.
The Republic of Singapore is used as a case study, and the pros and cons of storing and accessing
stock at the Singapore energy hub are investigated.
PART B: A domestic ticket market within Australia
The rationale for requesting further information on this item relates to the following excerpts from
the 2012 Report:
“The options Australia has in developing a domestic ticket market are:


Give the market an opportunity to offer ticket contracts to hold stock with the
contract ensuring that stock is additional to normal commercial stocks in a similar
manner to the New Zealand contract.
Put stock obligations on the industry at some level that would then enable companies
to make their own decision to hold more stock and offer ticket contracts if they
choose to.” (p13).
“Australia’s emergency stock volume requirement is expected to be significantly higher
than the volumes reported as purchased by other governments… [the implications] could
move the ticket cost up to an equivalent level as holding physical stock or even
higher…Australia will need to carefully manage any entry into the ticket market
including…pursue(ing) stock options within Australia under a ticket structure (also likely to
be longer term) that may prove as cost effective as offshore options.” (p16).
The concept of the formation of an Australian ticket market is expanded to cover:
i.
holding stock in-country for industry to meet Australian Government requirements; and
ii.
holding stock on behalf of other IEA or non-IEA member countries in the Asia-Pacific
region, including ASEAN members.
The issues of shipping availability, security of supply routes and marine emergency situation protocols are
largely covered in Australia’s Maritime Supply Chain for Petroleum Trade (2013) report rather than this report.
2
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 4
4.0 Summary of ticket markets
The ticket market and the ticket contract structure are covered in detail in Section 2.2 of the 2012
Report.
Ticketed stock (tickets) is the name given to a stockholding arrangement under which a seller
agrees to hold (or reserve) an amount of oil on behalf of a buyer in return for an agreed fee. The
buyer is purchasing an option to buy physical oil that can only be exercised in an oil supply
emergency declared by the IEA. The purchaser of the ticket gets the right to count the reserved
stock as part of its IEA stockholding commitment, and the seller of the ticket does not count the
stock in its commitment.
Tickets were developed in Europe as a flexible way for companies to manage their compulsory
stock obligations. This is why they are linked explicitly to being exercised in an IEA disruption
event and counting towards stock commitments. Ticket agreements can be between parties in
different countries as long as the respective countries have a bilateral agreement allowing such
deals (also referred to as a government to government agreement).
The advantages and disadvantages of ticket stock are noted in Table 2.
Table 2: Advantages and disadvantages of ticket contracts
Advantages of ticket contracts






Flexible for volume and timing; responsive
to a changing emergency stock
requirement
Traded openly (although not on a
regulated market) giving transparency to
buyers and sellers
More cost effective than physical storage
(although this may only be in limited
volumes)
Good short term option (typical term of
three months to a year) avoiding long term
commitment of capital
Easy to manage (stock owner continues to
manage all issues with the stock including
quality and price risk)
International in nature where ticket stock
can be held in other countries if bilateral
agreements in place
Disadvantages of ticket contracts






Limited number of countries involved in
the ticket market (and most of these are in
Europe, a long way from Australia)
Reliant on host country to honour contract
in time of crisis
Unless country where it is held is close to
Australia, ticket stock is unlikely to be
assist in a domestic emergency
Likely to be a limit on volumes available
No certainty of continuing availability of
tickets and does not provide a long term
solution if requirement is ongoing
Have to pay market price if purchase
option is exercised – this is likely to be a
time of high prices
With a stockholding in another country, the ticket buyer is dependent on the stock owner and the
government of the host country honouring the contract in an emergency. However, this possible
risk is mitigated by the contracts being made under the auspices of IEA membership in which
countries have agreed to work together in an emergency.
Ticket stock held offshore is only able to be exercised in an IEA declared emergency. If there was
a domestic disruption in Australia, tickets could not be exercised. However if international markets
are still operating (which they would be in a disruption only impacting Australia), normal
commercial supplies can be obtained just as quickly (if not more quickly) than ticketed stock so
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 5
there would be little value in having the option to exercise contracts in this circumstance. Offshore
tickets do provide value in a global disruption either through release to add to the general market
supply in the region it is held, or through purchase and shipping to Australia to supplement the
restricted supply availability.
Due to the limited number of countries active in the ticket market, particularly in the Asia Pacific
region, this report assesses the value of opening up ticket markets in non-IEA countries within the
region. This is covered in Section 5.0 (Part A).
Ticket stock held domestically is likely to increase Australia’s stock holdings either through direct
contracting or through the development of an industry obligation. As well as providing more stock
towards the compliance commitment, it is likely to provide additional security against domestic
distribution events. This is addressed in more detail in Section 7.0 (Part B).
4.1
Ticket market changes
The main change that has affected the stock ticket market since the 2012 Report has been
changes in the European compulsory stocks market at the end of 2012. The changes were made
to more closely align European compulsory stock regulations with those of the IEA. The main
impact of these changes on the ticket market has been a narrowing of the price differential
between the cost of different types of product tickets and an increase in tickets offered for crude
oil stock.
4.2
Ticket costs and availability
Ticket purchasers pay a monthly fee based on a cost per tonne of stock held. This single fee
covers all costs relating to holding the stock. There is not a regulated market for tickets – sellers
and buyers deal directly or through a tender process. Direct deals are also facilitated by brokers
who are active in this market. With no regulated market, price information can be hard to obtain.
The 2012 Report gave a range for ticket costs between USD0.80-3.50/tonne/month based on a
range of sources.
For most of the time over the past couple of years, the oil market in Europe has been in
'backwardation' whereby it is more expensive to buy crude or product for immediate delivery than
for a future delivery time. This means there is no incentive (actually a penalty) for a company to
hold more stock than they need to. This is reflected in higher prices for tickets as lower volumes
of discretionary stock are held in storage. For the preceding period (which covers most of the time
in which prices were analysed in the 2012 report), the market was primarily in 'contango' where
forward prices are higher than those for immediate delivery, therefore encouraging storage.
Based on tender information provided by the New Zealand Ministry of Business, Innovation and
Employment (MBIE), along with public agency information from Europe, the average ticket price
since 2011 has been in the range USD2.00-3.50/tonne/month, which is at the higher end of the
range analysed in the 2012 report.3
New Zealand has also noted in a recent tender (February 2013) that with the change in EU
compulsory stock regulations there is no longer a significant difference in the cost of tickets for
different products. In addition, at the time, availability of tickets was limited (although New
New Zealand ticket pricing information provided in confidence to the then Department of Resources,
Energy and Tourism (now the Department of Industry). It is not to be publicly released without obtaining the
approval of New Zealand’s Ministry of Business, Innovation and Employment.
3
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 6
Zealand did receive advice that this may have primarily been due to the uncertainty created by
lack of clarity on the domestic application of the new European Union rules).
The volume of tickets available in the market for purchase by Australia is not clear. While some
countries (e.g. Ireland) have reduced ticket purchases in recent years it also appears that falling
production in other countries (e.g. United Kingdom) and the new European Union rules may have
reduced the overall ticket volume available. Until Australia actually enters the market, the volume
availability and stock costs will remain uncertain. Given the uncertainty of availability, the cost
assumption used in the 2012 Report—that the ticket cost will increase toward the cost of holding
physical stock in dedicated tanks as volumes increase—continues to be used for this update. Table
3 shows the update in ticket cost assumptions.
Table 3: Ticket cost assumptions
2012 Report
2013 Update
(USD/tonne/month)
(USD/tonne/month)
1.00-2.00
2.75
300,000-500,000 tonnes
3.50
3.50
500,000-1,000,000
5.50
5.50
7.50 (5.00-9.00)
9.00
Up to 300,000 tonnes
1,000,000+
In the Oil Storage Options & Costs Auxiliary Report, it was calculated that the cost for physical
storage in Australia is equivalent to around AUD9.00/tonne/month for crude and
AUD10.00/tonne/month for product. Based on the IEA cost estimates it may be a little cheaper in
Europe. To reflect the ticket cost approaching the cost of physical storage we assume that if
Australia requires ticket volumes over 1,000,000 tonnes the cost will be USD9.00/tonne/month.
While this assumption is well above where ticket contracts are currently trading, like any
commodity market if a large new buyer comes into the market, prices will rise. Ultimately the price
will rise to the cost of providing more supply, hence the assumption of a similar cost of holding
physical stock for large volumes. Exactly how much volume would shift the market this high will
not be known until Australia enters the market. The prices could go above the cost of physical
stock holdings if companies were also factoring in the stock price exposure between the start and
end of the ticket contract or using a higher cost of capital to work out their cost.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 7
5.0 PART A: Using a non-IEA country as a provider of
ticket stock
5.1
Current IEA rule for counting stock
The IEA allows member countries to count stockholdings using ticket contracts (as well as physical
stock) in other countries towards their IEA commitment. These are reported as part of the
Monthly Oil Stocks (MOS) data each member country submits.
The system relies on both the host country and the beneficiary country reporting to the IEA. The
ticket contracts require the entities entering the contract to report to their respective governments
and the IEA requires ticket contracts to be governed by a bilateral agreement between the
countries involved meaning that both governments are cognisant of the undertakings they (and/or
entities within their country) are making. These agreements must include a guarantee that the
host country will provide the purchaser with access to the stocks when required.
The IEA defines the requirement of the bilateral agreements in the IEP Agreement as follows.
A Participating Country may credit towards its emergency reserve
commitment oil stocks in another country provided that the Government
of that other country has an agreement with the Government of the
Participating Country that it shall impose no impediment to the transfer
of those stocks in an emergency to the Participating Country.4
The IEP Agreement does specify what stock types can be reported in the IEA submission but
doesn’t detail the reporting requirements. In recent information releases to IEA members5 the IEA
outlined its requirements for counting stock in other countries when detailing the differences with
the European Union compulsory stock system:
Under the IEA system, stocks held in other countries can be counted
towards the IEA stockholding obligation, provided there is a bilateral
agreement of the type described in Article 3 of the Annex on Emergency
Reserves to the IEP and where the IEA Secretariat is able to verify the
reports where the other country is not a Member country of the OECD.
Therefore, IEA Member countries have the possibility of establishing a
bilateral agreement and holding stocks in: another IEA Member country;
an OECD non-IEA Member country; and an EU Member State not being
an OECD Member country6.
It further noted that in order for stocks in an “EU Member State not being an OECD Member
country” to be counted:
“…the IEA must be able to verify the reports where the other country is
not a Member country of the OECD. Therefore it is necessary to have
the agreement of the European Commission to provide the IEA
Secretariat with data of EU non-IEA Member States upon request.”
This has clarified that while a bilateral agreement is a necessity for stock held in another country
to be counted, it is not exclusive to IEA members; it can include OECD non-IEA member countries
4
Article 3 of the Annex on Emergency Reserves to the IEP.
5
These are referred to as SEQs – Standing Group on Emergency Questions.
6
IEA-SEQ (2011)20.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 8
(Chile being an example) and EU Members which are not OECD countries. However in these cases
the IEA expect to be able to verify the stockholdings from stock reports it can obtain.
5.2
Possible IEA requirements for acceptance of a non-IEA country
as a ticker provider
IEA’s reporting requirements for stock held in another country indicates the possible requirements
if the ticket system were to be extended to a country outside the current allowed grouping (e.g. a
non-OECD and non-EU member). These requirements could include:
1.
A bilateral agreement between the non-IEA, OECD or EU member country and the
government which wanted the ability for it or its companies to hold stock in that country.
2.
An agreement between the non-IEA, OECD or EU member country and the IEA for that
country to report stocks monthly (at minimum the stocks under the contract) so the IEA
would have assurance that the stock was being held for the benefit of the country in which
entities were purchasing the tickets.
3.
Possibly acceptance by IEA members (through adoption at the Governing Board level) that
the new country is an acceptable location for IEA member countries to hold stock.
These principles would apply to both holding stock directly and through a ticket contract in
another country.
Bilateral Agreement
A bilateral agreement is a critical requirement for the IEA agreeing to count stocks in another
country. It would also be essential for the country wanting to hold the stock so it had some
assurance the host country would honour the contracts in an emergency.
One of the key requirements for signing such agreements is to ensure they are consistent with a
country’s laws. Some countries (e.g. South Korea and the United States) have laws that ban
petroleum exports or give the host country first rights to all oil on its territory in an emergency.
Such laws impose an impediment to the transfer of stocks held for an emergency by another
country so a bilateral agreement can't be signed (at least, not one that would be sensible for the
country wanting the stock).
Reporting
H&T cannot precisely define the reporting requirements the IEA may demand from a non-IEA
member which wants to hold stock for an IEA member. However, we believe it may require:



All stock to be reported, not just stock held for IEA countries, so that the IEA can see
the holding in the context of the country’s overall stock;
Stocks reported monthly as for IEA members; and
In the case of ticket stock, the IEA may want some assurance the stock is additional
not just a ticket over stock that is held in the country anyway (it may be that the host
country wants this as well so that it is not compromising its own oil security).
It may be the host country, rather than the IEA, which wants assurance that the stock ticketed is
additional to normal commercial stocks. A host country would not want to find that its companies
have issued tickets over stocks that would put its own security at risk in a supply disruption if the
purchase options were all exercised. This could be managed through volume limits set in the
bilateral agreement or restrictions on types of stock that could be ticketed.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 9
IEA Acceptance
As noted in 5.1, the IEA has defined instances where stock can be held in countries which are not
IEA members. For this to be expanded into a non-IEA country, as well as meeting the IEA’s
internal requirements (a bilateral agreement and possible reporting), we assume it would have to
be approved at the appropriate level in the IEA by IEA members (likely to be Governing Board as
previously mentioned). It is likely this would need to be worked through with members at a
technical working group level to address any issues raised before submitting the concept for
approval.
5.3
Factors in considering a non-IEA country
The reason for investigating the development of a ticket market in a non-IEA country is that within
Australia’s normal petroleum supply envelope there are only four IEA members (including
Australia). Of these, New Zealand is short of commercial stock to meet its IEA commitment so
holds ticket stock, and South Korea restricts how stocks are released in a market disruption event.
This leaves only Japan as a possible location for holding ticket stock in this region. Australia could
hold ticket stock in Europe but it would make sense to develop locations closer to Australia, within
its normal supply envelope.
Factors to consider in the choice of country include:





Availability of petroleum infrastructure;
Ease of transport of stock to Australia in an emergency;
Access to shipping;
Stability of the country, rule of law, and sovereign risk; and
Suitable entities operating in the country that would be acceptable counterparties for
holding ticket stock.
Some of the factors to be considered in assessing countries are outside the expertise of the
author, but in terms of availability of petroleum infrastructure in this region both Malaysia and
Singapore have substantial petroleum infrastructure. Indonesia would also suit with regards to its
location in relation to Australia.
5.4
Benefits and issues for the host country
There are benefits for a country holding oil stocks on behalf of another country. These include:




It is likely to provide additional financial incentive for petroleum companies/traders to
hold stock in the country and therefore enhance the country’s attractiveness for
locating these businesses;
It may see some benefit from being associated with IEA oil security system;
It may see an opportunity to position itself in the centre of a developing strategic
stocks market in Asia and particularly the trading of stock tickets; and
It could be viewed in the context of wider energy security (Australia is an exporter of
energy in form of coal and gas (LNG) for example).
There will be a number of issues for the host county to consider including:

The potential for any arrangement with Australia (or any other ticket buyer) to
compromise the host country’s own oil security;
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 10
The need to ensure any stocks that are used for tickets are additional to normal
domestic supplies to ensure that supply is not affected in an emergency; and
Who should be able to offer tickets and over what types of stock.


One of the key issues to be considered will be the host country’s current security arrangements for
petroleum supply (if any). The country’s law may cover petroleum allocation/distribution in a
supply disruption or a sovereign right to intervene so any bilateral arrangements needs to be
consistent with the law.
5.5
Ticket contract structure
The ticket contract structure was summarised in Appendix 2 of the 2012 Report. Any contract
between Australian and entities in the host non-IEA country would be expected to follow a similar
structure.
Table 4: Key elements of ticket contract
Element
Comment
Purchaser
This would depend on the model Australia had implemented for its emergency
stock. It could be a central agency (either government or industry controlled) or
individual Australian companies (in an industry obligation system).
Seller
Commercial operators in the host country.
Term
Likely to be three months to a year in line with the other international ticket
markets although could be longer by mutual agreement (longer terms may suit in
this region).
Stock type
Would depend on ticket sellers – crude and products are likely to be offered.
Other
contractual
elements
Similar to the ticket structure outlined in the 2012 Report.
The option for how and when the purchase option could be exercised would be in line with the
standard contracts. That is:



The contract could only be exercised in an IEA declared emergency;
The stock purchase price is specified in the contract and will be related to the market
prices at the time of the purchase option being exercised; and
Volume could be specified at the time up to the total volume of the ticket.
The entity holding the ticket would have the option of releasing the stock by ending the contract
(so the stock owner could then sell it) or exercising the purchase option. Under purchase, that
entity would then be responsible for lifting the product (assuming the ticket was exercised in order
to secure product for Australia supply). That means it would need to arrange a ship for
transportation, or on-sell the cargo to another party which would then organise shipping.
The risks associated with this transaction include:




The
The
The
Any
counterparty honouring the contract;
host country honouring its agreement to impose no impediment;
shipping risk; and
issues with the transportation route.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 11
The counterparty risk should be addressed before contracting, in that only entities assessed as
reliable and financially secure should be approved as counterparties. The host country risk would
be managed through Australia’s decision as to which non-IEA countries were acceptable for having
a bilateral agreement with. The third and fourth risks would need to be assessed at the time of
exercising the contract - if the disruption was due to an event in another location (e.g. Middle
East) neither of these issues should be a risk. If the disruption was in this region (e.g. affecting
regional supply routes) then that would need to be taken into account in any decision to exercise
the contract.
5.6
List of actions to develop a ticket market in a non-IEA country
Steps required to establish a ticket market in a non-IEA country include the following:






Establish interest of the host government to allow tickets to be sold on stock held in
the country;
Establish interest of commercial operators in the host country to sell tickets on stock
they hold;
Develop a set of rules around the ticket structure including who is able to offer
tickets, stock type that can be offered, who is able to purchase tickets, treatment of
stock still in tankers (but within host country’s territorial waters), etc;
Get IEA agreement to accept ticket stock in the host country as part of Australia's
stock holdings based on the proposed structure;
Develop and agree a bilateral agreement between governments which would set the
governance rules for any stock held (whether physical or ticket stock); and
Implementation - this will depend on who is likely to purchase the tickets which will
depend on the model Australia choses for implementing any stockholding system.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 12
6.0 Case Study: Republic of Singapore as an example
of a non-IEA country providing ticket stock
The Republic of Singapore (Singapore) is a major refining centre and the petroleum trading hub
for the Asia Pacific region. In 2011/12 Singapore provided 23% of Australia’s petroleum imports
which was more than double the next largest supplying country7. Australia was Singapore’s second
largest export destination for petroleum products 8. It is not just Singapore’s refineries that supply
Australian product, as Singapore has substantial storage and blending terminals that are used for
the import, blending and export of crude oil and petroleum products.9
During consultation for the 2012 Report, Australian petroleum industry participants noted “that
Singapore could be a logical storage location for Australian emergency stock but confirmed that no
other IEA country provides a logical location”10. Singapore is a logical location as there is a ready
supply of shipping available, it is easy to transport product to where the need for product is in
Australia and it is already a key component in Australia’s supply chain with established commercial
relationships. This is shown in the map of Australia’s product supply routes (Figure 2).
Figure 2: Australia’s import product supply routes
Source: Hale & Twomey Australia’s Maritime Petroleum Supply Chain Report (pg. 23)
Note: Width of the arrows represents approximate volumes from each import location (2011-12
data). Dotted arrow represents imports from India, currently less than 1% of total imports. India
could become an important import origin in the future.
7
Australian Petroleum Statistics 2011/12 (Table 4B).
8
US Energy Information Administration (March 2013).
9
Competitive Pressure on Domestic Refining, H&T report for RET, June 2012.
10
2012 Report pg5.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 13
Emergency stocks held in Singapore could be physical stock owned by Australian entities or held
through a ticket construct where the Singapore companies offering the tickets continue to own the
stock. This section concentrates on Australian entities holding ticket stock in Singapore as that is
viewed as a more likely construct for holding stocks offshore.
Key Singapore statistics11








Three refineries with approximately 1.4 million bbl/day distillation capacity.
Over 8 million m3 of independent oil storage (around 20 million m3 storage in total).
Over 800 oil traders.
Bulk of local petroleum demand is for feedstock (naphtha) to petrochemical complexes rather
than normal transport fuels (petrol, diesel).
Local consumption of petrol, jet fuel and diesel is only around 20% of refinery output of
these products (with the majority of that being jet fuel and bunkers for the maritime market).
A similar volume of petrol and diesel is imported for blending and export compared to that
produced in the domestic refineries.
Developing cavern storage to add to storage capacity (first phase – 1.47 million m3); possible
second phase of 1.32 million m3.
Investigating Very Large Floating Structure (VLFS) for storing petroleum.
Singapore – Australia relationship12
Singapore and Australia have had close trade and security ties since Singapore’s independence in
1965. The agreements and shared membership of international organisations include the
following.






Singapore–Australia Free Trade Agreement (SAFTA) – entered February 2003.
ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA) – entered January 2010.
Member of APEC along with Australia.
Singapore–Australia Joint Ministerial Committee (biennial established in 1996).
Memorandum of Understanding between the Government of Australia and the Government of
the Republic of Singapore Concerning Defence Cooperation – entered August 2008.
Australia and Singapore are both members of the Five Power Defence Arrangements
(together with Malaysia, New Zealand and the United Kingdom).
As a net energy exporter, Australia also plays a key role in providing energy security in the region,
as identified in the Australian Defence Force Posture Review 2012.
Sources include US Energy Information Agency, Singapore Energy Market Authority Energy Statistics
2011, Singapore Energy Development Board Factsheet 2011, Singapore Issues Paper RET, Hale & Twomey.
11
12
This section is sourced from the Singapore Issues Paper by RET (2013).
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 14
6.1
Assessment of Singapore as a ticket location
Requirement for bilateral agreement and IEA approval
This is not something that can be readily assessed without the benefit of discussions with the
Singapore Government and an understanding of its laws relating to petroleum. However the
strong ties between Singapore and Australia mean that there is a logic for Singapore being
considered.
Singapore, while not a member of the IEA, is a geo-politically stable country playing a key role in
Asia’s petroleum market. The IEA might see value in the development of an emergency stocks
market in Asia, especially as most petroleum demand growth is projected to be in the Asian
region.
Locational factors
The locational factors identified as important for choice of a non-IEA country are as follows.
1.
Availability of petroleum infrastructure
While Singapore has substantial storage facilities, due to limited land availability, the cost of
access to these facilities is high. Storage rental costs were indicated at USD1/bbl/month 13; this is
around three times higher than indicated in an IEA paper on storage costs14 which was based on
discussions with commercial storage operators (which is assumed to be reflective of European
storage rental costs). The storage facilities are also in high demand for trading activity – it may be
there is little desire to tie them up holding emergency stocks.
In preliminary discussions with traders there were contrasting views; some felt that Singapore’s
storage expense would make holding emergency stock too expensive while others saw it as a
valuable additional component in storage strategies that they would be considering anyway.
2.
Ease of transport of stock to Australia in an emergency
Singapore is only 6-14 days sailing from Australia (noting that loading, discharge and port
operations usually take around an additional three to four days) so is a logical choice of country to
hold emergency stocks. With stocks in Singapore, all of Australia’s coast can be easily accessed as
ships can go either to the west and then south, or to the north and then east coast.
3.
Access to shipping
Singapore is the key centre of product trading in the Asia Pacific region and also close to a
number of crude producing areas. It also sits on the main shipping routes between the Middle
East and North Asia. Therefore it is the centre of shipping activity in the region so access to
shipping is not likely to be an issue even in disruption events. 15
4.
Stability of the country and rule of law
H&T telephone discussion with Glencore discussing New Zealand’s options for holding stock in other
locations.
13
14
IEA- SEQ (2013)20- Costs and Benefits of Stockholding – Final paper.
15
This is more fully covered in H&T’s report Australia’s Maritime Petroleum Supply Chain.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 15
Singapore is considered a stable and low risk country in which to do business. Its stability along
with clear commercial law is considered one of the reasons that major petroleum companies use
Singapore as their regional base.
5.
Suitable counterparties operating in the country
All the major international oil companies and major trading companies operate in Singapore to
varying extents. This includes the major international companies also operating in Australia.
ExxonMobil and Shell both have large refineries in Singapore, and Caltex Australia’s 50% owner,
Chevron, has a share of another refinery. BP is an active trading in Singapore as is Trafigura
(owner of Puma Energy Australia). The opportunity to contract ticket stock from companies that
also have a presence in Australia would be a strong benefit in having Singapore as a provider of
tickets.
Benefits and issues
All the benefits listed in 5.4 would apply to Singapore. In particular Singapore is an importer of
LNG which would provide a strategic fit with Australia being an exporter. Singapore would need to
consider the issues – in particular on what stock it would allow tickets to be sold such that it did
not risk compromising its supply security. The issue as to whether a bilateral agreement fits within
current Singapore law also needs to be considered.
Contract operation
Any contracts between entities in Australia and entities in Singapore would operate in line with the
structure laid out in section 5.5. Singapore has the possibility of using counterparties which are
also operating in Australia, which may give additional assurance that contracts will be honoured.
Singapore is also closer than most other possible offshore storage locations meaning the shipping
route is shorter.
6.2
Singapore summary
Of the non-IEA countries in the region, Singapore provides an ideal location for Australia to hold
emergency stocks offshore, in that it is already a key part of its petroleum supply chain, and
Australia and Singapore have a history of close trading, investment partnerships and defence
relationships. Singapore also has a large petroleum infrastructure which would avoid the need to
build purpose built facilities.
Although Singapore is not an IEA member, it appears there may be ways where a system could be
set up which meets the requirements of the IEA and its members, such that they accept that stock
to be included in Australia's stockholdings. The view of the Singapore Government is not known at
this stage, although the proposal should bring benefits to the government and Singapore industry.
Due to the high demand for storage facilities in Singapore it may be that the options to hold stock
there are too expensive (relative to holding stock in Australia or other locations), although this will
not be known until it is investigated in more detail with the industry.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 16
Table 5: Benefits and risks for Australia holding stock in Singapore
Benefits





Storage infrastructure available
Ongoing investment in new storage
capacity
Shipping market availability should
purchase contracts be exercised
Part of Australia's petroleum supply chain
Commercial relationships between
Australian and Singapore companies well
established (many companies represented
in both countries)
Risks



Competing with market participants for use
of storage facilities
May be high cost due to high demand for
storage in Singapore
Still need to ship stock to Australia so
availability could be affected by regional
disruption
If Australia wants to pursue this option, we suggest that a more detailed paper on Singapore's
capability (including reviewing the oil market and legislative framework) be prepared.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 17
7.0 PART B: A domestic ticket market within Australia
7.1
A domestic ticket market
The scope of work (3.1) noted a number of issues that required further clarification on the
benefits of setting up a domestic ticketing system. These include:





The implications of domestic ticket stock for domestic supply security;
Issues associated with co-mingling emergency and commercial stocks;
How market incentives might assist so that stockpiling is not a deadweight cost
against an unlikely even;
How longer term tickets (multiple years) would make it worthwhile for expansion of
current domestic physical stocks; and
The possibility for ticket contracts to lock in purchase pricing over the period (rather
than purchase at prevailing market prices), to mitigate against probable inflated
prices during time of need.
The 2012 Report noted two ways a domestic ticket market could be established. These were:


A ticket tender system - a contract where companies could offer stock for ticket
contracts as long as they could demonstrate the stock is additional to normal
commercial stock; and
An industry obligation system - where there is a more extensive domestic market for
ticket trading which can be used by companies as one means to meet a stock
obligation.
The first system is relatively straight forward to set up with the key requirement being the means
to ensure the stock is additional to normal commercial stock. Unless this condition is met with
certainty, there is no way the system can ensure that the purchase of a domestic ticket will lead to
an overall increase of the level of stock in the country.
New Zealand offers this opportunity domestically in its tenders for emergency stock and it is up to
the company offering the stock to demonstrate that the stock is additional to normal commercial
stock. It can do this by showing that the storage facility (or a portion of it) has not been used for
commercial stocks over the previous two years and to demonstrate how its future supply
arrangements (over the time period of the contract offered) can continue without the need for this
facility and the stock it contains.
This is called the “ticket tender system” and is covered in more detail in Section 7.1.1.
A more extensive domestic ticket structure where companies trade between each other, as in
many European countries, requires an industry obligation system along with rules as to how much
of an obligation can be met with ticket contracts. This is called the “industry obligation system”
and covered in more detail in Section 7.1.2.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 18
7.1.1
Ticket tender system
This system is most applicable where there is a central agency (government or industry
controlled) that has the responsibility for securing ticket stock. Domestic companies would have
the opportunity to offer stock into a tender (under a ticket structure) if they meet the
requirements demonstrating the stock is additional.
This structure is likely to capture opportunities where there is the ability for companies to hold
additional stock in existing facilities (or parts of facilities) that are no longer needed to meet the
requirements of their normal commercial market. For example, with the refinery closures in
Australia there may an opportunity to use some of the tankage not needed for direct import under
this structure.
The stock does not necessarily have to be completely segregated from normal commercial stocks
(i.e. could be commingled). If companies had large tanks where the supply operation was such
that only a small portion of the tank was used (e.g. deliveries of 8 ML into a 20 ML tank) then they
could offer a portion of the tank to hold stock over which a ticket was offered. In this example it
could be done by adjusting the minimum level in the tank upwards to include the stock offered in
a ticket and then they would operate above the adjusted minimum. This system has the benefit of
managing product quality on a continual basis but requires a good audit system to ensure the
contractual requirements are met at all times.
As companies need to make some commitment regarding the tanks used to hold the stock, the
ticket length should be longer than a normal ticket to ensure there is the ability to get a return on
any investment made (likely to be 2 to 5 years in length rather than 3 to 12 months for the
offshore ticket market). However this system is not considered suitable (from an incentive
viewpoint) for companies to build dedicated new storage facilities to hold emergency stock (see
7.3 for more discussion on this issue).
In New Zealand’s tender, the storage and stock can be priced separately (in comparison to a
single price for offshore tickets) and the storage cost is paid for the full term of the ticket even if
the stock purchase is exercised.
Table 6: Benefits and issues of ticket tender system
Benefits






Captures opportunities to use existing
facilities for emergency stocks in an
efficient way
A quicker way of securing some
emergency stock in-country, rather than
building dedicated facilities
Stock is likely to be available at short
notice due to integration with existing
facilities
Possibly cheaper than dedicated new
facilities as it is using existing facilities
Relatively simple in comparison to
building dedicated facilities
No risk of stranded facilities at end of
contract
Issues



Likely to be relatively small volumes
offered (although the opportunities
created by refinery closure could be quite
considerable)
Will still be relatively expensive
(compared to current offshore ticket
price) although possibly not if ticket
prices increase due to demand from
Australia
Requires a good administrative structure
and audit function to ensure stocks held
are additional
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 19
7.1.2
Industry obligation system
The 2012 Report noted how countries such as France, Japan, Korea and the United Kingdom put
stock obligations on their petroleum industry. This is often to ensure a suitable level of in-country
security of supply as well as meeting IEA commitments (e.g. Norway puts a stock obligation on its
industry despite being a net exporter of petroleum). An active domestic ticket market (in
comparison to the tender ticket system covered in the previous section) is only possible if
companies have a stock obligation to meet and tickets provide a more flexible (and cheaper) way
of achieving this rather than holding the stock themselves.
A stock obligation is usually apportioned by requiring each market participant to hold a minimum
amount of stock equal to or above a number of days of their market supply. While the obligation
relates to total stock, allowing ticket stock as part of an obligation system gives flexibility to the
participants managing against their obligation. The portion of stock allowed to be held as tickets
will depend on how much flexibility is appropriate given the obligation target and how frequently it
is expected to change.
Offering flexibility through tickets needs to be considered carefully. If the minimum level of stock
has been set at a level which is considered the minimum appropriate to provide security of supply,
then it may not be considered appropriate to allow ticket stock (at least not outside the country).
If ticket trading is only allowed domestically then effectively the ticket system is allowing
companies to smooth their inventory profiles. Companies which happen to be holding more stock
for a period will sell tickets to those which might be under target for a period (e.g. a company
might have some facilities out of service for maintenance which makes it difficult to meet its
normal inventory target without the ability to purchase tickets). The authorities will still be
comfortable as they know overall there will be sufficient stock in the country to meet the obligated
days' target.
The ability for companies to purchase offshore tickets may need to be limited depending on the
level of stock that is agreed as suitable for in-country stock.
The following analysis doesn't consider the benefits and risks of an industry obligation system, it
just covers the benefits of allowing ticket trading should there be an industry obligation imposed.
Table 7: Benefits and issues of using tickets with an industry obligation system
Benefits




Flexibility for companies to meet the
obligation through commercial inventory
supply cycles
Flexibility for managing inventory during
periods of infrastructure outage
Possible access to cheaper offshore
tickets to meet an element of the
obligation (although that access should
have some volume constraints)
It should minimise the amount of
additional infrastructure needed to meet
the obligation target.
Issues



A limit on total volumes that are allowed
to be held as tickets so sufficient stock is
still held by each participant
A limit on total volumes that are allowed
to be held as tickets offshore so sufficient
stock is still held in country
The administrative structure required for
its operation.
Hale & Twomey: Final Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets Part A: Non-IEA
Country Part B: Australia
Page 20
7.2
Market incentives
Market incentives can be used to encourage stockholding through indirect incentives (a market
opportunity) or through more direct intervention to reduce the cost of stockholding obligations.
The market incentives relate to emergency stock in general rather than ticket stock in particular.
The ticket tender system is a market opportunity where companies can choose to offer stock using
a ticket contract to a central agency. Companies will only offer at a level where they will cover
their costs (for the facility and stock) and make a profit. No direct incentives are required and if
the offers are too high the central agency can look for other means to satisfy its requirements for
stockholdings.
More direct interventions are sometimes used in the industry obligation system, as the obligation
will put a cost on the industry (the interventions relate to the industry obligation rather than the
ticket market). Japan is an example where the private sector is supported by the government in
meeting its obligation. Japanese companies have an obligation to hold at least 70 days of
stockholding proportional to the volume of imports, production and sales. The system, which has
now been operating over many decades, includes direct support through loans and funding from
the government-controlled Japan Oil, Gas and Metals National Corporation (JOGMEC). 16
Direct market incentives to individual companies for stockholdings are not common internationally.
More common (for an industry obligation system) is to allow industry to set up a central agency
which individual participants can sell a portion of their obligation to. The central agency then
seeks the most efficient collective solution to meet the obligation. This agency can either be
funded by the companies paying for taking their obligation or a levy on fuel sales. In both cases,
as the funding is effectively backed by legislation, it allows the central agency to secure low cost
funding, reducing the cost of meeting the obligation and to an extent equalising the cost across
industry (these structures are normally non-profit). This takes the obligation away from being a
competitive element of the market and reduces the costs involved as companies do not need to
raise the capital or generate a profit element on that capital. Government involvement is required
as the central agency is removing the emergency stockholding element of the supply cost from
the competitive market.
7.3
Ticket contract structure & pricing
Section 7.1.1 noted that longer period tickets (up to five years) might be needed to encourage
domestic companies to offer tickets on stock in facilities that are no longer needed for commercial
operations. Companies may prefer even longer than five year terms. This may be an option
although before making a ticket contract too long in term, the purchaser should consider whether
contracting in a different way may be more cost effective. For instance there may be value in the
buyer taking the exposure on the change in product value if it has an ongoing requirement to hold
stock (therefore will be entering another contract at the expiry of this contract).
The ticket structure is also not suitable for making commitments for new storage infrastructure,
which is a long term (30-40 years) investment decision. In this case the contracting structure
would need to be different given the complexities involved (e.g. the commitment to building the
infrastructure may be four years before any stock is purchased and stored).
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Country Part B: Australia
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The TOR ask if it is possible to lock in the exercise price of the stock purchase in the event of an
IEA event. As an IEA event will be related to a market disruption, prices are likely to be elevated
which will make the stock purchase expensive. The market pricing at the time of purchase is an
essential feature of the ticket market. A company would not want to offer a fixed price of
purchase in the ticket contract as it has no means of knowing when or if the contract will be
exercised. This makes it difficult (and certainly costly) for that company to hedge its exposure.
For the buyer (Australia) to get certainty of cost of product in an emergency (i.e. lock in current
value) either physical stock needs to be purchased and held, or a hedging arrangement needs to
be made (likely to be a separate contract to the ticket contract). However the value of hedging
may be questionable - if the government is holding stock that it might release to respond to a
market disruption, it should do this at market value, not the value it was purchased. The released
stock will only be a small portion of the total market supply, with the rest of the market likely to
be at elevated prices. To sell at a discounted price is only likely to result in windfall gains to the
purchaser.
In summary, holding emergency stocks should not be seen as a way to manage prices
domestically in a disruption event, given the volumes held will be relatively limited compared to
total market supply. We note that one of the aims of the IEA collective response of stock release
is to moderate price increases in a disruption – in this case it makes sense as it is a global
response affecting the total market.
7.4
Links to global market
While the focus of this section is on the domestic ticket market, Australia could allow companies to
hold tickets for other countries as part of the wider ticket market. Australia currently has a
government to government agreement with New Zealand that allows entities in Australia to hold
stock for New Zealand entities. However as Australia does not meet its own IEA stock
commitment, currently no stocks are allowed to be held under this agreement.
As long as Australia is not meeting its IEA commitment (or is at risk of not meeting it), it is difficult
to see why the government would allow Australian entities to offer stock tickets to other countries.
As that stock is subtracted from Australia’s stocks, it makes the stock position worse.
If Australia sets up an industry obligation system which ensured its internal requirements were
met, it could then allow companies which held stock greater than the obligation level to offer
stocks to other countries. However as long as Australia is having to make investment in additional
storage facilities and stock to meet its IEA commitment, it is difficult to see how any company
could offer tickets to another country at a competitive price.
In a case where developments in Australia meant that it could meet its commitments to the IEA
(e.g. significant oil discoveries turning Australia into a net exporter), there is more flexibility in
considering options to hold stock for other countries. However even in this case Australia would
need to exercise caution in what it allows to be offered. If Australia allows domestic companies to
offer tickets on their normal commercial stock to other countries, in the event that tickets were
exercised in response to a disruption, Australia might find that the ticketing companies are short
of stock. This is similar to the issue we note in the section on holding stocks in a non-IEA country:
where a country offering ticket stock needs to consider the volume, and on what stock type, it
should allow tickets to be offered (Section 5.4).
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Country Part B: Australia
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7.5
Rules for release
For both the tender ticket and the industry obligation systems, the rules about the release of the
stock held need to be well defined in advance to ensure there is no risk of impacting the normal
commercial market.
In the case of tender ticket stock, as the stock is additional, it will be extra physical stock available
to manage a disruption. Therefore the rules need to be similar to those for physical stock which
are discussed in the Oil Storage Options & Costs report (Section 4.1). These include:



Ensuring the rules do not just advantage one company to manage a disruption to
their supply chain;
That the rules of release do not affect companies’ commercial stock decisions; and
Companies still get impacted by failures in their own supply chains.
For a market where there is an industry obligation, the easiest way to manage a disruption is by
reducing the obligation on a temporary basis. This will allow all companies to release additional
stock to the market. The government could come under pressure to do this in an event where one
or two companies have a major supply issue rather than a general market shortage. In order to
avoid stock disruption the obligation could be reduced but this may be an easy “out” for the
companies concerned. It may give companies not directly impacted an opportunity to sell more of
their stock to the companies with the disruption (at a premium one assumes), however any
actions taken would need to consider whether they are giving an indication to commercial
operators that there is a "cheap" backstop available if they were not carrying enough stock to
manage normal market disruptions.
7.6
Summary
A domestic ticket market will be a valuable component of most stockholding models that Australia
might implement. It provides a simple contracting structure for a central agency to secure
additional stock utilising existing facilities. Should an industry obligation be part of the
stockholding model, a ticket market provides a flexible way for companies to manage their stocks
to ensure compliance with the obligation.
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Country Part B: Australia
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Associated Reports
The following list includes all the reports produced by Hale & Twomey (H&T) for the Department
of Industry (formerly the Department of Resources, Energy and Tourism, or RET) relating to
Australia’s International Energy Agency Oil Obligation along with related reports by H&T and other
authors. This report is highlighted.
Main reports
National Energy Security Assessment (NESA) Identified Issues: Australia’s International Energy Oil
Obligation (2012 report)
Australia's Emergency Liquid Fuel Stockholding Update 2013: Australia's International Energy
Agency Oil Obligation. Main Report.(Main Report)
Auxiliary reports
Ticket Markets
Australia's Emergency Liquid Fuel Stockholding Update 2013: Ticket Markets (2013)
Stock on the Water/Maritime
Stock on the Water Analysis (2013)17
Australia’s Maritime Supply Chain for Petroleum Trade (2013)
Infrastructure - Storage
Liquid Fuel Storage Audit (2013) (by others)
Australia's Emergency Liquid Fuel Stockholding Update 2013: Oil Storage Overview & Options
(2013)
Australia’s Emergency Liquid Fuel Storage. Terminal Concept Design and Cost Estimate. Aurecon.
(2013) (also included in the Appendix of the above report)
Infrastructure - Refineries
National Energy Security Assessment (NESA) Identified Issues: Competitive Pressures on Domestic
Refining (2012)
This report was produced jointly for RET and the New Zealand Ministry of Business, Innovation and
Employment.
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Country Part B: Australia
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