LESSONS FROM IRAQI CRISIS
2nd ASEAN+3 Oil Stockpiling Forum
Cebu, Philippines, 12 February, 2004
Yasuo Tanabe, Director, International Affairs Division
Agency of Natural Resources and Energy (ANRE)
Ministry of Economy, Trade and Industry (METI)
Japan
1
CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
Why Oil Stockpile?
Outline of the IEA
Mechanism
Past Experience - Gulf
War Recent Experience Iraqi Crisis –
How to use Oil
Stockpile?
Oil Stockpile Type
Recent Development
Any Support?
Conclusion
2
1. Why Oil Stockpile?
- Shortage Dec 2002
Venezuelan Strike
Iraqi Oil Export Suspension (Rejection of UNSC R1352)
Jun- Jul 2001
Aug 1990 - Jan 1991
Gulf Crisis
Oct 1980 -Jan 1981
Iran-Iraq War
Nov 1978 - Apr 1979
Iranian Revoultion
Oct 1973 - Mar 1974
Arab-Israeli War
May 1970 - Jan 1971
Libyan Price Controversy
Jun 1967 - Aug 1967
Six-Day War
Nov 1956 - Mar 1957
Suez Crisis
0.0
1.0
2.0
3.0
4.0
Gross Month-on-Month Peak Supply Loss (mb/d)
5.0
6.0
3
Apr 4, 1983
Nov 24, 2003
May 7, 2003
Oct 14, 2002
Mar 25, 2002
Aug 23, 2001
Feb 2, 2001
Jul 13, 2000
Dec 17, 1999
May 28, 1999
Nov 4, 1998
Apr 17, 1998
Sep 24, 1997
Mar 6, 1997
Aug 14, 1996
Jan 24, 1996
Jul 5, 1995
Dec 12, 1994
May 23, 1994
Oct 28, 1993
Apr 12, 1993
Sep 18, 1992
Mar 2, 1992
Aug 12, 1991
Jan 22, 1991
Jul 2, 1990
Dec 11, 1989
May 22, 1989
Oct 28, 1988
Apr 12, 1988
Sep 21, 1987
Mar 3, 1987
Aug 8, 1986
Jan 17, 1986
Jun 25, 1985
Nov 30, 1984
May 11, 1984
Oct 20, 1983
$/bbl
1. Why Oil Stockpile?
- Volatility -
WTI Crude Daily Price (Mar 30, 1983 - Feb 06, 2004)
45
40
35
30
25
20
15
10
5
4
1. Why Oil Stockpile?
- Volatility & StockCRUDE STOCK VS WTI PRICE (Monthly Ave. 2000-2004)
330000
40
320000
35
310000
$/bbl
30
290000
25
280000
270000
20
260000
15
STOCK
200401
200311
200309
200307
200305
200303
200301
200211
200209
200207
200205
200203
200201
200111
200109
200107
200105
200103
200101
200011
200009
200007
200005
200003
250000
200001
1000bbl
300000
WTI
5
Nov-03
Sep-03
Jul-03
May-03
Mar-03
Jan-03
Nov-02
Sep-02
Jul-02
May-02
Mar-02
Jan-02
Nov-01
Sep-01
Jul-01
May-01
Mar-01
Jan-01
Nov-00
Sep-00
Jul-00
May-00
Mar-00
Jan-00
mb/d
1. Why Oil Stockpile?
- Spare capacity is decreasing O P E C (E ffe c tive C apac ity)
9
8
7
6
5
4
3
2
1
0
S o urc e : IE A
6
1. Why Oil Stockpile?
• In emergency, stock at consumer market
better than supply from long distant producers.
Middle East
Asia
7
2. Outline of the IEA Mechanism
(1) The 26 IEA Member Countries
Australia (1979)
Austria
Belgium
Canada
Czech Republic
(2001)
Denmark
Finland (1992)
France (1992)
Germany
Greece (1977)
Hungary (1997)
Ireland
Italy (1978)
Japan
Korea (2002)
Luxembourg
The Netherlands
New Zealand
Norway participates in the
Portugal (1981)
Spain
Sweden
Switzerland
Turkey (1981)
United Kingdom
United States
Agency under a special Agreement
8
2. Outline of the IEA Mechanism
(2) IEA’s Emergency Response Systems
International Energy Plan (IEP)
• To maintain emergency oil reserves equivalent to at least 90 days of
net oil imports
• To have ready a programme of demand restraint measures equal to
7 % and 10 % of national oil consumption
• To participate in oil allocation in a severe supply disruption through
IEP emergency measures. (Emergency Sharing System)
Emergency Sharing Scheme (ESS) 1974
• Over 7% disruptions and ultimate last resort
• Try firstly demand restraint, fuel switching and stockdraw
• Then, re-allocate oil among the Member countries
• Not triggered in the past 30 years
9
2. Outline of the IEA Mechanism
(2) IEA’s Emergency Response Systems
•
•
•
•
•
Co-ordinated Emergency Response Measures (CERM) 1980s
Reflected market development
Below 7% oil disruption
Flexibility policy mix of stockdraw, demand restraint and fuel
switching
Contingency plan to make oil available to the market
10
2. Outline of the IEA Mechanism
(2) IEA’s Emergency Response Systems
- Contingency Plans ¾New decision-making procedures to facilitate timely and flexible
response measures.
¾IEA prepared contingency plans well in advance for the following
potential disruptions.
•11 September 2001
•Y2K in 1999
•Crisis in Venezuela, Nigeria and Iraq in 2002/2003
11
2. Outline of the IEA Mechanism
(3) IEA Mandated Stockholding
1.
90 days of net imports
• 90 days on a net import basis
• Obligatory strategic oil stocks
• 3 systems: Government, Agency and Commercial stocks
2. Consensus on the use of oil stocks
• Oil stock release is the most effective measure
3. Relations with Industries
• Industry Advisory Board (30 oil majors in IEA countries)
4. IEA’s current response potential is sufficient
12
3. Past Experience
- Gulf War •2.5mb/d Contingency Plan succeeded in avoiding
market crisis.
•Japan relaxed 4 days stockpile obligation for the
companies.
17 kb/d
67 kb/d
330 kb/d
2 086 kb/d
Surge Prod.
Fuel Switch
Demand Restr.
Stockdraw
13
3. Past Experience
- Gulf War : Market assessmentCrude Oil WTI Price
Crude Oil Price(US$/B)
45.00
40.00
17 Jan, 1991
Multirateral Military
bombered Iraq
Crude price
US$32-US$21.44
2 August, 1990
Iraq Invation
35.00
30.00
27 Sep, 1990
USDOS attacked Iraqi
tanker in the red sea
25.00
11 Oct, 1990
UK Ministry of Foreign
Affairs suggested
militaly attack to Iraq
20.00
23 Sep, 1990
President Husein
mentioned possibility
of attak against
Israel and the ME
15.00
10.00
1990/7
1990/8
1990/9
8 Oct, 1990
Israel policeman shot a
Palestinan
1990/10
1990/11
1990/12
1991/1
1991/2
1991/3
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4. Recent Experience
- Iraqi Crisis (1) IEA contingency plan
• IEA well prepared a contingency plan for the
possible IEA concerted actions including stockpile
release.
• IEA assessed the international oil market.
• IEA had good coordination among the member
countries.
• IEA had close contacts with the producers.
15
4. Recent Experience - Iraqi Crisis (2) Communication with the Producers
METI Minister Hiranuma’s Telephone Conference
Minister Hiranuma requested the OPEC and Saudi to fulfill
their commitment on playing the role toward stable.
•
OPEC President: Mr. Attiyah (Qatar)
“OPEC are supplying more than demand. ”
•
Saudi Oil Minister: Mr. Al-Naimi
“Saudi has will and readiness toward the maximum capacity, 10.5
mbd.”
Both ministers assured Minister Hiranuma that they can
guarantee there will be no shortage of oil even if Iraq oil is
lost.
16
4. Recent Experience - Iraqi Crisis (3) Communication among the ASEAN+3
•
ASEAN+3 Energy Ministers Meeting in Osaka decised to establish
“ASEAN+3 Emergency Network” on September 2002.
•
METI updated global oil market situation, released Minister’s Remarks,
IEA information and domestic oil situation.
•
Philippines shared Secretary’s Remarks, and Presidential Executive
Order.
•
ACE summarized ASEAN’s oil price data.
17
4. Recent Experience - Iraqi Crisis (4) Oil Market Transition
WTI PRICE (200211-200401)
500000
40
US$37.87
March 12
38
450000
36
34
400000
30
Iraq War
March 20
350000
$/bbl
1000bbl
32
28
26
300000
24
Venezuela
strike
22
250000
01 16,
12 26,
12 5, 2003
11 14,
10 24,
10 3, 2003
09 12,
08 22,
08 1, 2003
07 11,
06 20,
05 30,
05 9, 2003
04 18,
03 28,
03 7, 2003
02 14,
01 24,
01 3, 2003
12 13,
11 22,
11 1, 2002
20
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4. Recent Experience - Iraqi Crisis (5) Summary
•
•
•
•
IEA prepared good coordinated contingency plan.
The plan was realized under members’ commitment to;
– Reliable Oil data submission (demand and stocks)
– Monthly oil data (JODI:M-1, MOS: M-2 and M-3)
– Reliable energy statistics (energy mix and alternative option)
– Mandatory Oil stockpile
Good coordination was realized for Market assessment
The plan urged Producers go first.
19
5. How to use Oil Stockpile?
•
•
•
•
•
Unilateral vs. collective
Last resort vs. intervention
Physical disruption vs. price hike
Domestic vs. regional vs. global
Producers’ first vs. consumers’ preemption
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6. Oil Stockpile Type
1.
Government oil stockpile type (Japan, US)
2.
Agency type (Germany)
•
There is no directly operated government oil stockpile.
•
EBV is an agency for implementation of national oil stockpile.
•
The storage fee is not a tax. But Insurance character.
•
Minister of Economy makes a decision on the stock release.
3.
Stockpile in foreign territory (EU case)
•
Under bilateral agreements, 5 countries have 0.6 million ton of
crude oil stock outside the country.
21
7. Recent Development
- India •
Cabinet approval on strategic oil stockpile plan
– 5 million ton crude oil (14 days of consumption/19 days of import)
– Venue: accessibility (link to refiners), geological survey and safety place
– A special purpose agency will be an implementation body.
•
Current development
– Under Petroleum Regulatory Board Bill issued 2002, the government
can demand oil companies to build oil stockpile.
– Private companies currently have 62 days of consumption basis.
– The government adopted to utilize rock caverns.
•
Finance
– Option1: Initial cost will be covered by subsidies, and operation cost will
be covered by tax
– Option2: Both of initial and operation cost will be covered by a special
purpose tax.
22
7. Recent Development
- China “ Strategic National Oil Reserve approved by the fourth Plenary Session of the 9th
National Congress. National Oil Reserve Office was established in NDRC.
The office should try to establish the operation mechanism
Oil Reserve Laws and Regulations
Complete and efficient emergency measures
Gradually improvement to the standards of IEA”
Mr. Bai, DG, NDRC, December 2003, Seoul, APEC Joint Oil stockpile Forum
“ China Petrochemical Co. (SINOCHEM) is constructing an oil reserve 10 million
cubic meter of crude in Zhenhai. China is also considering to set up three other oil
reservation hubs elsewhere Shandong and Liaoning provinces are candidates.
–
2005: 30days of import, 2010: 60days of import”
3 December, Shanghai Daily
23
8. Any Support?
•
Technical Support
– JNOC (and KNOC?)
•
Financial Support
– Low-interest loan, insurance/guarantee etc when requested
and available
24
9. Conclusion
• Japan’s and Korea’s oil stockpile under IEA have
functioned.
• China is developing national oil stockpile. Also, India has
decided.
• ASEAN participation is critical in the regional security.
• ASEAN+3 region should establish emergency
preparedness mechanism with oil stockpile under
respective responsibilities.
• Considering each country’s situation, appropriate type of
oil stockpile (voluntary in principle, individually or joint,
government/agency/commercial, inside /outside the
country).
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Thank you.
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