Documents considered by the Committee on 21 January 2009 - European Scrutiny Committee Contents


7 Minimum stocks of crude oil and/or petroleum products

(30192)

15910/08

+ ADDs 1-2

COM(08) 775

Draft Council Directive imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products

Legal baseArticle 100EC; QMV
Document originated13 November 2008
Deposited in Parliament24 November 2008
DepartmentEnergy and Climate Change
Basis of considerationEM of 9 December 2008
Previous Committee ReportNone, but see footnotes 43 and 44
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionNot cleared; further information awaited

Background

7.1 In 2002, a Commission Communication[43] noted that the Community's undue reliance on imports made it vulnerable to external factors. It also pointed out that, although rules for the maintenance of stocks of crude oil and petroleum products were laid down by both the International Energy Agency (IEA) and the Community itself, these were no longer suited to present circumstances, and it highlighted the lack of any Community decision-making power to dispose of oil stocks on the market. It therefore suggested that a more coordinated approach was required, based upon predefined mechanisms.

7.2 The Communication was accompanied by two specific legislative proposals, one of which addressed the organisation and coordinated use of oil stocks. It proposed that all Member States should set up a public body to hold such stocks; that the Commission itself, assisted by a committee made up of Member States' representatives, should adopt the measures needed to respond to any actual or expected disruption of supplies; and that the minimum volume of stocks to be held by Member States should be increased from 90 to 120 days consumption.

7.3 As our predecessors noted, most notably in their Report of 20 November 2002, the UK opposed the proposal, on the grounds that existing IEA and Community arrangements for holding stocks already provided sufficient cover for supply disruptions; that emergency plans were needed to cover key world players, which only the IEA was in a position to do; and that individual countries, acting as members of the IEA, were best placed to respond to an international oil emergency. They therefore concluded that these were potentially highly significant proposals, not least in terms of the fundamental difference between the UK and the Commission over the extent to which action of this kind should be taken by the Community as opposed to individual Member States. In view of this, and the Government's reservations over the legal base proposed, they recommended the document for debate in European Standing Committee C. That debate took place on 8 April 2003.

The current document

7.4 The Commission has now put forward this new proposal as part of the Second Strategic Energy Review.[44] In doing so, it points out that the European Council in March 2007 underlined the need to enhance the security of supply for the Community as a whole (and for each Member State) by developing more effective crisis response mechanisms, and that it had also highlighted the need to review Community oil stocks mechanisms, particularly in the event of a crisis. The Commission says that this confirms its own view that the weaknesses of the present system need to be addressed, adding that oil is the most important energy source within the Community, and that its economy is crucially dependent on a continuous, reliable and affordable supply at a time when the risk of disruption has grown for a number of reasons. It adds that experience has shown that the release of emergency stocks is the easiest and fastest way of making large volumes of additional supplies available, and that the overall aim of this proposal is to strengthen the present system in relation both to the arrangements within the Community and to those applying internationally through the IEA.

7.5 Having considered various options, the Commission says that its preferred approach would be to create dedicated Community emergency stocks, but that, since it recognises this would not be acceptable at present, it is instead proposing the establishment of a centralised Community system with mandatory state/public ownership of emergency stocks. More specifically, this would:

  • require Member States to establish emergency stocks equivalent at all times to at least 90 days of net imports or 70 days of consumption,[45] whichever is the greater;
  • enable them to undertake to maintain a minimum level of "dedicated" stocks in terms of days' consumption, though it would be for any Member State choosing to do so to specify what that level would be; and
  • enable them to set up a non-profit making central stockholding entity (which would become an obligation if they place stockholding obligations on economic operators), with the task of acquiring, maintaining and selling oil stocks within the Member State in question, it being the only body able to operate in this way so far as dedicated stocks are concerned.

Member States would have take any measures necessary to enable their competent authorities to release some or all of their emergency stocks and dedicated stocks in the event of a major supply disruption. They would also have to impose restrictions on consumption in line with the estimated shortages (including the allocation of petroleum products to priority users), and they would need to have in place contingency plans. In the event of an effective international decision to release stocks, Member States may use their emergency or dedicated stocks to fulfil their obligations, and the Commission may, after due consultation, require Member States to release some or all of these stocks

7.6 In addition, Member States would have to ensure that the emergency and dedicated stocks held within their own national territory are accessible, and can be verified, at any time; and, insofar as these form part of stocks held by economic operators, they would have to be accounted for separately and not encumbered by any financial or legal charges. Member States would also have to keep (and send to the Commission) registers of all emergency and dedicated stocks, containing the information needed to establish their location, the quantities involved, their ownership and exact nature: the Directive would also set out a number of provisions governing the terms on which the tasks in question may be delegated by a central stockholding entity to commercial operators, and on which they may in turn delegate these obligations to others.

7.7 Other provisions include an obligation on Member States to provide information to the Commission each month on the levels of emergency and dedicated stocks, and each week on the levels of commercial stocks held on their territory; the establishment of a Coordination Group for oil and petroleum products, made up of Member States' representatives, and tasked with analysing the security of supply situation within the Community and coordinating and implementing the necessary measures; and a power for the Commission to carry out checks on the levels of emergency and dedicated stocks in the Member States.

7.8 The proposal also provides for the Commission to review the implementation of the Directive within three years of it coming into force, looking in particular at whether Member States should be required to hold a compulsory minimum level of dedicated stocks.

The Government's view

7.9 In his Explanatory Memorandum of 9 December 2008, the Minister of State at the Department of Energy and Climate Change (Mr Mike O'Brien) accepts the Commission's view that Community level coordination is necessary to maintain a high level of security of oil supply through reliable and transparent mechanisms based upon solidarity between Member States, but adds that the subsidiarity principle should apply in relation to how they choose to fulfil their oil stocking obligations. He also points out that the UK has consistently complied with its existing Community obligation, and that, by imposing obligations on economic operators, ensures turnover of product and closeness to consumers.

7.10 He notes that this proposal would harmonise standards, increase transparency, clarify and simplify measures and procedures, and increase coherence with the arrangements operated by the IEA, but says that the UK would be concerned at the potential impact of any compulsion for a central stockholding entity, adding that further work is needed on this, and on delegation for economic operators. Other potentially significant issues would be the review clause with its emphasis on minimum dedicated stocks, and the proposal that the Community should publish weekly the aggregated level of emergency and commercial stocks held by oil companies, which the Government would wish to see subjected to a thorough impact assessment before any such decision were taken. It has not, however, produced an Impact Assessment itself, and simply says that "if legislation is adopted which prescribes a compulsorily owned system of Government-owned oil stocks, there would be significant implications for the public purse".

Conclusion

7.11 This is clearly a proposal of some potential importance, which we are drawing to the attention of the House. Whilst we have noted the Minister's comments on it, there are a number of aspects on which we would welcome further information.

7.12 It is not clear to us the distinction to be drawn between emergency and dedicated stocks; it would be helpful to have an indication of the synergies between what is proposed and the arrangements operated under the International Energy Agency; and, to the extent that this proposal is more acceptable to the UK than the one put forward in 2002, we would be interested to know which changes make this so, particularly in relation to subsidiarity. In addition, we note that there could well be significant implications for the public purse, and, before considering the document further, we would like to have both a clearer indication of what these might be, and an Impact Assessment.

7.13 In the meantime, we are holding the document under scrutiny.


43   (23825) 12228/02: see in particular HC 63-i (2002-03), chapter 1 (20 November 2002). Back

44   (30198) 15944/08: see HC 19-iii (2008-09), chapter 2 (14 January 2009). Back

45   These would be calculated in accordance with the methodologies set out in Annexes to the draft Directive. Back


 
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