1 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
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| Legal base | Article 100EC; QMV
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| Department | Energy and Climate Change
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| Basis of consideration | Minister's letter of 5 March 2008
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| Previous Committee Report | HC 19-iv (2008-09), chapter 7 (21 January 2009)
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Committee A
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Background
1.1 In 2002, a Commission Communication[1]
noted the Community's undue reliance on imports, and 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. It highlighted the lack of any Community
decision-making power to dispose of oil stocks on the market,
and suggested that a more coordinated approach was required.
1.2 The Communication was accompanied by two specific
legislative proposals, one of which addressed the organisation
and coordinated use of oil stocks. As our predecessors noted in
their Report of 20 November 2002, the UK opposed that proposal,
on the grounds that existing arrangements for holding stocks were
sufficient; that emergency plans needed to cover key world players,
which only the IEA could do; and that individual countries were
best placed to respond to an international emergency. In view
of this, and the Government's reservations over the legal base
proposed,[2] they recommended
the document for debate in European Standing Committee C. That
debate took place on 8 April 2003.
1.3 The Commission put forward in November 2008 this
new proposal as part of the Second Strategic Energy Review,[3]
pointing out that the European Council in March 2007 had underlined
the need to enhance security of supply by developing more effective
crisis response mechanisms, and had also highlighted the need
to review the Community's mechanisms for oil stocks. It added
that experience had shown that the release of emergency stocks
was the easiest and fastest way of making large volumes of additional
supplies available, and that the overall aim of this proposal
was to strengthen the present system, both within the Community
and through the IEA.
1.4 The Commission's preferred approach is to create
dedicated Community emergency stocks, but, since it recognises
this would not be acceptable at present, it has proposed instead
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, whichever is the greater;
- enable them to undertake to
maintain a minimum level of "dedicated" stocks in terms
of days' consumption, though a Member State would be free to specify
what that level would be;
- enable them to set up a non-profit
making central stockholding entity to acquire, maintain and sell
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 to take any measures necessary
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 to have in place contingency plans. In the event of
an international decision to release stocks, Member States would
be able to use their emergency or dedicated stocks to fulfil their
obligations, and the Commission would, after due consultation,
be able to require Member States to release some or all of these
stocks
1.5 In addition, Member States would have to ensure
that the emergency and dedicated stocks they hold are accessible,
and can be verified; and, if they form part of commercial stocks,
they would have to be accounted for separately and not subject
to 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.
1.6 Other provisions would 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.
1.7 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.
1.8 As we noted in our Report of 21 January 2009,
the Government accepts that Community level coordination is necessary
to maintain a high level of security of oil supply, but adds that
the subsidiarity principle should apply in relation to how Member
States choose to fulfil their obligations. It noted 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 it was concerned at
the potential impact of any compulsion for a central stockholding
entity, and on delegation for economic operators. Other potentially
significant issues were the emphasis on minimum dedicated stocks
in the review clause, and the weekly publication of the aggregated
level of emergency and commercial stocks held by oil companies
(which the Government would first wish to see subjected to thorough
impact assessment). It had not, however, produced an Impact Assessment
itself, simply saying 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".
1.9 We commented that this was clearly a proposal
of some potential importance, and that, whilst we noted the Minister's
comments, there were a number of aspects on which we said that
we would welcome further information. In particular, the distinction
to be drawn between emergency and dedicated stocks was not clear;
an indication was needed of the synergies between what had been
proposed and the arrangements operated under the IEA; and, to
the extent that this proposal was more acceptable to the UK than
the one put forward in 2002, we wished to know the changes which
had made this so, particularly in relation to subsidiarity. Finally,
we noted that there could well be significant implications for
the public purse, and, before considering the document further,
we said that we would like to have both a clearer indication of
what these might be, and an Impact Assessment.
Minister's letter of 5 March 2009
1.10 We have now received from the Minister a letter
of 5 March 2009, which seeks to address these points as follows:
The distinction between emergency and dedicated
stocks
The draft Directive has now been revised to align
the different translations with "dedicated stocks" renamed
as "specific stocks".
Emergency stocks are the
oil stocks that a Community or IEA Member State is required to
maintain to meet their national stocking obligation and can be
held as crude oil or finished petroleum products. For the UK,
these are the stocks held by industry to the current EU obligation
of 67.5 days worth of inland consumption.
Specific stocks are a
new concept introduced in the draft Directive to encourage the
voluntary holding of finished petroleum product stocks. They are
effectively a subset of Emergency Stocks which the Commission
has proposed should be owned by the Government or the stockholding
agency. Whilst voluntary for Member States, this proposal is inconsistent
with the UK's current industry-based approach, and could have
significant cost implications. Further detail is required to allow
the costs and benefits of the proposed approach to be assessed.
The synergies between proposal and the arrangements
operated under the IEA
The draft Directive proposes to improve alignment
with the IEA's stocking obligation and release procedures. It
would align the EU oil stocking obligation on the IEA basis of
net imports with an inaccessible stocks adjustment (i.e. tank
bottoms) to give an effective obligation of 99 days of net-imports,
but would retain the existing consumption-based obligation for
the three EU oil producers (Denmark, Romania and UK), since their
requirements on a net-import basis would be small or non-existent.
However, this is a temporary measure as all three countries have
declining crude oil production, and their obligations on a net-import
basis will gradually increase and pass consumption-based obligations.
(For the UK, it is estimated that this will occur around 2016).
The draft Directive would also clarify the procedures
for coordinating stock release with the IEA, effectively recognising
the primacy of the Agency's role in a global supply crisis, and
it would speed up the approval process for EU/IEA Member States
to participate in any collective action, as well as coordinate
the EU's non-IEA Member States.
The changes which make this proposal more acceptable
to the UK, particularly as regards subsidiarity.
The 2002 proposal ignored the global crisis coordination
role of the IEA, and focused on increasing the overall EU stocking
obligation from 90 days to 120 days. The current proposal aims
to align stocking obligations and coordination procedures with
the Agency. However, the UK remains cautious about the strong
push for "agency or government held" stocks, and believes
that the Commission should not dictate how Member States should
implement their stocking obligations. The subsidarity principle
must still apply, as Member States need flexibility to decide
upon systems to suit their domestic needs/situation.
The implications for the public purse
The proposals for a compulsory stockholding entity
in the draft Directive would potentially have the greatest impact
for public finances dependent on the approach adopted.
The current text of the proposal does not specify
what proportion of the overall national obligation should be held
by any compulsory central stocking entity, what entity model should
be adopted (varying from industry led/operated/owned to fully
Government owned), or how the entity can operate (in rented or
own storage, co-mingled with industry stocks or via bilateral
agreement). Until the text is clarified, it is difficult to provide
anything more meaningful on costs.
The Commission's Impact Assessment recognises the
uncertainty in the costs involved for the five EU Member States
without a stockholding agency (Greece, Italy, Luxembourg, Sweden
and the UK). It also notes that, on the assumption that the agency
would hold a third of the overall obligation, the five countries
would need to establish 12.5 million tonnes of government/agency
stocks at a cost about €5 billion (£4 billion) in product
alone,[4] with the UK share
being about 40 per cent. However, this may not reflect the actual
cost, given that spare capacity exists elsewhere in the EU, with
the potential scope for bilateral arrangements (if allowed), although
some new build of storage may also be necessary at additional
cost.
Conclusion
1.11 Whilst we are grateful to the Minister for
this information, which deals with some of the points we raised,
it is clear that this proposal still gives rise to a number of
concerns, notably the lack of the information needed to assess
the costs and benefits of the obligation to hold specific stocks
(where we are told that the costs could be significant); the extent
to which the Commission should have the power to oversee how Member
States implement their stocking obligations; and the proposal
for a compulsory stockholding entity, which the Minister says
could have potentially the greatest impact for public finances.
There also remains the absence of a UK Impact Assessment.
1.12 In view of these considerations, and the
inherent importance of the area covered by the proposal, we believe
that it warrants further consideration by the House. We are therefore
recommending it for debate in European Committee A.
1 (23825) 12228/02: see in particular HC 63-i (2002-03),
chapter 1 (20 November 2002). Back
2
Article 95EC. Back
3
(30198) 15944/08: see HC 19-iii (2008-09), chapter 2 (14 January
2009). Back
4
At October 2008 prices and exchange rates. Back
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