TODAY’S STUDY: THE THREATS TO OLD ENERGIES AROUND THE WORLD
Energy Supply Security; Emergency Response of IEA Countries 2014
July 2014 (International Energy Agency)
The International Energy Agency (IEA) was created in 1974 with a membership of 16 OECD member countries. Its primary mandate was to implement the International Energy Program (I.E.P.), a joint strategy to address oil security issues on an international scale. The programme was a response to the international oil disruption of 1973 and to the wide-ranging macroeconomic problems it generated. Considerable changes have taken place in the energy world in the four decades since the founding of the IEA that have had an impact on both the nature and the scope of energy security.
In mid-2013, emerging market and developing economies overtook the OECD countries in oil consumption for the first time. Techniques such as horizontal drilling and hydraulic fracturing have opened access to oil and gas reserves that were previously considered too challenging or uneconomical to develop. North America is expected to become a net exporter of oil before 2030, while most other major oil-consuming regions and countries will rely on imports to a greater extent. Oil use is also increasingly moving towards Asia- Pacific markets and away from the Atlantic basin.
Natural gas has played an ever greater role in the world’s energy mix, growing from 16% to over 21% of total primary energy supply (TPES) in the period since 1974. Natural gas demand in OECD non-member economies overtook that of the OECD countries in 2008. The natural gas market is becoming more global, thanks to the development of longer pipelines and inter-regional trade of liquefied natural gas. Electricity security has become a growing concern in many emerging markets as well as in OECD member countries in recent years. Demand for electricity is set to rise faster than any other final form of energy, expanding by more than two-thirds over the period from 2011 to 2035. The steady increase in gas-fired electricity generation in OECD countries has strengthened linkages between the power and the gas sectors, increasing supply risks for both.
The role of the IEA in energy security
Emergency response is still one of the main pillars of the IEA. Membership requires countries to meet two key obligations: to hold oil stocks equivalent to at least 90 days of net oil imports; and to maintain emergency response measures that can contribute to an IEA collective action in the event of a severe oil supply disruption. Response measures include stockdraw, demand restraint, fuel switching and surge oil production. The IEA Governing Board, a body comprising individuals at ministerial or senior official level, defines and determines the implementation of IEA policies. Under the Governing Board, the Standing Group on Emergency Questions (SEQ) is responsible for all aspects of the emergency response. The SEQ takes advice from the Industry Advisory Board (IAB) which is composed of experts from oil companies operating worldwide.
As part of its mandate, the SEQ conducts regular reviews (on a five-year cycle) of the emergency response mechanisms of member countries, ensuring the overall preparedness of the IEA for a rapid response to energy supply emergencies. These reviews help verify that emergency response capabilities have adapted adequately to changes in energy market conditions. The Agency expanded these reviews to cover natural gas security in addition to oil for the 2008 – 2012 review cycle, and recently also incorporated electricity security as part of its assessments for the latest review cycle which began in October 2013.
Recognising that oil consumption and net imports in some non-IEA countries are increasing rapidly, the IEA promotes dialogue and information sharing on oil security policies and shares information and experience about creating national strategic oil stocks with key transition and emerging economies, such as China, India and countries of the Association of Southeast Asian Nations (ASEAN). Expanding international cooperation with all players in the global energy markets to improve market transparency through the collection of more accurate and timely data is also a critical component of IEA work towards greater energy security.
Energy Supply Security: Emergency Response of IEA Countries 2014 reflects the results of the latest emergency response review cycle. It also draws attention to significant changes arising since the previous cycle of reviews and the last edition (IEA, 2007) of this publication. The findings contained in the following pages clearly illustrate the robustness of IEA emergency response systems. They also demonstrate the value of the periodic reviews as a means of fine-tuning specific response mechanisms in order to mitigate the effects of a shortfall in oil or natural gas supply. Most importantly, they highlight the reasons why being prepared is so important for the future.
Over time, stockdraw has proven to be the most powerful mechanism available to IEA member countries during an oil supply disruption, but this publication also highlights progress in other areas. Demand restraint is another key measure that can help free up barrels by encouraging oil consumers to reduce their use of oil. This publication places particular emphasis on demand restraint within the transport sector, which currently accounts for more than half of all oil consumption in IEA member countries.
In the electricity market, oil and oil products have already been largely replaced by natural gas for electricity production. This means that the traditional backup fuel (natural gas) is already in high demand and not readily available. This integration suggests supply disruptions of other fuels, such as natural gas, could spill over into the oil market and cause increases in oil demand. Half of the member countries of the IEA have developed specific stockholding measures related to gas that would provide some resilience in the event of a disruption. Ministers from IEA member countries have tasked the IEA to monitor progress in gas markets and in the development of the gas security policies of its member countries.
Equally as important as having emergency response mechanisms in place is the ability to use them at short notice. The IEA has the ability to respond rapidly to an oil supply disruption through real-time communication with member countries and major players outside the IEA. The IEA also has a framework for decision making which is tested and updated through regular simulation exercises.