Europe to Boost Security of Oil and Gas Supply

BRUSSELS, Belgium, September 11, 2002 (ENS) - The European Union's executive branch today adopted two proposals for laws aimed at modernizing and improving the security of the EU's oil and gas supply. European Community mechanisms put in place at the beginning of the 1970s are seen as obsolete in the context of an increasingly integrated internal energy market among the 15 EU nations.

Loyola de Palacio, EU vice president in charge of energy and transport, said the European Commission believes new measures are needed to counter the degree to which European countries are dependent on external supplies of oil and gas.


Loyola de Palacio of Spain is the European Commissioner for Energy and Transport (Photo courtesy European Commission)
Today, over 70 percent of European Union oil consumption and 40 percent of its natural gas consumption is imported. The vice president pointed to projections indicating that by 2020 that these figures could rise - 90 percent of oil consumption and 70 percent of natural gas consumption could come from sources outside the bloc.

"In the light of the way in which the operation of the energy market is evolving and of geopolitical uncertainty, it is crucial to have effective mechanisms that will provide Europeans with a better guarantee of constant access to energy at reasonable prices," said de Palacio.

To improve the security of oil supply, each of the 15 EU countries, known as Member States, will set up a public oil stockholding body, which will eventually own stocks representing at least 40 days' consumption.

While providing solidarity between Member States in the event of a crisis, this measure is aimed at improving the functioning of the internal market by establishing rules to ensure healthy competition between economic operators.

The public oil stockholding bodies will guarantee effective and efficient mobilization of oil stocks in a crisis, de Palacio explained.

"In an energy crisis, the EU will in future be able to adopt a common strategy. The [European] Commission will be authorized to take the requisite measures as a matter of urgency, assisted by a committee of Member State representatives," she said.


Oil refinery, Teesport, UK (Photo courtesy Freefoto)
Security stocks representing 90 days' consumption of oil will be stored to be used in the event of what de Palacio called "a general perception of a risk of disruption of supply giving rise to risky market volatility." The volume of these stocks would gradually increase from 90 to 120 days' oil consumption.

On the security of natural gas supplies, the commission did not propose legislation to set minimum quantities of gas stocks.

The Member States will determine national objectives so that gas storage ensures a minimum level of contribution to the security of supply.

The Commission will monitor gas supplies and, if necessary, take measures to guarantee continuous long term supply and the development of a liquid gas market.

Each Member State will have to implement a combination of measures which will comprise gas storage, interruption of interruptible demand to permit the redistribution of gas and ensure the flexibility of the system, the flexibility of supply and the spot markets, she said.

Under this new framework, the Commission will have to take on complex and technical tasks related to the monitoring of international oil and gas markets and evaluation of their impact on the security and safety of supply. It will have to monitor the level of security of oil and gas supplies and develop more reliable price indexes.

To accomplish these tasks, the Commission proposed a European observation system for oil and gas supply. Ultimately, an agency might be created to relieve the Commission of these technical tasks, the vice president said.

"Measures to improve the security of oil and gas supplies can only be envisaged in coordination with producer countries. Intensified dialogue with the producer countries will make it possible to improve the price mechanism and allow the conclusion of satisfactory supply agreements," she said.


Chris Patten, member of the European Commission in charge of External Relations (right) receives Dimitri Rogozin, president of the Commission of Foreign Affairs in the Russian Parliament. September 2, 2002 (Photo courtesy European Commission)
Cooperation must take place with the producer countries and the transit countries with regard to the storage of oil and gas. "In this connection, the dialogue between the EU and Russia is the first model of its kind," de Palacio said.

According to the International Energy Agency, Russia represents nearly 40 percent of proven gas reserves in the world within reasonable distance of the European Union.

Some analysts suggest that together, the United States, Europe, and Russia could help to diversify the global energy supply by creating a global strategic petroleum reserve filled with oil from Russia and other Caspian Basin nations.

"Such a move would mitigate U.S. and European dependence on Middle East oil and help to stabilize world oil prices," according to David Goldwyn, president of Goldwyn International Strategies, an international consulting firm, and an International Policy Scholar at the EastWest Institute. He was a U.S. Assistant Secretary of Energy for International Affairs under President Bill Clinton.

Goldwyn suggests that the International Energy Agency could create a global strategic petroleum reserve financed by the G-8, a group of the world's industrialized democracies that includes Russia. Physically, he says, the petroleum products could be located in unused salt domes, demobilized military facilities, and if necessary, new storage tanks that could be placed at strategic locations.