EU-15 reluctant to hand oil stock control to Brussels

Date:18/09/03

By Karen Carstens

WITH fears of spiralling oil prices spawned by the US-led war on Iraq now dampened, member states remain wary of Brussels controlling their emergency oil stocks.

Reflecting this attitude, the European Parliament's industry and energy committee in a vote earlier this month rejected a Commission proposal that would allow the EU to oversee reserves if supplies were disrupted.

The Parliament's plenary is due to give its verdict on the measure in a vote scheduled for Monday (22 September), after which it would still need to be approved by member states.

Most have not been enthusiastic, preferring instead to stick to an international emergency response mechanism operated by the Paris-based International Energy Agency (IEA).

Washington, on the other hand, put its own system in place in 2000, during the final year of the Clinton administration.

The only power the EU has hitherto had in this area has been "to organize meetings of experts from member states to 'exchange views'," said Gilles Gantelet, spokesman for Loyola de Palacio, the energy and transport commissioner.

The proposals, put forward by de Palacio on 11 September 2002, aim to increase the levels of national emergency oil stocks available, put one-third of these under the control of public bodies and create a central EU-administered response mechanism to mobilize them.

"The fact that the EU is very much dependent on external supplies of oil and gas represents a major risk for our economies," said de Palacio at the time.

At present, the EU imports more than 70% of its oil and more than 40% of its natural gas, with projections indicating these figures could rise to 90% and 70% respectively by 2020.

A November 2000 Green Paper on EU energy security stresses that "total energy self-sufficiency" is a pipe dream, with consumption increasing at a rate of 1-2% annually.

It states that the cost of EU oil production is two to seven times the world price, and that the Union has a mere 2% of the world's natural gas reserves (equivalent to 20 years' worth).

The Commission wants member states to give it a mandate to represent them at International Energy Agency meetings, where oil-consuming countries take decisions on stocks.

It also urges earlier stock releases to defend price stability against panic buying at times such as the 1990 Gulf crisis, when the IEA released stocks only after soaring oil prices had done considerable economic damage.

The Commission proposal requires EU governments to set up their own stockholding agencies independently of oil companies. Although member states are required to stock 90 days' normal consumption under existing EU rules, most achieve this by passing on the obligation to industry.

This has prompted concern that much of the intended emergency reserve has, in fact, been absorbed into operational stocks, held by companies to sustain their own distribution. "We don't know precisely what the volumes are that are available in addition to operational stocks," one official admitted.

The Commission had suggested that public bodies hold emergency stocks worth a minimum of 40 days of consumption as part of total stocks that should rise to 120 days in each member state.

But all 15 Union governments rejected a call for an EU stocking policy in the 2000 energy green paper.

Most are worried that the measures could undermine the IEA. "Along with most member states we just don't see any need to change the existing arrangements, which work perfectly well," said one member-state official.

Gantelet said that if the geopolitical situation suddenly soured so that oil prices increased dramatically, member states might change their tune. For now, he agreed, "the majority of countries favour the international [IEA] mechanism, they do not want to develop a parallel European mechanism".

But it was just too early to make a full assessment of the situation, he said, adding that less contentious parts of the measure, including increased monitoring activities via a new "European observation system for oil and gas supply' might be accepted by the Parliament and member states.

One reason for them to accept the EU proposal was that it would ensure a rapid response, he said. "There is no telling how fast the IEA would act [in a crisis situation]," he added.

A related proposal on natural gas is also being discussed in Parliament. Minimum quantities of gas stocks have, however, not been set by the Commission because of transmission and storage issues specific to the gas sector. The gas proposal aims instead to ensure a flexible and readily available supply by encouraging member states to implement stricter storage, monitoring and other measures.

Member States are cautious of allowing the European Commission to control emergency oil stocks. The European Parliament is due to vote on 22 September 2003 on proposals that would require Member States to increase oil stocks and give power to the European Commission to decide on their emergency release if needed.