Emergency oil reserves may be too low if world crisis occurs

Date: 07/02/02

By Laurence Frost

THE European Commission is preparing to act on fears that Europe's emergency oil stocks could prove woefully inadequate in the event of a crisis in global production.

Energy Commissioner Loyola de Palacio, speaking at the World Economic Forum in New York this week, said action was needed to improve on the fragmented stocking system currently in place in the EU.

'The bottom line is that European security stocks could lack visibility and credibility,' said De Palacio.

Behind-the-scenes officials now say a proposal is likely to emerge later in the year that would establish a new mechanism and criteria for decisions on releasing emergency stocks.

The plan is likely to call for member states to be represented by the Commission at meetings of the Paris-based International Energy Agency (IEA), where oil-consuming countries take decisions on stocks.

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

'We need to be able to release security stocks early enough in order to reassure the market,' De Palacio said. The new proposal would also require EU governments to set up their own stockholding agencies independently of oil companies, as only Germany has done so far.

Although member states are required to stock 90 days' normal consumption under existing EU rules, most achieve this by passing on the obligation to the 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,' said one official.

But the plan is likely to meet stiff resistance from Union governments, all 15 of which last year rejected a call for an EU stocking policy in the Commission's energy green paper. Most are worried that the measures could undermine the role of 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.

The European Commission is preparing to act on fears that Europe's emergency oil stocks could prove woefully inadequate in the event of a crisis in global production.