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Economic benefits of oil stocks

Hydrocarbon Engineering,

According to a new study from the IEA, the oil stocks that the 29 member countries must maintain not only aid energy security, but also save money. The review of member countries’ abilities to react quickly and effectively to significant energy supply disruptions valued the stockpiles’ global benefits over 30 years at approximately US$ 3.5 trillion.

Becoming an IEA member and the world benefits

To belong to the IEA, a net oil importer must hold emergency stocks that are equal to at least 90 days’ worth of the previous year’s imports. As of the end of March this year, member countries’ stores totalled 4.1 billion bbls, equivalent of approximately 44 days of total global demand, which provides a bulwark against market volatility in the case of a supply disruption, and an economic benefit to the world.

Each bbl a country stores provides a net global benefits average of at least US$ 41/y after storage costs, according to IEA analysis. Using an economic model that tested tens of thousands of possible market scenarios, the IEA gauged the economic toll of hypothetical oil supply disruptions with and without emergency stockpiles’ effects on markets and economies. The model estimated changes in oil price, net import costs and gross domestic product during probable disruptions and possible stock releases over a 30 year period. Most of the benefits it found stem from how the IEA stocks would offset supply losses during disruptions, significantly limiting increases in import costs and preventing damage to the world economy. A smaller benefit is the net revenue gain from the sale of stores during a disruption.

IEA estimates

The IEA estimate in the report is conservative: not only did it exclude supply disruptions for specific products, but it also did not assess the stockpiles’ deterrent effect on global oil trading outside of a stock release. Further, it considered only international benefits. That leaves out emergency stores’ economic savings potential in domestic supply disruptions. The benefits from an use of emergency stockpiles to counter such situations depends largely on local context, such as where the supplies are located as well as the severity and duration of the situation.

The global benefits more than offset the expense of stockpiling, which the IEA found to rage from US$ 7 – 10 /bbl /y depending on the form of stocks and how they are housed. Member countries can store either crude oil or petroleum products, in either aboveground tanks or underground caverns, which cost an average 30% less than tanks. Purchase of the supply makes up at least half of the total stockpiling expenditure, while building and maintaining storage infrastructure make up approximately 20% of annual costs. Other expenses include land and refreshment of stocks, but the final cost to consumers in many countries is less than US$ 0.01 /ltr of fuel.

The report

The report, ‘Energy Supply Security 2014’, provides an overview of gas and oil markets, key infrastructure and emergency policy measures in all 29 IEA member countries, as well as some partner countries. The introductory chapters provide a useful summary of the various toolsets available to the IEA in coping with oil and gas supply disruptions and prove how the agency and its members have evolved in their ability to meet new energy supply challenges in a changing world.

A free copy of the report can be downloaded here.

Adapted for web by Claira Lloyd

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