30-11-07 Strategic oil supplies are increasingly important as the world becomes more dependent on supply from a smaller number of countries and vulnerable maritime routes, the International Energy Agency said.
“The need for strategic emergency response mechanisms has never been greater,” the adviser to 26 oil-consuming nations said in its “Oil Supply Security” report. Small disruptions in world oil supply could have significant effects because “the delicate balance of supply and demand is maintained with very little margin for error.”

Member countries of the Paris-based IEA must agree to hold oil stocks equivalent to at least 90 days of net oil imports in the event of supply disruptions such as those caused by Hurricanes Katrina and Rita and the Gulf wars. Building and maintaining reserves is crucial, especially in countries such as China and India where oil consumption is growing fastest, the agency said.
“Today’s market can be severely challenged by disruptions of magnitudes that would have been considered a small volume by historical standards,” the report said.

IEA members’ oil stocks rose 14 % to 4.1 bn barrels between 2000 and the end of 2006, when they covered 122 days of net imports compared with the all-time lowest level of 108 days in early 2000, the report said. In 2006, 64 % of the stocks were held by industry and the rest publicly.
Stocks are increasingly held by the government or government-controlled agencies, the IEA said. Seventeen of the 26 member countries have stocks in the government domain compared with about one quarter in the mid-1980s.

Damage to refineries from Hurricane Katrina also led to some countries that traditionally hold crude stocks to consider creating reserves of oil products, the report said. Global vulnerability to supply bottlenecks is increasing because oil production is more concentrated in a shrinking number of countries including Middle Eastern members of OPEC and Russia.
Also, more and more oil will be transported along “vulnerable maritimeroutes” that are at risk from accidents, piracy and terrorist attacks, the report said. A projected 59 % of world oil demand will pass through the four “extremely busy and vulnerable” maritime straits of Hormuz, Malacca, Suez and Bab el-Mandab in 2030 compared with 39 % in 2006, the IEA said.

India and China, which are expected to account for about 42 % of the total increase in demand for oil through 2030, have announced plans for stock building.
China, which has announced plans for reserves of 500 mm barrels, this year completed construction and started filling its first storage sites and India is preparing to start building, the report said. India has announced plans for reserves of about 100 mm barrels.