When you inhabit the oil nerdosphere, proposed alterations to the Government’s Compulsory Stocking Obligations from January 2013, are a matter of some interest. Like the periodic changes to the Captains on “A Question of Sport”, there is now excited anticipation amongst the faithful, as to how the new regime will stack-up. To recap on the whole stocking obligation and how it came about, we first have to go back to October 1973, when the world experienced its first modern-day oil shock. The OPEC oil embargo had coincided with US oil production going into decline (a trend which has continued ever since) and the result was oil rationing and a quadrupling of the oil price (the equivalent of oil today going up to $400 per barrel). The western world came within days of grinding to a halt and with this as a backdrop, the International Energy Agency and the EU (as was) got together to formulate the first Compulsory Stocking Legislation.
The nuts of bolts of each country’s arrangement varied, but broadly the measures ensured that a certain amount of oil was held back from the market and stored in tank, in case of emergency (ie, petrol for a rainy day). In Europe, member states were required to hold between 50 and 90 days of emergency stock, depending on whether they had indigenous crude production (UK) or not (Germany), in which case the full 90 days of stock had to be held (1 day’s stock being equivalent to 1 day’s national consumption).
The reaction of the European countries to these stocking regulations was (and is) rather reflective of how the EU works to this day. The Germans (being Germans), dedicated public money to the building of 100 or so football-pitch sized underground tanks, which they promptly filled-up with 90 days of diesel, said “das ist das” (“that’s that”) and went for some beer and a very big sausage. The French did the same, but on completion they shrugged their shoulders in a gallic way, said they couldn’t afford the project anymore and got the EU to pay for the remaining costs. The British held their hands up in horror at the thought of public works, but horror soon turned to delight when the Government realised that Big Oil was making so much money in the UK, that they would pretty much agree to anything – so long as their activities in the North Sea were left alone. Therefore in the UK, it was left to BP, Shell, Esso et al, to hold back 50 days of their annual sales on behalf of the Government. The Dutch being half Anglo and half Saxon, decided “for sure” that the scheme was “no problem” and went for a 50 / 50 British-Germanic approach; giving half the obligation to Dutch Oil Companies and the other half being held by Government. Finally, the Southern Europeans are still deciding what to do and will be submitting their proposals sometime before 2020…
All in all the scheme has worked fairly well, with “structured stock releases” (ie, certain grades and volumes) in the early 1990’s (Gulf War), 2005 (Hurricane Katrina) and 2011 (Libyan Crisis). The proposed changes to the legislation will not change the broad principles, but they will impact on the obligated holders of stock. Up until 2012, stock has been classified into 4 categories and each stock holder was obliged to hold between 50 and 90 days of their sales of each Category, ie, Category I (Petrol), Category II (Diesels and Jet Fuel), Category III (Fuel Oils) and Crude Oil. But with European refining being configured the way it is, such categorisation created major problems; Petrol and Fuel Oil obligations being easy to meet (in a region that is awash with both products), but Category II (Diesel and Jet Fuel) obligations presenting a much more significant financial burden, in an area where both products have to be imported to meet demand. This situation has in part, been behind the rising cost of diesel over the years and inevitably, it is the consumer who has borne the brunt of this situation. Therefore, the revised scheme should be viewed as an improvement, with only 20 days of each refined product (Petrol, Diesel etc) now being required to be stocked, with the balance being held as “Any Oil” – a rather large and motley collection of low value grades / blends, all of which are in bountiful existence across the Continent.
However, of much greater importance than the above, is the long-term plans for UK stock. British arrangements have long been disapproved of by the EU (with the former’s “Business Only” approach) and so it is now proposed that from 2015 onwards, the UK will have its own stock agency, taking full responsibility for meeting the IEA / EU obligations. In the current austerity driven climate it is difficult to see how such a massive project will come to fruition, particularly as the Exchequer has stated that there will be no government funding. Moreover, consumers should not conclude that because the Oil Companies will no longer have the obligation, this will somehow reduce prices. Indeed, if you ever do drive in Germany and buy some fuel, you will see on your receipt a charge of €0.03 per litre for “EBV”. No prizes for what EBV stands for – it is Germany’s Stocking Agency (Erdolbevorratungsverband) who levy the charge on every litre sold in that country.