The world has saved $3.5 trillion over the last 30 years by maintaining emergency oil stocks to offset supply shocks and curb price surges, the West’s energy watchdog said on Wednesday.
The International Energy Agency (IEA) said in a report that emergency oil stocks held by member and non-member states have acted as an “insurance” against oil supply disruptions.
Spiralling violence in key oil producer Iraq in recent weeks has pushed global oil prices to nine-month highs, reviving speculation of a release of strategic stocks in case of severe supply disruptions.
“Significant economic benefits are derived primarily from offsetting oil supply losses and thereby reducing potentially significant oil price increases. These consist of reduced GDP losses and reduced import costs,” the IEA said.
Using a model to simulate tens of thousands of possible oil supply disruption scenarios and market outcomes, the report estimated global net benefits derived from existing emergency stocks amount to $41 per barrel per year after storage costs.
This equates to some $3.5 trillion over 30 years, it said.
The 29 IEA member states must hold stocks equivalent to at least 90 days of net imports. At the end of March 2014, member countries’ stores totalled 4.1 billion barrels, equivalent to about 44 days of total global demand, the report said.
By the end of 2013, 60 percent of oil stocks in IEA member countries were crude oil and 40 percent refined products such as gasoline and diesel.
Stockdraw has proven to be the most powerful mechanism available to IEA member countries during an oil supply disruption, the Paris-based IEA said.
Limiting oil consumption, particularly within the transport sector which accounts for more than half of all oil use in IEA members, was another way to offset supply disruptions, it said.
The IEA was created in 1974 by 16 Western countries in the wake of the 1973 oil supply shock in an effort to limit the impact of future crisis.
The IEA estimated the cost of stockpiling at $7-$10 per barrel per year, depending on the size and type of storage. Holding reserves in underground caverns is about 30 percent cheaper than in aboveground storage facilities, it said.
The last major supply disruption occurred in 2011 when output from OPEC member Libya dropped sharply due to civil war.
Though the IEA does not require members to hold emergency gas reserves, the rapidly growing use of gas has also led to fundamental changes.
With Europe remaining the world’s biggest gas importing region, the IEA said emergency gas stocking capacities needed to be expanded in order to deal with potential import disruptions.
Russia’s state controlled Gazprom, Europe’s biggest gas supplier, halted deliveries toUkraine this month, the third disruption over payments in a decade.
The IEA said 14 member countries have storage capacity that can meet at least 10 percent of annual demand, 8 countries had storage capacity that surpasses 20 percent of annual demand, while only three countries have gas storage capacity that surpasses 50 percent of annual demand.
The IEA said it expected global gas trade to grow by 30 percent between 2012 and 2018, reaching almost 700 billion cubic metres (bcm).
“Global LNG (liquefied natural gas) trade is expected to grow slightly faster than pipeline trade and gain 31 percent, thanks to rapidly expanding LNG liquefaction and import capacity built in new markets,” the IEA said
