Compulsory Stocks Of Crude Oil And/Or Petroleum Products

Falling stocks of crude oil and rising world-wide consumption of petroleum products have been fuelling hazards associated with the provision of smooth energy supply across the European Union. In light of the fact that the geopolitical environment is volatile and the balance between supply and demand is fragile, the growing appetite of the emerging economic giants led by China and India, and the European reliance on imports of petroleum products, are the reasons for the rising worries about Europe’s energy future. Every disturbance, even if it is assessed as being short-lived, likely to lead to an unforeseen reduction in the supply of crude oil that is, of the products arriving from third countries, would be poised to cause serious disturbances to the European economy and life. Supply disruptions could also appear within the European Union.

With the aim to make the necessary arrangements for fail-safe supply of crude oil, the EU Member States have undertaken to maintain minimum stocks of crude oil and/or petroleum products available to the Member States to tap into in the event of supply disruptions.
 
The setting up of compulsory stocks of crude oil and petroleum products dates back to 1968 when the European Council adopted the directive that stipulates the stockholding obligation of the Member States of the European Union by maintaining compulsory (emergency) stocks of crude oil and petroleum products. The quantity of these compulsory (emergency) stocks was set at first at 65 days of average daily consumption in the previous year for three categories of petroleum products category:
  1. motor gasoline, aviation gasoline, gasoline-type jet fuel,
  2. gas/diesel oil, heating oil - extra light, jet-fuel of the kerosene type, other kerosene products and
  3. heating oil (medium, heavy).

In 1972, driven by a surge in consumption and the reliance on imports of crude oil and petroleum products from third countries, the mandatory level of compulsory stocks of crude oil and/or petroleum products increased to 90 days’ average daily consumption in the preceding calendar year.

The directive was modified in 1998 and voiced the straightforward requirement that the EU Member States shall guarantee the availability and accessibility of their emergency or minimum stocks of crude oil and/or petroleum products in the event of oil supply difficulties and, on top of that, it demanded that the Member States shall ensure all legal instruments to control stocks in such circumstances. In a nutshell, the emergency or minimum stocks must be available and accessible at all times, and the procedures for identifying, calculating and checking must be set up. In addition, the directive also introduces the possibility to hold emergency stocks in storage facilities within the territory of other Member States on the basis of the concluded international bilateral agreements and stipulates the terms for the so-called delegated stocks (tickets).

 
In September 2009, a new Council Directive was adopted imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products. Since the new directive applies from 1 January 2013, Member States have to bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31 December 2012. The directive favours the system in which there is a central stockholding entity with a mandate to acquire, maintain or sell oil stocks including emergency stocks and Slovenia is already fully compliant. The EU Member States should strive to store as much as possible of their oil stocks within their national territory. Furthermore, it is the very need to make the oil stocks available and accessible that the Directive recommends for the oil stocks to be the property of the entity responsible for maintaining such stocks; consequently, the share, that is, the quantity of the so-called delegated stocks (tickets) would be reduced. A special emphasis is made in the directive on the reporting with regard to the information to be provided by Member States on the different product categories, both compulsory and commercial stocks. The directive instructs Member States to prepare measures to mitigate difficulties to arise from a substantial decrease in supply of crude oil or petroleum products. Slovenia does not expect any major difficulties in connection with meeting the requirements laid down in the Directive, since its activities are already directed toward increasing the share of own stocks within the Slovenian territory. Moreover, the Ministry of the Economy is preparing measures for restrictions on consumption and reliable supply of petroleum products in the event of oil supply disruptions and instability in the oil market.
 
Slovenia has opted for a solution in which the task for setting up and maintaining compulsory (emergency) reserves of crude oil and/or petroleum products is entrusted to a stockholding entity (agency = zavod) and the owner of this agency is the Republic of Slovenia. The decision taken by the Slovenian Government has also provided additional security for the reliable functioning of the oil supply mechanism and control over it.
 
It was in 1999 that the first steps were made in Slovenia with the aim to establish compulsory stocks of petroleum products within the framework of the convergence of Slovenia’s legislation with legislation in place in the European Union. In accordance with the transitional period granted to the Republic of Slovenia before having to fully comply with the requirements laid down in the directive, Slovenia embarked on the project of phasing-in compulsory stocks and in 2005, it reached the mandatory level of compulsory (minimum) stocks that corresponds to 90-day of average daily consumption. Since then, Slovenia has been in full compliance with the obligations laid down in this directive.
 
The focus of our current activities is on the maintenance of the mandatory quantity and quality of the fuel stocks and constant improvement of our storage, logistics and financial conditions for the compulsory stock maintenance. In addition, our activities are mainstreamed also in the direction of international co-operation, the action plan designed to trigger in the event of a crisis when the compulsory (emergency) stocks are released, as well as other areas related to our core business and downstream oil industry.
 
A larger portion of the compulsory stocks of the petroleum products is held as the physical – real stocks owned by the Agency, and a smaller portion is maintained as delegated stocks.
 
The maintenance of the compulsory stocks of petroleum products calls for the performance of complex logistic operations such as  renting and optimising storage facilities in Slovenia and across the border, the purchase, sale and the replacement of the fuel stocks, making arrangements for the delegated quantities (tickets) and occasionally also blending fuels and transportation of fuel. Moreover, the control of the quality of fuel stocks is of utmost importance and it includes analysing the quality of fuel, predicting fuel aging, monitoring fuel quality and the aging processes, as well as taking part in the acceptance of newly delivered fuel at the tank farms. All activities prescribed in connection with the quality control apply also to the activities associated with the replacement of the fuel stocks and storing.