OIL DIMENSION

1st OIL STUDY

BACKGROUND INFO

Oil dimension in the context of the Energy Community
 

With the effect of the Ministerial Council decision from Dec 2008, the “network energy" as mentioned in Article 2 of the Treaty is understood as to include the oil sector. This comprises supply, trade, processing and transmission of crude oil and petroleum products falling within the scope of European Community Directive 2006/67/EC and the related pipe-lines, storage, refineries and import export facilities. The decision explicitly concludes on the extension of acquis in the area of oil. The relevant, new elements of the acquis communautaire in the area of oil, including the subsequent timetable for implementation, are also to be decided.

Parallel to the changes to the “network energy" definition, the decision resulted in the establishment of Oil Forum. Pursuant to the Articles 63-65 of the Treaty, the Oil Forum has an advisory role. The aim of the Forum is to bring the discussions at regional level. The first Oil Forum convened in Sep 2009.

Following the PHLG's request, the Secretariat examined the free movement of crude oil and petroleum products between the Parties to the Energy Community pursuant to Article 41 of the Treaty. The Secretariat's initial findings on the usage of the customs duties, tariffs and non tariffs restrictions were presented at the 16th PHLG meeting in Mar 2010. On the ground of the information received so far, the most pressing issue is the levying of customs duties. Compared with other energy carriers, the market for oil and petroleum products, albeit the high dependence on imports, is however relatively open and competitive.

Energy Community Study on Emergency Oil Stock

In Jul 2010 the Secretariat contracted the Petroleum Development Consultants limited, PDC, to conduct a study on the “Emergency Oil Stocks in the Energy Community Level”. The PDC submitted its final report in May 2011. The possible implementation of the EU Directive 2009/119/EC imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products stood at the focus of attention.

Key objectives of the study were:

- Recommendations on the crude oil and petroleum product stockholding systems in accordance with EU Directive 2009/119/EC
- Determine the stock holding obligation and costs for each Party in the time frame of 2011 to 2020
- Develop a work programme to be fully in compliance with Directive 2009/119/EC
- Identify bottlenecks in implementing the Directive and the development of proposed solutions
- Examine the possibility of having a regional approach to stock holding activities

The Final Report examines and evaluates all the main elements of the new Council Directive 2009/119/EC for each beneficiary. The report firstly accesses the state of play at national level: supply and demand, existing emergency oil stocks obligation and infrastructure, including legal review. Furthermore, there is a road map that lists the steps needed to comply with the Directive 2009/119/EC obligations. The final section examines the possible regional approach to emergency oil stocks.

As regards recommendations, all the Parties need, to some extent, to enhance their crude oil and petroleum product stockholding systems in order to be in compliance with EU Directive 2009/119/EC. All Parties will also have to adjust their legal and regulatory framework to comply with the Directive. The PDC recommends the Parties to continue to work with the Energy Community, International Energy Agency and other bodies to develop comprehensive and reliable data reporting systems.

Most of the Parties should be able to become compliant with the Directive by 2020 through the adoption of a phased programme of changes and investment. The Parties are more inclined to setting up Central Stockholding Entities, rather than obligating operating companies which, when tried, has caused reporting and compliance issues. There are strong reasons for considering a regional approach to Emergency Oil Stockholding in terms of cost minimization but significant further analysis and negotiation would be required to implement such a regional approach. According to study, all the Party have a realistic chance of being compliant with the Directive by 2020.
 

Background information

Oil is a key component of today’s energy mix in the Contracting Parties. The share of oil accounts for about 38% and it is likely to remain so in the foreseeable future. It is a finite resource, where remaining oil in place are around 600 million tones. The region’s existing oilfields are depleting. Oil production and export potential is likely to decline, while its imports will increase. At the same time, there is an ongoing increase in oil demand. During 2000 – 2008 an increase in oil demand by 53 % was recorded. Crude oil dependence in 2008 was around 84% and has increased by 17% since 2000.

Refineries operate 40%-42% of nameplate capacity. The maximum capacity of storage tanks in the region amounts to about 3 million, but without knowing the real condition of the tanks. Existing regional oil network infrastructure remains poor and deficient. Due to limited appliance of advanced technology, finding new source of oil is difficult, the recovery factor levels low and capital and operating costs amount above the average. There is a pressing need for improved safety performance and environmental requirements.
 
Contracting Parties are supplied with oil via the Adriatic Sea and the Danube River. High economic cost and environmental risks are characteristic for these supply routes. Substantial amounts of crude oil for the European market cross the congested Bosporus strait and are shipped through the Ionian and Adriatic Seas.

Negotiations on several large scale oil pipeline projects due to cross the South East Europe region are on-going. These projects aim at circumventing the maritime straits, at reducing the traffic of oil tankers in the Mediterranean Sea, and thereby improving the security of oil supply. The idea of having oil and gas pipelines running parallel is also subject to intense discussions. Evidently, a realization of any of the pipeline projects would enhance the energy security of the region.
 

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