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Oil Stockpiling Development: Preparing for the Oil ‘Drama’
Tuesday, 4 Oct 2016

Several times in the past, the world has overcome major disruptions in the supply of crude oil (either by political embargo or natural disaster). One of the many results of the disruption was higher oil prices, abandoned transportation facilities, or even a civil war. The situation forced global oil market to consider many things about energy, such as the cost and supply. The oil crisis brought an unforgettable moment to some countries. The gasoline prices increased dramatically in just a few months. It was recorded that up to twenty percent of some countries’ gas stations had no fuel for one week during the crisis. Simply put,  we can say that the total consumption of oil in some importing countries dropped drastically.

Leiby et al. mentioned that oil stockpiling is a strategy that benefits all groups of economies.  It also gives some substantial benefits to other oil consuming economies that may have no direct access to the stockpile.  One of the main advantages of oil stockpiling is to secure the world’s oil price.   Hubbard. G.R in his book stated that oil price stabilisation is a ‘public good’ that benefits all oil-using economies. The stockpile is a helpful facility to address the issue of oil crisis to prevent future disasters. The oil crisis is assumed to be the dominant force that engages the world’s policy makers to develop stockpiling facilities. A quick decision will contribute to achieving energy security and maintaining a country’s economic stability.

In ASEAN, the regional oil stockpiling development programme was officially discussed in 2008 during the 5th ASEAN Ministers on Energy Meeting Plus Three (AMEM+3).  ASEAN realised that the necessity of oil stockpiling initiatives is important due to the light of persistent risks of supply disruptions and highly volatile oil market in the past.  ASEAN, together with its dialogue partners, conducts the activities of ‘Oil Stockpiling Roadmap’ (OSRM) to facilitate all ASEAN Member States (AMS) in improving oil stock capacity, considering prevailing high prices, preparing measures against the volatility of prices in the international oil markets, and attracting direct foreign investment.

For the current status of oil stockpiling development of each AMS, Brunei Darussalam has no specific objective to develop an oil-stockpiling system yet, since the country is a net oil exporter. However, the government has requested oil companies to maintain the oil stock for 31 days. In Cambodia, the government decides on 30-day oil stock.   Indonesia has an average stock of 24 days for liquefied petroleum gas (LPG), 11-day stock for crude oil and 17-day stock for gasoline. In Lao PDR, all oil companies are obliged to have oil in their storage to be supplied to their customers for at least 15 days.  The Government of Lao PDR aims to have petroleum products stock for 16 days in 2020. Malaysia sets a minimum tank fill of 20% at the existing LNG regasification terminal (RGT).

In Myanmar, the government planned to establish a 30-day oil stock in 2020, and to expand to 45-day reserve in 2030 and 90 days’ stocks will be achieved in 2050. Singapore does not impose requirements for refiners or private oil companies to hold minimum fuel stockpile due to the market situation. Thailand set a total of 25-day stock both for crude oil and refined products. Vietnam targeted 90 days of oil stockpiling development plan since 2015.  In summary, by 2020 the AMS hopefully will have a shared best-practice in oil stockpiling for the region’s energy security.

Theoretically, the various issues surrounding stock policy can be distilled into three items: 1) size of the oil reserve, 2) the fill and draw schedule of the stocks, and 3) the institutional financial framework for an advanced development (Robert J. Weiner). In ASEAN’s case, the issues in developing oil stockpiling are more in the initial stage such as lack of guidelines for the development, lack of infrastructure and human resources in data preparation and mechanism for the effective use of oil reserve, and lack of policy and regulation to attract direct foreign investment to develop oil stock infrastructure.  ASEAN needs a concrete plan and strong will from each AMS to set a regional oil stockpiling target.  Since the region consists of both oil exporters and net importers,  ASEAN is a complete market for oil and gas business sector.  A fully-functioning oil stockpiling mechanism in ASEAN will hopefully reduce the economic impact when major oil crisis reoccurs in the future. (SBS. Photo credit:  crudeoilpeak.info)

References:

ACE. Oil Stockpiling Roadmap in ASEAN: Energy Security on Oil. Tokyo, Japan. 2016

Paul N. Leiby, H David Bowman, and Donald W. Jones: Improving Energy Security Through an International Cooperative Approach to Emergency Oil Stockpiling. U.S: 2002

Sarah Horton: The 1973 Oil Crisis. Envirothonpa. Web. 5/10/11. -Sara WortmannU.S.A

Weiner, J. R, & Hubbard, G. R: Government Stockpiles in Multicounty World. U.S. 1982

The views, opinions, and information expressed in this article were compiled from sources believed to be reliable for information and sharing purposes only, and are solely those of the writer/s.  They do not necessarily reflect the views and opinions of the ASEAN Centre for Energy (ACE) and/or ASEAN Member States.  Any use of this article’s content should be by ACE’s permission.

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