Senin, 18 Februari 2013

The need for a national strategic petroleum reserve


The need for a national strategic petroleum reserve
Montty Girianna   Director For Energy, Mineral Resources and Mining
at the National Development Planning Board (BAPPENAS)
JAKARTA POST, 13 Februari 2013


The fact that our fuel demand is increasingly met through higher imports is really alarming. Today, not only do imports comprise two-thirds of gasoline and one-third of diesel fuel for domestic consumption, but also one-third of crude oil for intake to our refineries. Exposure to international oil markets is thus astonishingly huge. 

Our crude production is falling; it has steadily decreased to much less than 1 million barrels a day. Mature oil fields with declining rates of production and a shortage of investment in new exploration contributes to low rates of production. Our refining capacity also remains stagnant. We have not expanded our refining capacity over the past 20 years. 

The combination of an unfavorable rate of crude production and a shortage of refining capacity, in the face of avid domestic consumption, has led to increasing dependency on imports — increased vulnerability in our energy security. In fact in 2005, this country was the only OPEC member that was a net oil importer.

Too heavy a dependency on imports is risky in many ways. As we set fuel prices fixed below the international market rate, soaring and volatile import prices have led to a large and unpredictable subsidy allocation, creating an excessive fiscal burden. Sadly, this forces us to forego vital investments such as in health, education and infrastructure, and makes the subsidy allocation difficult to predict leading to numerous government-budget revisions. 

This mismatch is even worse when we project our demand for the next 10 to 20 years. We are committed to having economic growth of 7 percent a year and with that commitment, a huge volume of gasoline and diesel needs to be secured to fuel the engine of development. In the coming 10 years, the demand for gasoline will double and that for diesel will increase by one-third. 

Of course we have to work on the demand side by promoting efficiency measures, as well as on the supply side by increasing production. But more fundamentally, when we are relying on imports, is to develop a mechanism or an instrument by which price shocks can be effectively absorbed, and our budget securely set, hedged against uncertainty.

We should consider what the International Energy Agency (IEA) has initiated. The IEA, established in the wake of the 1973 oil crisis, requires its members to have a Strategic Petroleum Reserve (SPR) as a way to hedge against oil price shocks. The members have to maintain an oil stock sufficient to fulfill demand for three months, either held exclusively for emergency purposes or for commercial and operational use. 

The US, an IEA member, has an SPR of 174 days, of which 98 days is held by industry and the balance by the government. The UK is another IEA member having an SPR of 268 days entirely held by industry. Non-IEA countries such as China and India have launched their own reserve programes to hold the same stock levels mandated by the IEA.

We cannot wait to have an SPR until we are in a very bad shape. At least, for now, the government has to provide legislation as well as policies on the long-term perspective for an SPR, and start collaborating with industry to formulate a scenario of fuel stockholding obligations. 

Policies have to be developed to ensure that the SPR is a part of price-smoothing instruments to “protect” consumers from volatile import prices. Given the present circumstances, the Mid-Oil Platts Singapore (MOPS) price would best serve as a basis for developing a scenario for an SPR. 

We cannot fully pass the volatility of MOPS on to domestic prices, and the SPR has to be designed to fulfill that intention.

In addition, an SPR has to be seen as a hedging mechanism against oil price jumps that are deemed to have a major impact on our national economy. A definition of “major impact” must be set to justify the need and the size for the SPR, and later on as a basis for triggering a release of SPR stocks. 

Also, the SPR has to be developed as a building block to mitigate a severe fuel supply disruption. An unplanned refinery shutdown would be a major reason to justify holding back-up fuel stocks. 

Power outages can be avoided by providing buffer stocks of fuel for a power plant. An SPR should hold fuel stocks that are consumed in a large quantity by consumers. Today, we should focus on stocks for gasoline and diesel, but later on a stock of liquid petroleum gas (LPG) and crude would also be necessary. 

Finally, the SPR has to be developed both for emergency purposes through public stocks, as well as for commercial and operational use via stockholding obligations on industry or private stocks. We might expect stock levels held by the public to be generally larger than the government’s stockholding obligation. Currently, Pertamina holds fuel stock for 20 days for commercial and operational use. Public stocks should be much larger than that.

The revision of Oil and Gas Law No. 22/2001 should define the fundamental traits of any SPR. The law should clarify who will ultimately be accountable for implementing the SPR, who will own the stock, and the roles of our state-owned oil company Pertamina and industry players, etc.

In the mean time, we can identify and assess what is the current available infastructure, including refineries, oil terminals, pipelines, floating storage units, etc., and their capacity. How can they be pledged for SPR? 

The expansion of existing refineries and development of new refineries and crude terminals has to be within the framerwork of SPR implementation. Exploring potential access to neighboring storage and oil trading hubs in Singapore might also be necessary for short-term purposes. It is important to have a consensus among policymakers on a realistic timeframe for SPR development, short- and medium-term, as well as long-term.

Overall, the aim of having an SPR is to ensure the security and sustainability of adequate fuel supplies, i.e., gasoline and diesel, for the domestic fuel market. A key task of course is to guarantee the availability and smooth distribution of fuel to everyone anytime, anywhere. ●

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