Security of Supply [EU]

Strategic oil stocks

The obligation of the Member States to build up and maintain a minimum petroleum reserve gives security of supply of petroleum resources to the European Union (EU). Due to the importance of oil in the EU’s energy mix, the EU’s strong external dependence for supply of petroleum products and the geopolitical uncertainty in many producer regions, it is vital to guarantee consumers continuous access to petroleum products.

Council Directive 2006/67/EC of 24 July 2006 imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products.

In an unstable geopolitical environment where the balance between supply and demand is generally uneasy, particularly due to growing demand from new mass consumers such as China, the European Union’s dependency on imports of petroleum products is an increasing cause for concern for European economic prospects.

A supply crisis caused by our supply of petroleum products from third countries being unexpectedly interrupted would most likely have a serious impact on European economic activity. Breaks in supply could also occur within the EU.

It is in order to ensure the security of its oil supply that the EU obliges Member States to guarantee minimum stocks of petroleum products that can be used in the event of a supply crisis to replace all or part of the shortfall.

Strategic stock-holding requirement

Member States are required to build up and constantly maintain minimum stocks of petroleum products equal to at least 90 days of the average daily internal consumption during the previous calendar year.

The calculation of the daily internal consumption is based on motor spirit and aviation fuel, gas oil, diesel oil, kerosene and jet-fuel of the kerosene type, as well as fuel oils.

Amongst the petroleum resources accepted in the statistical summary of strategic stocks are supplies held in ports of discharge, or those on board oil tankers in port for the purpose of discharging, once the port formalities have been completed, supplies held in tanks at the entry to oil pipelines and also those held in refinery tanks. On the other hand, certain resources may not be included in the statistical summary, such as crude oil not yet extracted, supplies intended for the bunkers of sea-going vessels, supplies in pipelines, in road tankers or rail tank-wagons, in the storage tanks of retail outlets and those held by small consumers, as well as quantities held by or for the armed forces.

Member States who have their own petroleum production may deduct this proportionally from their stock-holding obligation. Such deduction may not, however, exceed 25% of the Member State’s internal consumption.

Member States may include in their statistical summary of strategic stocks only quantities that are at their full disposal in the event of an oil supply crisis.

Stock-holding arrangements

Stock-holding arrangements must ensure that the stocks are available to and accessible by Member States so they can react immediately in the event of a supply crisis. In fact, Member States must be able to control allocation of the stocks and quickly make them available to the sectors where the need for supply is the most urgent.

Stock-holding may rely on a system of partial or total delegation to a stock-holding body or agency. Member States ensure transparency of the stock-holding arrangements and make sure that fair, non-discriminatory conditions are applied.

The stocks may be held outside national territory in another Member State. The Member State on whose territory the stocks are held has control of them and guarantees their actual availability. It does not include them in its statistical summary.

Member States have an obligation to ensure administrative monitoring of their stocks, in other words to ensure their control and supervision. Breaches of these control mechanisms are covered by a system of penalties.

Member States send the Commission a statistical summary of the stocks existing at the end of each month, stating the number of days of average consumption of the previous calendar year that they represent.

Coordination

In the event of a supply crisis, a coordinated operation is put in place and the Commission organises a consultation between the Member States, either on its own initiative or at the request of one of them.

Member States do not, in principle, make withdrawals from the stocks that would bring them below the compulsory minimum level before such a consultation, except in a particularly urgent situation.

Member States must therefore send the Commission information relating to any withdrawal from the stocks (date on which the stocks fell below the compulsory minimum, reason for withdrawal, steps taken to build the stocks back up, likely stock levels during the period in which they will remain below the compulsory minimum).

Background

Since the end of the 1960s, the European Union has been aware of the need to prevent potential oil supply shortages. Council Directive 68/414/EEC therefore laid down the obligation on Member States to build up and maintain strategic oil stocks. Subsequently, Council Directive 72/425/EEC raised the obligation for stocks initially set at the equivalent of at least 65 days of the daily internal consumption to an obligation for stocks equivalent to at least 90 days. Council Directive 98/93/EC developed and strengthened the provisions of Directive 68/414/EEC. In the interests of clarity and effectiveness, these Directives were consolidated in, and thus repealed by, Council Directive 2006/67/EC.

When anticipating or reacting to a supply crisis, replacement of the shortfall by putting onto the market stocks built up by the Member States can be effective only in tandem with certain complementary measures (to promote energy efficiency and thus reduce consumption of hydrocarbons, to improve dialogue with producer countries, carry out more in-depth market analysis for better forecasting, to diverse energy sources, in particular by promoting renewable forms of energy, etc.).

This Directive will be repealed by Directive 2009/119/EC from 31 December 2012.

REFERENCES

Act	Entry into force – Date of expiry	Deadline for transposition in the Member States	Official Journal
Directive 2006/67/EC	28.8.2006	–	OJ L 217, 8.8.2006

Security of supply of electricity

With a view to insuring the functioning of the internal energy market, the largest competitive market for electricity and gas in the world, the European Union (EU) establishes obligations to safeguard security of electricity supply and undertake significant investment in electricity networks. Blackouts in both the EU and US have highlighted the need to define clear operational standards for transmission networks and for correct maintenance and development of the network.

Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment.

Subject matter and scope

This Directive establishes measures aimed at safeguarding security of electricity supply so as to ensure the proper functioning of the EU internal market for electricity, an adequate level of interconnection between Member States, an adequate level of generation capacity and balance between supply and demand.

Member States must define general, transparent and non-discriminatory policies on security of electricity supply compatible with the requirements of a competitive single market for electricity. They must define and publish the role and responsibilities of competent authorities and different players in the market.

When adopting policy implementation measures, Member States must take certain elements into account, in particular the need to:

• ensure continuity of electricity supplies;
• study the internal market and the possibilities for cross-border cooperation in relation to security of electricity supply;
• reduce the long-term effects of growth of electricity demand;
• introduce a degree of diversity in electricity generation in order to ensure a reasonable balance between different primary fuels;
• promote energy efficiency and the use of new technologies;
• continuously renew transmission and distribution networks to maintain performance.

Operational network security

Transmission network operators must set minimum rules and obligations to ensure continuous operation of the transmission and, where appropriate, the distribution network under foreseeable circumstances. Member States may decide that these rules and obligations must be approved by the competent authorities and, where appropriate, also respected by the transmission network operators.

The network operators must set and meet quality of supply and network security performance objectives. Curtailment of supply in emergency situations must be based on predefined criteria and the relevant measures taken in consultation with other transmission system operators concerned.

Balancing supply and demand

The Directive provides for specific measures necessary to maintain the balance between electricity demand and available generation capacity, to avoid Member States taking more interventionist measures which are incompatible with competition. They will need to have a clear policy in place to maintain the balance between supply and demand. In particular Member States need to encourage the establishment of wholesale markets, require network operators to ensure that an appropriate level of generation reserve capacity is maintained, facilitate the development of new generation capacity, or encourage energy conservation and technology for demand management in real time.

Network investment

Investment is crucial for competition and the future security of electricity supply in the EU. Member States must lay down a framework for providing information to network operators which facilitates investment.

Reports

Member States or competent authorities, in cooperation with transmission network operators, must prepare a report on security of supply, as provided for in the Directive on the internal electricity market. This report must contain information on operational network security, projected balance of supply and demand, prospects for security of supply within the medium term and investment intentions of transmission system operators as regards provision of cross-border interconnection capacity.

On the basis of this information, the Commission prepares a report and sends it to the Member States, the competent authorities and the European Regulators Group on Electricity and Gas.

References

Act	Entry into force – Date of expiry	Deadline for transposition in the Member States	Official Journal
Directive 2005/89/EC	24.2.2006	24.2.2008	OJ L 33, 4.2.2006.

Security of supply of natural gas

Natural gas is an essential component of the energy mix of the European Union (EU), constituting one quarter of primary energy supply and contributing mainly to electricity generation, heating, feedstock for industry and fuel for transportation.

Gas consumption in Europe has rapidly increased during the last 10 years. With decreasing domestic production, gas imports have increased even more rapidly, thus creating higher import dependence and the need to address security of gas supply aspects.

Regulation (EU) No 994/2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC (Text with EEA relevance).

Summary

The regulation aims to safeguard the security of gas supply by ensuring both prevention and a coordinated response in the event of a supply disruption and by securing the proper and continuous functioning of the internal gas market.

The regulation establishes a common framework where the security of supply is a shared responsibility of natural gas undertakings, European Union (EU) countries and the Commission. It also provides transparent mechanism, in a spirit of solidarity, for a coordinated response to an emergency at national, regional and EU levels.

Security of supply for protected customers

The regulation sets out a common concept of the customers whose gas supplies have to be protected. All households are protected customers. EU countries may also include as protected customers small and medium-sized enterprises and essential social services (provided that these additional customers do not represent more that 20% of the final use of gas) and/or district heating installations.

Common infrastructure and supply standards

The regulation provides common standards at EU level.

• Infrastructure standard: EU countries must ensure that by 3 December 2014 at the latest, in the event of a disruption of the single largest infrastructure, they are able to satisfy total gas demand during a day of exceptional high gas demand. The regulation also requires reverse flows to be established in all cross border interconnections between EU countries by 3 December 2013.
• Supply standard for protected customers: Natural gas undertakings must secure supplies to protected customers under severe conditions: in the event of a seven day temperature peak and for at least 30 days of high demand, as well as in the case of an infrastructure disruption under normal winter conditions.

Risk assessment, preventive action plan and emergency plan

By 3 December 2011, the competent authority shall make a full assessment of the risks affecting the security of gas supply. The risk assessment shall take into account the supply and infrastructure standards, all relevant national and regional circumstances, various scenarios of exceptionally high gas demand and supply disruption and the interaction and correlation of risks with other EU countries.

On the basis of the results of the risk assessment, no later than 3 December 2012, the competent authority shall adopt, make public and notify the Commission of a preventive action plan, containing the measures needed to remove or mitigate the risk identified, and an emergency plan containing the measures to be taken to remove or mitigate the impact of a gas supply disruption.

The risk assessment and the plans shall be updated every 2 years.

The Commission shall assess those plans in consultation with the Gas Coordination Group.

EU and regional emergency

The regulation defines three main crisis levels: early warning level, alert level, and emergency level.

The emergency plan shall build upon these crisis levels.

The Commission plays an important role with regard to the declaration of EU or regional emergency. The Commission may declare an EU or a regional emergency at the request of a competent authority that has declared an emergency. When the request comes from at least two competent authorities, the Commission shall declare an EU or regional emergency.

The Gas Coordination Group

The Gas Coordination Group is established to facilitate the coordination of measures concerning security of gas supply. The Group shall be consulted and shall assist the Commission on security of gas supply issues.

The Group shall be composed of representatives of the EU countries, in particular of their competent authorities, as well as the Agency for the Cooperation of Energy Regulators, the European Network of Transmission System Operators (ENTSO) for gas and representative bodies of the industry concerned and those of relevant customers. The Commission shall chair the Group.

Transparency and information exchange:

During an emergency, the natural gas undertakings concerned shall make available certain information to the competent authority on a daily basis.
In the event of an EU or regional emergency, the Commission is entitled to request that the competent authority provides at least information on the measures planned to be undertaken and already implemented to mitigate the emergency.

By 3 December 2011 at the latest EU countries shall inform the Commission of existing inter-governmental agreements concluded with non-EU countries. EU countries must also notify the Commission when any new such agreements are concluded.

Background

The Council Directive 2004/67/EC established for the first time a legal framework at EU level to safeguard security of gas supply. The Russian-Ukrainian gas crisis in January 2009 demonstrated that the provisions of the directive and their uneven implementation by the EU countries was not sufficient to prepare for, and to respond to a supply disruption, and there was a clear risk that measures developed unilaterally by the EU countries could jeopardise the functioning of the internal market.

References

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
Regulation (EU) 994/2010	2.12.2010	–	OJ L295 of 12.11.2010