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Oil Industry

Volume 450: debated on Friday 20 October 2006

To ask the Secretary of State for Trade and Industry what proportion of the UK’s Compulsory Stocking Obligations for crude oil and refined products were held overseas through bilateral agreements in 2005; and with which countries the UK has a bilateral agreement on Compulsory Stocking Obligations for crude oil and refined products. (95079)

[holding answer 19 October 2006]: At 31 December 2005 the UK held 12.3 million tonnes equivalent of crude oil and refined products towards its oil stocking obligations of 11.3 million tonnes. Of this, 1.7 million tonnes, or some 15 per cent., were held overseas under bilateral agreements.

The UK has formal bilateral agreements with Ireland, Sweden and the Netherlands. We have negotiated a formal agreement with Denmark which will be signed later this year, and are negotiating formal agreements with Finland and Belgium. We also have informal agreements with Belgium and France.

To ask the Secretary of State for Trade and Industry what assessment he has made of the costs to (a) UK oil refiners, (b) fuel suppliers delivering above 100,000 tonnes and (c) consumers of fuel of the removal of the UK derogation on the compulsory stocking obligation provided by EU Directive 2006/67/EC. (95384)

EU member states are required to hold oil stocks equal to 90 days’ consumption, for use in the event of disruption of global oil supplies. The UK, as a producer, has a derogation reducing its obligation by 25 per cent. and therefore currently has an obligation to hold stocks equal to 67.5 days’ consumption. As UK production declines, the derogation will be phased out. This will be a gradual process. We expect the full 25 per cent. derogation to continue until UK crude oil production falls below 25 per cent. of refinery demand, which on current trends will be between 2010 and 2015, and the full 90 days’ obligation to be reached when UK production ends. We have not estimated the precise cost to the parties mentioned, but the overall cost of complying with the obligation will increase over time by some 33 per cent. and following a public consultation we are working with industry on a new basis for our stocking system which will ensure that the UK can continue to meet its obligations in future.

To ask the Secretary of State for Trade and Industry what effect the UK’s status as a net importer of crude oil has on the UK derogation on the compulsory stocking obligation provided by EU Directive 2006/67/EC; and when he expects the derogation to be removed. (95472)

The UK derogation reducing by 25 per cent. its EU obligation to hold oil stocks for use in the event of disruption of global oil supplies is based on its status as a producer, not as a net exporter. We expect the full derogation to continue until UK crude oil production falls below 25 per cent. of refinery demand, which on current trends will be between 2010 and 2015, and the full 90 days’ obligation to be reached when UK production ends.

Once we become a net importer of crude oil and oil products combined the UK will also have an obligation to hold stocks as a member of the International Energy Agency. Countries with EU and IEA obligations can use the same stocks to meet both obligations. EU obligations are based on consumption and IEA obligations on net imports, and meeting both obligations will not involve a net increase beyond the increase in the EU obligation until towards the end of UK production.