IEA sounds alarm about strategic reserves sales

International Energy Agency has sounded an alarm about the growing trend among member countries to sell their strategic oil reserves. IEA Director Robert Priddle said the agency "deeply regrets" a decision by the German government to sell federal crude oil reserves worth 400 million deutschemarks ($227 million). Although the German action doesn't actually threaten the effectiveness of IEA's stockpiling program, Priddle warned that Germany's action continues a "disturbing trend" set

July 28, 1997

3 min read

International Energy Agency has sounded an alarm about the growing trend among member countries to sell their strategic oil reserves.

IEA Director Robert Priddle said the agency "deeply regrets" a decision by the German government to sell federal crude oil reserves worth 400 million deutschemarks ($227 million).

Although the German action doesn't actually threaten the effectiveness of IEA's stockpiling program, Priddle warned that Germany's action continues a "disturbing trend" set by the U.S. in recent months in the sale of strategic oil reserves.

If IEA member countries continue selling strategic oil reserves in order to balance their budgets, they could eventually undermine the success of the agency's energy security program, Priddle said.

Under that program, IEA member nations are required to stockpile enough oil to offset 90 days of net imports.

The U.S. and German sales are of particular concern, Priddle said, because the two countries are the first and third largest oil importers, respectively, among the IEA's 24 member countries. The drawdowns set a bad example for other IEA member nations, as well as non-member nations that have been considering cooperation with the IEA's program, Priddle added.

German-U.S. actions

Germany's finance ministry proposed the sale to the cabinet July 11 as part of its supplementary budget for 1997.

The German government plans additional oil stockpile sales in 1998 and 1999.

Oil reserves held directly by the German government are estimated by the IEA at 53.29 million bbl. The EBV, Germany's federal oil reserve agency, and private German companies hold a total of 262.8 million bbl. At current prices, the German sale would translate to about 14.6 million bbl. Even after the sale, Germany's stocks will stand above the 90-day level.

The German oil sold would be mainly heavy and medium-heavy gravity crude with a high sulfur content. The reserves, which are currently stored in salt caves at Etzel, Germany, will be transported to storage tanks in the northern German port of Wilhelmshaven for sale. The sales would occur in stages, so as not to have a disruptive effect on world oil markets.

The German government has been under pressure to cut its budget deficit in order to meet the Maastricht Treaty on Economic and Monetary Union. Priddle said he was sympathetic about budgetary constraints on Germany and other member nations but emphasized the importance of keeping oil reserves in each country at a level of at least 90 days of net imports.

U.S. Strategic Petroleum Reserves (SPR) will drop to about 70 days of imports if Congress approves a pending bill allowing the sale of $209 million in oil. The U.S. has made three sales from the SPR during the past 18 months (OGJ, June 23, 1997, p. 26).

In the 1980s, average strategic reserves of member countries rose to more than 120 days. The stocks were used during the 1991 Persian Gulf War, when IEA members drew on their reserves and placed them on the market.

Despite the crisis in the Middle East, oil supplies and prices remained relatively stable.