Photo: IEA Executive Director Fatih Birol at the 2022 IEA Ministerial Meeting; Source: IEA

IEA states to release emergency oil reserves for the second time this year

Following U.S. President Biden’s announcement on Thursday about plans for what will be the largest release of oil reserves in American history, the International Energy Agency’s 31 member countries agreed on Friday to a new release of oil from emergency reserves in response to the market turmoil caused by Russia’s invasion of Ukraine.

The IEA said on Friday that the planned release by its member countries is underscoring the strong and unified commitment to stabilizing global energy markets.

As a reminder, Biden last Thursday authorised the release of 1 million barrels per day for the next six months – over 180 million barrels – from the Strategic Petroleum Reserve. This is the biggest release from the reserves since its creation in 1975, in the midst of the Cold War, and the second since the war in Ukraine started.

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This is also part of a two-point plan, which includes immediate action through the release of reserves and a call to reduce the dependence on fossil fuels altogether and speed up the transition to clean energy.

In his speech, Biden also said the release was coordinated with allies and partners around the world, with commitments from other countries to release tens of millions of additional barrels into the market.

The release agreement announced by the IEA was reached at an Extraordinary Meeting of the IEA Governing Board, which was held at the Ministerial level and chaired by U.S. Secretary of Energy, Jennifer Granholm. As a reminder, Granholm has recently urged the oil and gas companies to increase their production to stabilise the market.

The details of the new emergency stock release will be made public early this week. The agreement follows the previous action taken by IEA Member Countries, announced last month, to which they pledged a total of 62.7 million barrels. Out of this total amount, the U.S. alone committed to releasing 30 million barrels of oil from the Strategic Petroleum Reserve.

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The IEA Ministers reiterated their concerns about the energy security impacts of the egregious actions by Russia and voiced support for sanctions imposed by the international community in response. The Governing Board also encouraged member countries to support Ukraine in the supply of oil products.

The Ministers noted that Russia’s war in Ukraine continues to put significant strains on global oil markets, resulting in heightened price volatility. This is taking place against a backdrop of commercial inventories that are at their lowest level since 2014 and a limited ability of oil producers to provide additional supply in the short term. Ministers also noted the particular difficulties in diesel markets.

According to the IEA, its members hold emergency stockpiles of 1.5 billion barrels. The agreement on Friday will be the fifth time that the IEA releases emergency stocks. Previous collective actions were taken in 1991, 2005, 2011, and on 1 March 2022.

The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock. Russia plays an outsized role in global energy markets. It is the world’s third-largest oil producer and the largest exporter. Its exports of about 5 million barrels a day of crude oil represent roughly 12 per cent of global trade – and its approximately 2.85 million barrels a day of petroleum products represent around 15 per cent of global refined product trade. Around 60 per cent of Russia’s oil exports go to Europe and another 20 per cent to China.

Ministers also discussed Europe’s significant reliance on Russian natural gas, as well as the importance to accelerate global dialogue with gas producing countries including IEA member countries, to ensure secure, affordable and reliable gas supplies, including LNG, and to continue to pursue a well-managed acceleration of clean energy transitions.

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On 3 March, the IEA Secretariat released a 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas by next winter – and it is working closely with the European Commission on the next steps.

Meanwhile, the EU has recently proposed an outline of a plan, which is supposed to make European Union member states independent from Russian fossil fuels well before 2030, starting with gas. This could reduce Europe’s demand for Russian gas by two-thirds before the end of the year.

It is also worth reminding that Biden’s announcement about the release of oil from the strategic reserves came after OPEC and its allies, including Russia, confirmed they were sticking to their existing deal to gradually increase production following a meeting on Thursday despite pressure to ramp up the output.

OPEC made another important announcement last week, announcing the replacement of the IEA with Wood Mackenzie and Rystad Energy as secondary sources used to assess OPEC Member Countries’ crude oil production.

Rystad CEO, Jarand Rystad, confirmed the information in a social media post last week, adding: “We are very proud of OPEC+ recognizing Rystad Energy’s data and analysis by selecting us as their advisor. Given the significance of OPEC+ and its Member Countries in global energy markets, we look forward to supporting and assisting the organization.”