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2014 Energy Training Week Course 2: Energy Markets and Security “Emergency Response – India case study”

Dagmar Graczyk, Office for Global Energy Policy

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Outline of India case study

Why does Energy Security matter to India?

What questions should India ask?

What role can the IEA play?

IEA-India cooperation on energy security

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Why does Energy Security matter to India?

Strong demand growth

Energy access for a growing population

Increasing import dependency

Energy Security in the Indian context

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1. Strong demand growth

Demand increases substantially in every fuel

Coal would remain the primary fuel

Renewable and nuclear share will remain small

100 200 300 400 500 600 700

Nuclear

Gas

Renewables

Oil

Coal

Mtoe

1987-2011

2011-2035

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2. Energy access for a growing population

Today: 25% or 289 million lack access to electricity

Today 72% or 836 million rely on biomass for cooking

Population still growing: the largest nation by 2025

In 2030, still 154 million without electricity and 778 million relying on biomass

673

3,298

13,227

2,933

India China US World

Electricity consumption, 2009 (KWh/ capita)

(Source: IEA Key World Energy Statistics 2013)

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3. Increasing demand & reduced production = increasing import dependency

2010 2035

Oil (mb/d)

2009 2035

Gas (bcm)

2009 2035

Coal (Mtce)

Production Import (source: WEO 2011 and 2013)

73%

92%

22%

39%

13%

37%

All Fossil Fuels face strong growth in import dependency

Supply diversification required for energy security

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4. Energy Security in the Indian context

Availability: Energy is a lifeline to all citizens

Affordability: Sudden increases in global energy prices undermine the availability of energy and exacerbate India’s financial burden

Access: Concern about possible abrupt supply disruption led to efforts to (i) diversify supply and fuel; (ii) acquire overseas assets and (iii) built strategic stocks

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Coal 41%

Oil 24%

Gas 8%

Nuclear 1%

Hydro 1%

Bio-energy 25%

Other renewables 0%

Coal Oil Gas Nuclear Hydro Bioenergy Other renewables

Fuel mix diversification

Coal 43%

Oil 25%

Gas 10%

Nuclear 3%

Hydro 2%

Bio-energy

15%

Other renewab

les 2%

2010 2035

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Import diversification and dependency

Saudi Arabia 19%

Iraq 14%

Iran 11%

Kuwait 10%

UEA 9%

Nigeria 8%

Venezuela 6%

Angola 5%

Qatar 4%

Others 14%

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What questions should India ask?

Where are the ports?

Refining infrastructure: location and size

How is refined product transported?

Is my pipeline infrastructure sufficient?

Infrastructure

Where do I build stock?

How much does it costs?

Industry or Agency or Government?

Financing of stocks?

Emergency Stocks

Who is in charge during a crisis?

What is the media strategy?

How do we communicate during a crisis?

How is the market regulated?

Organization

Where are key demand centers located?

Who are the most important users?

Possible demand restraints

Demand for crude oil and products?

Demand

Where does the import come from?

Import of crude oil and/or products?

Where are the delivery points?

Where are my key consumer centers?

Imports

How will a global crises affect me?

In the short term? In the long term?

Could domestic production be ramped up during a crisis?

Supply

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What role can IEA play?

Market analysis

Data collection and information sharing

Lessons learned and best practice

Un-biased advise on

Stockholding structures in IEA countries

Tried and tested mechanisms for crises response

Coordinated response mechanism

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IEA-India cooperation on energy security

2004:

First workshop

2009:

Hotline established

2011:

MoU on oil and gas security

2012:

IEA-India ERE of India

2013: Emergency Response Assessment of India

India participated in Emergency Response Review of France

2003:

Started

Indian officials participated in IEA Emergency Response Exercises

1. India decides to build strategic oil stocks

2. India and IEA agree to cooperate

2014:

Planning

MoU

Phase 2

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India’s Strategic Petroleum Reserves Plan How? Two Phases What? Crude Type of facility? Underground By whom? Special Purpose Vehicle Phase I 5.3 m/tons or 39 m/b Where? West Coast: Managlore 11m/barrels

Padur 18.3 m/barrels

East Cost: Vizag 9.8 m/barrels

Filling? Construction ongoing; no decision yet on funding

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India’s Strategic Petroleum Reserve Phase I – 39 MB (5.3 MMT) - Phase II – 92 MB (12.5 MMT)

Padur (18.5MB)

Mangalore (11MB)

Vishkhapatnam (10MB)

Padur (18.3MB) Chandikhol (27.5MB)

Rajkot (18.3MB)

Bikaner (27.5MB) Phase I

Phase II

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Under MOU India & IEA work on:

Data requirements and market analysis

Stockholding structures of IEA countries

Oil disruption cases and response measures

Stock financing models of IEA countries (construction, oil purchase and maintenance)

Legal and statutory backing for creating, maintaining and releasing storage

Share lessons learned from tried and tested mechanisms for response

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India Emergency Response Exercise Format

Venue and Participants

Delhi, India; around 40 Indian & 10 IEA participants

Day 1: Morning

Introduction/welcoming words

Training session focused on: Indian and global oil and gas market developments

Emergency response procedures in both India and at the IEA

Role of the news media during a supply crisis:

Day 1: Afternoon - Scenario 1

Day 2: Scenario 2

Day 2: Final plenary and concluding remarks

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India Emergency Response Exercise Scenarios 1 and 2

Scenario 1 – a creeping global oil supply disruption (taken from ERE4, 2008)

Scenario 2 – Earthquake in Kutch region:

Directly affecting oil infrastructure in the state of Gujarat; and

Indirectly refineries as far north as Delhi.

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India Emergency Response Exercise Key additions

Groups were separated into industry-only (3) and government-only (1)

Groups were asked to come up with: Key actions they would take; and

Key actions they would expected the other group (industry/government) to take

For domestic scenario, a second break-out discussions held BUT with mixed participant groups

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India Emergency Response Exercise Outcomes

Industry confident in minor disruptions But expect government to lead in more complex situations

Some structures for emergencies in place But little clarity about how, and who would implement what.

Agreed to undertake Emergency Response Assessment (ERA) of India

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Emergency Response Reviews (ERR)

ERR

Stockholding Regime ,

Legislation & Financing Location &

Quality of Oil

Stock Drawdown Procedures

Other Response Measures

(Demand Restraint, etc.)

Emergency Response Policy &

Legislation

Stockholding Regime & Legislation

Data System

Emergency Response

Organisation

(NESO)

Emergency Response Policy &

Legislation

Infrastructure

(Storage capacity, pipelines, ports)

Refining

Capacity

Supply &

Demand

Emergency

Oil Reserves

Domestic

Oil & Gas

Markets

Natural Gas

Emergency

Policy

Policy &

Organisation

22

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Review team consisting of IEA officials and IEA member country delegates

Structure of India ERA

Questionnaire send to India

before team visit

Review team visited India met

with senior oil and gas

stakeholders in government & industry and

officials in charge of emergencies

Draft ERA report prepared by

review team and shared with Government officials for comments

Indian government

participated in IEA committee meeting to

present their views on ERA

ERA finalised

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Findings & Recommendations: Emergency Response Policy & Organisation I

Need to establish small & lean emergency structure

Consider creating a NESO (National Emergency Strategy Organisation) specifically for oil and gas emergencies

Need legislation that clearly stipulates the mandates and roles of relevant government organisations and industry

Need to identify how best to integrate government think-tank ‘Petroleum Planning and Analysis Cell’ as one of the core bodies within the NESO, if one is created.

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Findings & Recommendations: Emergency Response Policy & Organsiation II

Government & industry need to periodically review & update the contingency plan to reflect lessons learnt from actual disruptions and simulation exercises

Need to properly integrate the newly-established SPR policy into the existing contingency plan

Need to clearly stipulate the role of public stocks

Continue conducting EREs and ERAs (in cooperation with the IEA) to further refine emergency policies and procedures to deal with oil and gas disruptions.

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Findings & Recommendations: Emergency Oil Reserves

IEA can share best practice and experiences to explore financing options to fill reserves

Exploring options with industry to set a minimum stock level obligation on industry to supplement the Strategic Stocks.

This could work as an additional buffer during a supply disruption – and would be temporary until strategic reserves grow

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Findings & Recommendations: Oil emergency response measures

Explore the benefits and potential of a structured demand restraint program

Program to be deployed during a lengthy supply disruption.

Seek IEA advise on best practice practices available from IEA member countries

Develop a media and communication strategy

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The way forward: 2nd MOU

IEA to offer best practice on:

National Emergency Strategy Organisation

Communication Strategy

Financing options for filling of strategic stocks

Management options for strategic stocks

India continues participating in IEA activities on emergency preparedness

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Conclusions

Energy Security in the Indian context Strong demand growth & access for a growing population

Increasing import dependency

Long-term planning and cooperation is necessary No need to reinvent the wheel – but adapt international

experience to local specifics

Something good comes out in the end.. India tested its emergency response set-up and identified areas

that need more attention (ERE)

Sector review of oil and gas market and established procedures and systems and identified areas that can be further adapted to meet new needs (ERA)