Communication from the Commission to the European Parliament and the Council - The internal market in energy: Coordinated measures on the security of energy supply
Date: 2002-09-11
Institutions: European Commission
Subjects: approximation of laws, energy consumption, energy supply, minimum stock, natural gas, petroleum, petroleum product, security of supply, single market, storage of hydrocarbons

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 11.9.2002
COM(2002) 488 final

2002/0219 (COD)
2002/0220 (COD)
2002/0221 (CNS)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT AND THE COUNCIL
The internal market in energy: Coordinated measures on the security of energy supply

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
concerning the alignment of measures with regard to security of supply for petroleum
products

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND THE COUNCIL
concerning measures to safeguard security of natural gas supply

Proposal for a

COUNCIL DIRECTIVE
repealing Council Directives 68/414/EEC and 98/93/EC imposing an obligation on
Member States of the EEC to maintain minimum stocks of crude oil and/or petroleum
products, and Council Directive 73/238/EEC on measures to mitigate the effects of
difficulties in the supply of crude oil and petroleum products

Proposal for a

COUNCIL DECISION
repealing Council Decision 68/416/EEC on the conclusion and implementation of
individual agreements between governments relating to the obligation of Member States
to maintain minimum stocks of crude oil and/or petroleum products and Council
Decision 77/706/EEC on the setting of a Community target for a reduction in the
consumption of primary sources of energy in the event of difficulties in the supply of
crude oil and petroleum products

(presented by the Commission)

COMMISSION COMMUNICATION TO THE EUROPEAN PARLIAMENT AND
THE COUNCIL

The internal market in energy: Coordinated measures on the security of energy supply

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COMMISSION COMMUNICATION TO THE EUROPEAN PARLIAMENT AND
THE COUNCIL

The internal market in energy: Coordinated measures on the security of energy supply

1. 

COMPLETION OF THE INTERNAL MARKET IN ENERGY

In accordance with Article 14 of the EC Treaty, the internal market comprises an area without
internal  frontiers  in  which  the  free  movement  of  goods,  persons,  services  and  capital  is
ensured. To help meet this prime objective of the Treaty of Rome, the European Community
is responsible for introducing, among other things, the  requirements needed  to complete the
internal energy market which will make it possible to gradually open up the market in order to
make the energy sector more competitive. The internal market is also based on the need  for
solidarity between the Member States of the European Union, more especially in the essential
sectors of energy supply which are gas, oil and electricity.

Achievements

Since the beginning of the 90s, the Community has adopted a series of measures in the form
of directives which are helping to establish the internal market in natural gas and electricity.
The  achievement  of  this  objective  should  make  the  economy  of  the  European  Union  more
competitive and lead to a significant reduction in consumer prices.

The process of opening up the market in natural gas and electricity to competition is governed
by rules relating to access to resources and transport networks, competition and transparency
which should protect the countries of the European Union against disruption of their internal
supplies. This regulatory framework is essential and will make it possible to avoid crises such
as  that  which  hit  California  in  2000  when  it  experienced  serious  disruption  of  electricity
supplies.

Of  major  importance  for  the  proper  functioning  of  the  internal  energy  market  is  the
interlinking  of  networks  since  it  plays  a  fundamental  role  in  the  flexibility  of  supplies.  The
lack of network  infrastructure, including maintenance  of the  quality  of  supplies  (stability  of
networks)  could  hinder  the  integration  of  national  markets  and  thus  restrict  security  of
supplies. On 20 December 2001, the Commission proposed a set of new measures relating to
energy  infrastructures  aimed  at  optimising  the  use  of  existing  gas  and  electricity
infrastructures and encouraging the construction of new infrastructures of European interest.
As stated in the conclusions of the Barcelona European Council, the existence of an adequate
and  effective  network  of  energy  infrastructures  will  ensure  the  proper  functioning  of  the
internal market, while guaranteeing greater security of energy supplies.

Although there is more competition in the oil market within the European Union than in the
market for other energy products, further efforts will still have to be made to achieve a more
open market. In the Green Paper on security of energy supply adopted by the Commission in
November 2000, the Commission noted that obstacles remained on the markets downstream,
more  specifically  distribution.  Although  the  significant  differences  in  prices  of  petroleum
products between the Member States do not in themselves constitute a breach of competition
rules, they nevertheless indicate that the integration of markets is still incomplete. Moreover,

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surveys at Community level and at the level of the national competition authorities have been
carried out and sanctions have even been imposed on certain oil companies.

The  opening  up  of  the  oil  market,  particularly  to  new  operators,  will  help  to  establish  the
conditions for healthy competition which in turn will help to ensure regular internal supplies
for consumers, even if this market will remain exposed to the risks associated with increased
external dependence.

An ongoing process

The numerous  Community  initiatives to  create  an internal market  in  gas,  as  well  as  various
activities to open up the oil market, are helping to establish fair competition and to strengthen
the internal security of energy supplies.

On  the  question  of  energy  supply,  the  Green  Paper  on  the  security  of  energy  supplies
highlighted a paradox, however: at the very moment when the European Union is acquiring
the  most  integrated  internal  energy  market  in  the  world,  this  success  has  not  been
accompanied  by  the  necessary  coordination  of  measures  guaranteeing  security  of  external
supplies, whether oil or natural gas.

The  Green  Paper  showed  up  the  structural  weaknesses  in  external  energy  supplies  in  the
European  Union  and  its  vulnerabilities  in  geopolitical,  economic  and  social  terms.  The
European  economy  is  based  mainly  on  fossil  fuels  which  represent  four-fifths  of  energy
consumption,  and  two-thirds  of  this  is  imported.  This  vulnerability  will  become  more
pronounced in the future with energy imports which could rise to 70% of total requirements in
thirty years time, or even up to 90% for oil if nothing is done to reverse this trend.

As regards oil, the rules of the International Energy Agency (IEA) and Community legislation
provide for the maintenance by States of security stocks of crude oil and petroleum products
as  well  as  possibilities  of  anti-crisis  measures.  However,  these  mechanisms,  which  were
introduced  in  the  early  70s,  are  no  longer  suited  to  the  oil  market  which  has  undergone
numerous changes as the internal market in energy has become  increasingly  integrated. The
Community measures are characterised by a lack of solidarity between Member States which
is not compatible with the objectives of an internal market, since energy crises affect all EU
countries. More fundamentally, there is no Community decision-making power to dispose of
oil stocks on the  market.  As  regards  the  IEA,  the  basic  elements  of  the  1974  Treaty  are  no
longer applied. Other provisions have been put in place, but these require the unanimity of the
26 participating countries. The mechanisms have become obsolete in as much as they provide
for joint action by all the Member States only if there is a physical disruption of oil supply.
There  is  no  legal  framework  for  the  coordination  of  action  in  the  event  of  a  threat  of  a
physical disruption, which would increase oil prices beyond what is reasonable.

The Community legislation on oil stocks, the first directive of which dates from 1968, and the
IEA  set  up  in  1973  were  an  important  first  step  in  the  process  of  better  management  of
external  energy  dependency.  It  must  however  be  acknowledged  that  these  mechanisms,  the
underlying philosophy of which has not been  subjected  to  detailed  scrutiny  for  thirty  years,
are no longer suited to the present energy situation. They were put in place at a time when the
internal market in energy was still in its infancy. At that time there was very little in the way
of intra-Community electricity exchanges or interdependence of the electricity system.

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Given  this  situation,  the  Commission  has  already  announced,  in  its  Communication  on  oil
supplies of 4 October 2000, its intention to examine ways in which strategic oil stocks could
be made more effective by placing their use on a Community footing.

The  European  gas  industry,  for  its  part,  has  so  far  been  effective  in  ensuring  security  of
supply. The fact that the gas companies were partly or wholly-owned by the public authorities
and  that  these  dominant  companies  controlled  all  infrastructures  and  regulated  supply  and
demand meant that there was no need to draw up common rules to guarantee gas supplies.

In the new internal market in gas which requires the industry to restructure in order to create
an  integrated  market  in  which  new  companies  will  emerge  in  an  increasingly  competitive
environment,  there  will  no  longer  necessarily  be  a  single  player  which  will  assume  overall
responsibility for security of supply. The question is all the more urgent as dependency on gas
imports will increase significantly in the decades to come. Security of supply in the gas sector
therefore  cannot  be  left  entirely  to  the  industry  which  is  itself  dependent  on  its  external
suppliers from an extremely limited number of supplier countries.

At the fifth meeting of the European forum for the regulation of the gas sector, which brought
together  national  regulators,  Member  States,  economic  operators  in  the  gas  sector  and  the
Commission in Madrid in February 2002, it was moreover agreed that in the new regulatory
environment for the internal gas market, which is characterised by a multitude of players and
the  unbundling  of  the  activities  of  the  integrated  gas  companies,  security  of  supply  can  no
longer  be  considered  the  responsibility  of  a  single  party.  A  new  chain  of  responsibilities
concerning  security  of  supply  and  the  planning  of  infrastructures  between  the  public
authorities  and  the  various  market  players  must  therefore  be  established  in  order  to
guarantee  certainty  in  this  connection.  Responsibilities  must  be  assigned  to  the  various
players in a clear and appropriate manner on the basis of their role.

It is therefore necessary to provide for harmonised measures which will guarantee unified and
coordinated  action  with  regard  to  the  security  of  supply  of  gas,  in  particular  measures  with
regard to storage and infrastructure. Stockpiling  and  infrastructures  play  an  essential  role  in
gas supplies in the European Union and in the functioning of this market, both under normal
market conditions and in crises. These measures will "accompany" the process of opening up
the EU market in gas in order to ensure its proper functioning.

A Community process

The European Union is making steady progress towards the completion of the internal market
in energy, which will be the largest, integrated and most open regional market in the world. In
this liberalised market, the European Union has an important part to play in coordinating and
supporting  the  Member  States  with  regard  to  security  of  supply.  The  task  is  to  ensure  the
proper functioning of the market and in this context to guarantee a sufficiently high level of
security of supply.

Measures to improve the security of supply of oil and gas will have little or no effect unless
they  form  part  of  the  more  general  framework  of  the  internal  market  in  energy.  These
measures  will  not  have  a  positive  impact  if  they  are,  for  example,  thwarted  by  price
manipulation, or if access to the transport networks is limited. The internal market is therefore
the necessary basis for measures with regard to security of energy supplies.

Conversely, it is not possible to construct an internal market in energy if this objective is not
accompanied  by  harmonised  rules  on  security  of  supplies.  The  power  cuts  which  severely

5

affected California in 2000 clearly bear witness to this. These cuts were due not to inadequate
rules on security of supply, but to a process of electricity market liberalisation which was not
accompanied  by  adequate  rules  to  guarantee  a  sufficient  security  of  supply  level.  In  the
normal competitive environment, the (short-term) priority of companies has been to maintain
or increase their stake in the Californian electricity market. In doing this, they did not make
the  (medium  or  long-term)  investments  which  would  have  been  necessary  to  guarantee  a
sufficient supply for all consumers.

Measures to improve oil and gas supplies must therefore be based on the proper functioning
of the internal market, and the internal market in energy is itself based adequate measures to
guarantee the security of  supplies.  It  must be noted that national laws on the  security  of  oil
supplies, which are not adequately coordinated at EU level could lead - and indeed have led -
to distortions in the internal market in petroleum products.

These  measures  with  regard  to  security  of  supplies  must  form  part  of  a  competitive  natural
gas and oil market and there must be no discrimination as regards the rights and obligations of
companies  in  the  sector.  The  obligations  regarding  the  security  of  energy  supply  must
therefore be  clearly defined, transparent, non-discriminatory  and  controllable.  They  will  not
go beyond what is strictly necessary to overcome potential supply difficulties. Thus, they will
cause the least possible disruption in the functioning of the internal market.

There is therefore a clear need to define a Community framework for the implementation of
measures to ensure security of external energy supplies which will place minimum restrictions
on  competition.  These  rules  will  clearly  set  out  the  roles  and  responsibilities  of  the  various
players in the oil and gas market as regards security of supplies. Any lack of clarity as regards
these roles and responsibilities will increase the risk of an energy supply crisis.

According  to  the  principle  of  subsidiarity,  these  rules  will  form  a  framework,  the
implementing arrangements for which should be left to the Member States to adopt. They will
be implemented in close cooperation with the industry.

It is important to note that the construction of an internal market in oil cannot be considered
without the development of other sources of energy, in particular the natural gas market. Oil
and  gas  are  two  products  which  are  part  of  the  same  energy  market.  They  can  also  be
substituted  for  each  other  and  are  in  competition  with  each  other  as  far  as  some  uses  are
concerned.  Furthermore,  gas  prices  are  largely  indexed  to  oil  prices.  These  two  energy
sources are therefore closely linked.

2. 

ENERGY DEPENDENCE IN THE EUROPEAN UNION

The energy situation in the European Union

The  European  economy  is  based  mainly  on  fossil  fuels  (oil,  gas,  coal)  almost  two-thirds  of
which  are  imported.  These  fuels  represent  80%  of  energy  consumption  in  the  European
Union.  If nothing is done,  in 20 to 30  years'  time,  they will  play  an  even  bigger  role in the
European  energy  balance  and  imports  will  amount  to  70%  of  overall  energy  needs.  The
Union's external energy dependence could even reach 90% for oil and 70% for gas by 2020. It
should also be noted that 90% of oil is currently transported by sea.

The risks associated with the fact that the Union is, structurally, highly dependent on imported
fossil  fuels  are  further  exacerbated  by  the  political  instability  prevailing  in  many  producer
countries.  It  has  been  seen  on  a  number  of  occasions  that  the  events  in  the  Middle  East  or

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certain  political  crises  which  have  destabilised  the  political  power  in  place  in  producer
countries could put the energy market under severe pressure. This pressure leads if not to the
actual  physical  disruption  of  supplies,  then  at  least  to  sharp  fluctuations  in  oil  prices  which
inevitably affect economic growth in the consumer countries.

It is important to note at this point that the objective,  given  a  globalised  economy,  is not in
itself  to  maximise  energy  autonomy  or  to  minimise  dependence,  but  to  take  account  of  the
risks inherent in such dependence when they reach worrying levels.

The question of security of energy supplies is a vital one for the European Union. In spite of a
lessening of the oil burden on our economies, brought about by successive crises, oil remains
a  vital  economic  component  in  the  Member  States.  In  2004,  the  European  Union  will
consume almost 20% of world oil production.

The  situation  in  the  transport  sector  is  very  revealing  in  this  connection.  A  captive  market
98%  dependent  on  oil  (which  is  equivalent  to  67%  of  overall  demand  for  oil),  this  sector
accounts  for  an  increasing  share  of  energy  demand.  The  energy  intensity  of  the  sector
increased by 10% from 1985 to 1998. Growth in the transport sector is likely to continue at an
annual rate of 2% over the next decade.

Gas, for its part, has become a broad spectrum energy vector penetrating all sectors of energy
consumption,  including  electricity  production  and  combined  heat  and  power  production  but
also, albeit still at an embryonic stage, transport. By 2020-2030, almost half of all electricity
will be produced from natural gas. Although natural gas appears today as the diversification
product which is essential for a healthy balance in energy consumption, capable of reducing
CO2 emissions, its rapid growth on certain markets such as electricity could give rise to fears
of  the  emergence  of  a  new  structural  weakness  in  the  European  Union  in  terms  of  external
dependence.

Economic studies have estimated that an increase of $10 in the price of a barrel of crude oil is
likely  to  reduce  economic  growth  in  the  industrialised  countries  by  around  0.5%.  For
developing countries, such a price increase would reduce economic growth by around 0.75%.
It must also be borne in mind that the impact of oil prices on economic growth is not linear:
sudden unexpected and very sharp increases in prices are likely to cause much greater damage
to the economy than the estimates  given  above.  It is  moreover interesting to  note that since
1973 significant reductions in economic growth in the United States and Europe have all been
preceded by sudden sharp increases in the price of crude oil.

Instability  in  energy  supplies,  whether  it  is  due  to  market  volatility,  relations  with  supplier
countries or a particular chance event, could lead to social disruption. This is likely to result in
social demands, a backlash from business, even conflicts.  It should be recalled that the  first
two oil crises contributed to a sharp increase in unemployment. In this situation, it would be
impossible to attempt to construct an internal market between the economic operators whose
objective is to increase the efficiency of the European economy if such a market is not based
on principles which guarantee social cohesion. An example of this is the road hauliers' strike
which affected many countries in Europe in the autumn 2000, following a sharp  increase in
oil  prices.  This  resulted  in  major  fiscal  disruptions,  insofar  as  Member  States  tried  to
counterbalance  the  effects  of  the  energy  price  increases  on  economic  sectors  through
uncoordinated reductions in taxation. These individual initiatives are a serious obstacle to the
proper  functioning  of  the  internal  market,  in  particular  for  a  common  and  coordinated
transport policy.

As  stated  at  the  Barcelona  European  Council,  an  integral  part  of  establishing  the  internal
market in the European Union is ensuring security of energy supplies. This objective will help
to ensure, for the welfare of citizens and the proper functioning of the economy, the constant

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physical  availability  of  energy  products  on  the  market  at  a  price  which  is  affordable  for  all
consumers, whether private or industrial.

The risks

In this situation of energy dependence, the European Union has to face up to two types of risk
in the energy field:
(cid:1)  Physical risks

Permanent physical disruption of supply may result from the exhaustion and abandonment
of an energy source. It is possible that in the long term the European Union will have no
more  significant  Community  resources  of  oil  and  gas  at  a  reasonable  cost.  Thus,  experts
estimate  that  North  Sea  oil  reserves  should  gradually  run  out  by  2030-2050.  Mention
should  be  made  in  this  connection  of  the  example  of  coal,  the  production  of  which  is
gradually being abandoned by the Member States.

The European Union is also very vulnerable to a risk of temporary physical disruption of
supply  which  may  result  from  serious  accidents  affecting  transport  and  storage
infrastructures,  whether  within  or  outside  the  Community,  which  are  important  for  the
security  and  continuity  of  Community  supplies.  Moreover,  events  of,  for  example,  a
political and/or military nature in an oil production or transit region may at any time cause
the temporary physical disruption of world oil supplies.

(cid:1)  Economic risks

An  economic  risk  is  posed  by  the  volatility  of  the  markets,  which  can  be  caused  in
particular by a threat of a physical disruption of supplies.

An analysis of  recent energy  market  trends  shows  that,  apart from  physical disruption of
supplies,  there  is  another  cause  for  concern:  speculative  movements  in  anticipation  of  a
potential disruption of supplies. The general perception by operators of a risk of a potential
future  disruption  leads  to  panic  buying  even  when  supply  and  demand  are  apparently  in
balance.  The  result  is  sharp  price  rises  which  directly  affect  business  costs  and  the
purchasing power of private consumers. These uncertainties in the international market are
likely to jeopardise growth in the EU economy at any time, with serious consequences for
employment.

During the recent period between 1998 and 2000, when there was a slight reduction in oil
supplies of 3%, there was a very sharp increase in prices from $10 a barrel up to - at certain
times - $37 a barrel. Taken over a year, such a price increase may be estimated to add some
€100 billion to the oil bill.

The main risk with regard to energy today is economic. Although it cannot be totally ruled
out, the physical  risks of disruption  of supply is  only  likely  to  come  about  as  a  result  of
exceptional  circumstances  such  as  major  conflict  in  an  oil-  or  gas-producing  area.  The
economic risk has therefore become the real issue, since price rises have a direct effect on
business costs and the purchasing power of private consumers.

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3. 

LACK OF ADEQUATE MEANS OF ACTION

It is vital that the energy dependence of the European Union should be managed as effectively
as possible since this will contribute to the construction of the internal energy market.

Where  energy  demand  management  is  concerned,  beyond  making  mere  proposals  to
encourage  or  exchange  good  practice,  the  Commission  has  already  made  regulatory
proposals, some of which have been adopted by the Council and the European Parliament, in
particular  the  Directive  on  the  production  of  electricity  from  renewable  resources,  the
Directive on energy savings in buildings and the biofuels package. Implementing these texts
will bring about a saving in terms of consumption of conventional energies of around 10% in
the next few years and make it possible to limit the upward trend in the EU's energy demand
as a result of increased consumption in the domestic and tertiary sector.

On the demand side, the debate on the Green Paper on security of energy supply has shown
that the European Union has no scope for influencing oil and gas supply conditions. It brought
out  the  dangers  for  the  European  Union  of  supply  disruption  and  showed  up  the  structural
weaknesses of our energy supplies and their geopolitical, economic and social vulnerability.
Even  before  the  events  of  11  September  2001,  it  highlighted  the  need  to  include  questions
relating to the safety of installations in the concept of security of supply.

In accordance with the position taken by the EU at the recent Johannesburg World Summit on
Sustainable  Development,  in  this  context,  the  indigenous  renewable  energy  production  of  a
given Member State has a positive  impact on  the security of energy  supply  and  reduces  the
quantity which it is obliged to hold as strategic gas or oil stocks.

Insufficient harmonisation of Community measures with regard to oil stocks

Three  Community  directives  govern  the  establishment  of  national  reserves  of  crude  oil  and
petroleum  products  by  the  Member  States.  Member  States  must  maintain  a  level  of  stocks
equivalent  to  90  days'  consumption  for  each  of  the  three  main  categories  of  petroleum
products  for  energy  use.  Member  States  must  also  be  ready  to  act  when  there  is  a  risk  of
physical  disruption,  i.e.  they  must  draw  up  action  plans  and  set  up  appropriate  bodies  and
powers  enabling  them  to  place  stocks  on  the  market  and  restrict  consumption,  guarantee
supplies to priority consumers and regulate prices.

In the event of a crisis, the European Commission may, at the request of a State or on its own
initiative, fix a target in terms of a reduction in consumption. However, the Commission has
no powers to order stock disposal. The decision to release oil stocks is a matter for the States,
although consultations are arranged at Community level for coordination purposes. Ultimately
it is each individual State which will decide whether stock disposal measures should be taken.
Apart  from  the  fact  that  individual  action  by  each  Member  State  would  upset  the  internal
market,  uncoordinated  action  would  have  little  or  no  impact  in  view  of  the  size  of  the  oil
market.

There  is  then  no  Community  mechanism  for  using  oil  stocks  which  establishes  solidarity
between States forming part of the same internal market in the event of supply problems.

Furthermore,  in  most countries of the European  Union  -  and  unlike  the  Strategic  Petroleum
Reserve  in  the  United  States  where  stocks  are  held  by  the  public  authorities  -  the  security
stocks  are  held  by  the  oil  companies  and  are  mixed  up  with  their  operational  stocks.  Only
some of the Member States have set up ad hoc bodies  responsible  for holding all or part of
their  security  stocks.  This  fragmentation  of  the  storage  arrangements  affects  the  proper

9

functioning  of  the  internal  market  in  energy  and  causes  distortion  of  competition  between
refiners and non-refiners which have low levels of operational stocks. In addition, the amount
of oil products actually available to the Member States in the event of a crisis, i.e. which can
actually be mobilised in the short term, is very uncertain since operators' security stocks  are
mixed up with their operational stocks. It should be noted in this respect that the stocks of the
Strategic  Petroleum  Reserve  currently  amount  to  545  million  barrels  and  that  the  United
States has decided to gradually increase their volume to 700 million barrels by 2004.

EU  legislation  also  does  not  provided  for  harmonised  rules  on  the  use  of  security  stocks  to
deal with a  physical disruption of oil supply, but  is  an  instrument  for  managing  an  existing
physical shortfall  which is no  way  intended  to  cope  with  market  volatility.  Volatility  in  the
markets  due  in  particular  to  the  expectation  of  a  possible  physical  disruption  of  supplies  is
likely to have a serious effect on the growth of EU economies.

Given the inadequacies of the Community system for the security of oil stocks compared with
the  reality  of  the  energy  situation  and  developments  in  the  internal  market  in  energy,  it  is
therefore  easy  to  understand  why  this  system  has  never  worked.  Rules  should  therefore  be
laid down which will help to bring the national provisions closer together and which, in the
event  of  a  crisis  or  the  threat  of  a  crisis  affecting  oil  supply,  will  ensure  the  solidarity  and
unity of action which are needed for the proper functioning of the internal market.

Inadequacy of the International Energy Agency framework

The  Treaty  setting  up  the  International  Energy  Agency  (IEA)  lays  down  an  obligation  on
participating  States  to  maintain  stocks  equivalent  to  90  days'  of  net  imports  of  oil  or
petroleum products. It establishes a mechanism for responding to supply crises, i.e. on the one
hand  an  obligation  to  reduce  consumption  where  a  certain  threshold  of  supply  disruption  is
exceeded and, on the other, a procedure for disposing of stocks and allocating the available oil
between the participating States.

At the beginning of the '80s, the IEA had come to the view that the mechanisms of the 1974
Treaty were no longer adapted to developments on the oil market. Another crisis mechanism,
the CERM (Coordinated  Emergency  Response  Measures)  was  introduced  by  the  Governing
Board  of  the  IEA  to  make  stock  disposal  an  easier  option.  However,  any  decision  taken  in
relation  to  CERM  requires  unanimity  of  the  Governing  Board  which  is  made  up  of
representatives of the 26 participating countries, whose geographical origins and at times very
different interests do not make it easy to reach a consensus (the participating countries include
in  particular  the  US,  Australia,  Japan  and  Korea.).  Given  the  lack  of  clear  criteria  for
activating  this  mechanism  and  the  differences  between  the  participating  States,  the  risks  of
measures being blocked are obvious.

In fact, the CERM has been used only once, more than five months after the outbreak of the
Gulf War following the invasion of Kuwait  by  Iraq,  although  oil  prices  had  already  peaked
and the negative impact on the economies of the oil consumer countries had already been felt.

In  addition,  the  IEA  mechanisms  link  the  management  of  the  oil  stocks  of  the  European
Union to that  of numerous  external  partners  (26  States)  whose  priorities  are  not  necessarily
the same as the EU's. Moreover, it should be pointed out that the gradual establishment of an
internal energy market, as is the case between the Member States of the European Union, is a
unique achievement: no other country in the IEA, including the United States, has succeeded
in developing such an integrated structure.

10

Under the IEA Treaty as it stands, even a stock disposal measure proposed by a majority of
the  IEA countries  - for  example the European  Union -  could, in view  of the unanimity  rule
governing  the  work  of  the  CERM,  be  blocked  by  a  single  country.  The  mechanisms  put  in
place within the IEA do not therefore allow the European Union, the second economic power
in  the  world,  to  have  its  own  power  of  decision  in  such  a  strategically  important  field  as
energy or to ensure the proper functioning of its internal market.

As with current Community legislation, the IEA mechanisms were set up only with a view to
a possible physical disruption of oil supplies. The basic elements of this system, which date
from 1974, were put in place to respond to measures such as the embargo imposed by OPEC
on certain industrialised countries in the difficult political situation in the Middle East at the
end of 1973. The circumstances today are far removed from that situation.

Lack of coordinated measures for gas supplies

Given  the  strategic  importance  that  natural  gas  will  assume  in  the  future,  an  innovative
approach is required insofar as there is currently no Community framework for harmonisation
of  the  measures  which  will  guarantee  a  minimum  level  of  security  of  gas  supplies  in  the
European  Union.  It  should  also  be  pointed  out  in  this  connection  that  the  IEA  also  has  no
specific  measures  to  guarantee  external  gas  supplies  to  participating  States.  40%  of  EU  gas
imports  come  from  three  main  sources  of  supply.  Moreover,  since  1995,  the  production  of
electricity from gas represents 50-60% of new investments in the production of electricity in
the European Union each year. Security of gas supplies is therefore particularly important to
ensure continuity of electricity production.

The  European  gas  industry  has  succeeded  in  ensuring  security  of  supply  on  a  constantly
expanding European gas market over the last forty years. However, the European gas market
is undergoing  rapid change at  the  moment  and  the  role  of  traditional  market  players  is  also
changing.

Hitherto, the  work of  planning  and  developing  the  gas  network  to  achieve  the  objectives  in
terms of security - often defined by the gas industry itself - was relatively simple, given that
the main suppliers possessed all the infrastructure, the data relating to supply and demand for
gas,  information  and  the  other  instruments  necessary  for  a  successful  outcome  of  such
planning.  In  addition,  direct  State  involvement  was  less  necessary  as  the  national  gas
companies  responsible  for  security  of  supply  were  in  many  cases  partly  or  wholly  State-
owned.

On  the  new  liberalised  gas  market,  no  player  will  henceforth  necessarily  assume  sole
responsibility for short and longer term security of  gas  supplies  at national  level because of
the  restructuring  of  the  industry,  the  integration  of  national  markets,  the  emergence  of  new
companies and greater competition. The policies and procedures relating to security of supply
therefore have to be reviewed and formalised in this new context. In a competitive market, it
is  not  certain  that  gas  suppliers  will  give  a  strategic  priority  to  security  of  supply;
competitiveness is increasingly becoming the main objective of the gas companies.

The organisation of security of gas supply can therefore no longer be entrusted solely to the
industry. A new legislative framework is therefore required to ensure that all market players
take basic measures to ensure that this objective is achieved.

11

It should be added that it is extremely important to avoid, in a rapidly changing market, any
uncertainty as regards responsibility for security of supply. Any lack of clarity on this point
will increase the risk of a supply crisis.

While  the  gas  industry  will  have  to  continue  to  assume  operational  responsibility,  the
European Community now has a vital coordination and support role in relation to security of
gas  supplies.  The  role  of  the  Community  is  to  ensure  the  proper  functioning  of  the  internal
market  and  give  market  players  a  clear  framework  within  which  they  can  interpret  and
manage change, while guaranteeing an adequate level of security of gas supplies.

As  for  oil,  minimum  measures  are  therefore  needed  to  ensure  the  proper  functioning  of  the
internal market in gas. This will involve harmonised measures which will guarantee uniform
and coordinated action between all Member States in the event of a supply crisis.

4. 

THE SOLUTION: A COMMUNITY FRAMEWORK

As the Green Paper on security of energy supply stated, the Member States are interdependent
as  regards  both  measures  to  combat  climate  change  and  the  creation  of  the  internal  energy
market. Any energy policy decision, particularly in relation to supply of oil and gas, taken by
a  Member  State  will  inevitably  have  a  knock-on  effect  on  the  functioning  of  the  market  in
other  Member  States.  Similarly,  operations  carried  out  by  companies,  aided  by  the  gradual
establishment of an internal energy market, are no longer limited to national territory.

Moreover, a response taken by a Member State to a change in oil and gas supply conditions
without regard to the other  Member States  will  have  little  or  no  real  impact.  A  coordinated
response  by  all  Member  States,  acting  in  a  spirit  of  solidarity,  is  the  only  means  of  finding
effective solutions which will guarantee an adequate level as regards safety, security and the
prevention of serious crises and accidents.

The  European  Union  is  furthermore  engaged  in  the  major  political  process  of  enlargement.
Faced with this challenge, it  is essential for it to  take  account of the proper management of
one of its vital needs, namely oil and gas supplies.

Consequently, in accordance with Article 5 of the EC Treaty, the objectives of the proposed
action cannot be sufficiently achieved by the Member States and can therefore, because of the
scale or effects of the proposed action, be better achieved by the Community.

The  Green  Paper  on  security  of  energy  supply  has  already  considered  various  proposals  in
general terms:

(cid:1)  looking at ways of strengthening the system of oil reserves system by placing their use on a

Community footing;

(cid:1)  the possibility of extending the oil reserves mechanism to natural gas reserves;

(cid:1)  the  need  to  institute  a  permanent  dialogue  with  producer  countries  with  a  view  to
improving price formation mechanisms, conclusion of agreements  and the  use  of  reserve
stocks in the mutual interest;

(cid:1)  greater integration and diversification of supply networks and improved guarantees of their

safety and security.

12

In its communication of 26 June 2002 to the European Parliament and the Council on the final
report  on  the  Green  Paper  on  security  of  energy  supply,  the  Commission  indicated  that
geopolitical  uncertainties  and  oil  price  volatility  meant  that  thinking  was  needed  on  better
organisation and coordinated use of stocks.

Objectives

The measures to be implemented to help ensure the proper functioning of the internal energy
market will adopt a Community approach in order to:

(cid:1)  promote solidarity between the Member States  of  the  European  Union  in  the  event of an
energy  crisis  by  putting  in  place  predefined  measures  and  mechanisms  which  will
guarantee coordinated action;

(cid:1)  managing security of supplies by providing for adequate mechanisms to deal with physical

disruption of energy supplies.

(cid:1)  manage the safety of supplies and infrastructures by adopting safety measures which will

ensure maximum reliability of supply flows from producer countries.

(cid:1)  promote market stability, in consultation with producer countries, by providing for possible
responses where the markets anticipate a physical disruption of supplies in order to restore
the proper functioning of the market.

These  objectives  must  be  achieved  within  the  framework  of  an  internal  energy  market  in
which the Commission will take the necessary measures to ensure fair competition. Measures
aimed at improving the supply of oil and gas will have little or no positive impact if they are
thwarted by price manipulation or if access to transport networks is limited.

Measures aimed at improving the security of supplies must therefore not create any barriers to
the entry  of  new  players  onto  the  European  energy  market  or  any  additional  difficulties  for
undertakings  with  small  market  shares.  Attention  will  also  have  to  be  paid  to  ensuring  that
regulations introduced by the Member States guarantee fair and non-discriminatory conditions
as  regards  storage,  in  particular  for  the  construction  of  storage  installations  and  access  to
storage capacities.

Given  these  objectives,  and  the  points  considered  in  the  Green  Paper  on  security  of  energy
supply, a number of initiatives need to be taken at Community level.

Harmonising the organisation of oil stocks and promoting their coordinated use

1.

Harmonisation of national storage systems

Some  Member  States  have  set  up  ad  hoc  bodies  responsible  for  holding  all  or  part  of  their
security stocks. In others, the stocks are held by private operators.

This fragmentation of the storage mechanisms adversely affects the proper functioning of the
internal  market  in  energy.  The  independent  distributors  or  importers  of  refined  products
which  need  only  limited  operational  stocks  consider  that  the  obligations  to  hold  stocks
constitute a net cost that they have to bear whereas the refining companies would in any event
hold  stocks  for  operational  purposes  even  where  there  is  no  requirement  to  hold  security
stocks.  Storage  obligations  may  therefore  cause  distortion  of  competition.  To  remedy  this
situation, all Member States will set up a public body to hold oil stocks which will own stocks

13

representing at least one third of the new obligations imposed. This is very partial alignment
of the rules on stocks in the Member States and does not cover everything that is needed, but
it will help to improve the functioning of the internal market by establishing rules which will
increase  competition  between  the  economic  operators.  The  setting  up  of  a  central  body
responsible  for  strategic  stocks  will  release  independent  distributors  or  importers  of  refined
products from the obligation to build up these stocks themselves. They will be able to pay a
reasonable charge to the central body for it to fulfil their storage obligation for them. These
conditions  for  healthy  competition  between  various  types  of  oil  distributor  will  help  to
guarantee  diversity  of  sources  of  supply  on  the  market  and  will  therefore  themselves
contribute to improving the supply for consumers.

It should also be noted that security stocks currently suffer from a lack of visibility, and thus
of credibility. The operational stocks held by industry may be taken into account as part of the
obligation to maintain minimum security stocks. Stocks held in addition to operational stocks,
for the specific purposes of security of supply, are therefore very difficult to identity. Having
some of these stocks held by a central body will therefore make it possible to redress the lack
of visibility of security stocks, and will  guarantee the effective  and efficient  mobilisation of
these stocks in the event of a crisis.

2.

Coordinated use of security stocks

Community legislation provides only for mutual consultations between technical experts from
the  Member  States,  under  the  aegis  of  the  European  Commission,  for  the  purposes  of
releasing stocks. Each State is therefore able to dispose of stocks however it wishes.

The  mechanism  currently  used  by  the  IEA  (the  CERM)  is  subject  to  the  rule  of  unanimity
between the 26 participating countries. Furthermore, even if action is taken under the aegis of
the IEA, the broad discretion left to the States as to how they can contribute to the measure
means there is a flagrant lack of unity of action.

In the future, the European Community must be able to decide on a common strategy which
will  be  adopted  by  all  Member  States  to  provide  an  effective  response  to  a  physical  or
economic  disruption  of  oil  supplies.  This  strategy  will  give  details  of  the  measures  to  be
taken,  their  objectives,  their  duration  and  the  resources  that  the  Member  States  will  have  to
provide.

In order to be effective, the action to be taken in response to a disruption of oil supplies, or a
threat  of  a  disruption  which  is  causing  volatility  in  the  markets  (economic  risk),  must  be
rapid. Therefore, if there is an imperative need arising from oil market trends, the European
Commission will be empowered to urgently adopt the necessary measures, taking account of
the general objectives of the mechanisms for the use of security stocks. The Commission will
be assisted by a committee made up of representatives of the Member States and chaired by a
Commission representative.

3.

Harmonisation of intervention criteria

Current EU legislation lays down rules for the use of stocks only in the  event of  a  physical
disruption of oil supply. This provides a way of managing an existing physical shortage but
cannot be used to react to volatility in the markets due to particular expectations of a physical
disruption of supply.

14

An analysis of volatility in the markets shows that the perception by operators of a risk of a
potential  future  disruption  leads  to  panic  buying  even  supply  and  demand  seem  to  be  in
balance.  Moreover,  the  impact  of  "non-commercial"  operators  will  be  to  accelerate  and
accentuate the effects of the perception of a physical disruption on prices.

In addition to the conventional criterion for the use of stocks, namely a physical disruption of
oil supply, it is therefore necessary to provide for common rules on the use of security stocks
in order to react in a unified and coordinated manner in the event of an economic risk, more
especially if there is a general perception of a risk of a physical disruption which is causing
volatility in the markets. Action taken individually by each of the Member States would run
counter  to  the  objectives  of  the  internal  market  and  would  also  be  ineffective  in
re-establishing  smoother  operation  of  the  oil  market.  Common  rules  will  help  to  ensure  the
solidarity and unity of action needed for the proper functioning of the internal market in the
event of a crisis.

Any decision by the Commission to take action will be based on the convergence of a number
of  factors  pertaining  to  the  precise  circumstances  of  the  energy  crisis.  It  is  clear  that  the
"price"  element  will  be  one  of  the  essential  elements  when  defining  an  economic  risk
situation,  given  that  the  perception  of  a  supply  disruption  will  have  an  effect  on  prices.  In
these  circumstances,  the  potential  alert  threshold  should  be  deemed  to  have  been  reached
when the price of crude oil on the spot markets is such that, if the price is maintained at this
level for 12 months, the external oil bill of the European Union over the following 12 months
would be increased by an amount equivalent to more than half of one percent of the GDP of
the European Union in the preceding year as compared with the average external oil bill over
the last five years. By way of example, in the present circumstances (2002), the Community
mechanisms could be implemented by the Commission if the price of a barrel of Brent goes
beyond  a  threshold  of  $30  (which  corresponds  to  a  threshold  of  around  $28  for  the  OPEC
basket).

This alert threshold is a necessary, but not a sufficient, condition for action in the event of a
general perception of a risk of disruption of supply: exceeding the threshold simply initiates a
phase  in  which  the  Commission  examines  all  the  factors  contributing  to  the  crisis,  in
particular the nature, duration and scale of the factors involved. Any decision concerning the
advisability of taking action will be based on the convergence of several factors which make
it possible to conclude to what extent there is a threat of a disruption of supplies necessitating
a reaction.

In this new situation, in which mechanisms for using security stocks will play an increasingly
important role,  the  volume  of  these  stocks  will  have  to  be  increased.  The  current  minimum
volume  of  90  days'  consumption  will  have  to  be  increased  to  120  days  so  that  these  crisis
measures  can  be  effective  and  credible.  These  stocks  will  be  increased  gradually,  taking
account  of  the  possibilities  of  expanding  the  necessary  storage  capacities.  Average
Community security stocks are currently about 114 days' consumption.

In this respect, account will also have to be taken of the situation in the candidate countries
for EU membership. Under the accession negotiations, transitional periods have already been
agreed  with  most  of  these  countries  until  31  December  2009,  to  enable  them  to  gradually
build  up  security  stocks  equivalent  to  90  days'  consumption.  The  Commission  expects  the
new  Member  States  to  adhere  to  the  principle  of  building  up  security  stocks  of  a  volume
equivalent to 120 days' consumption. It nevertheless recognises that, in duly justified cases, it
will be necessary to  allow  the  gradual  introduction  of  new  provisions  aimed  at  boosting  oil
stocks beyond the transitional periods already agreed upon.

15

Harmonising minimum measures for the security of gas supplies

Although  the  conditions  for  stocking  gas  are  different  from  those  for  oil  and  petroleum
products,  including  the  technology  involved,  the  mechanism  for  fixing  gas  prices  is
nevertheless index-linked to that for oil prices. The problems which arise in terms of security
of supplies and the solutions to be applied are therefore similar for these two energy sources.
Hence the importance of putting in place, as for oil, measures providing for a certain level of
gas  stocks  as  well  as  the  powers  to  release  these  stocks.  These  new  measures  will  be
incorporated into existing Community legislation aimed at granting third parties access to gas
stocks.

1.

Definition of a supply policy and clarification of responsibilities

Most Member States currently do not have a very coherent approach to guaranteeing security
of  gas  supplies  in  the  internal  market.  Before  any  other  action  is  taken,  therefore,  Member
States  must  take  the  necessary  steps  towards  defining  a  general  policy  and  standards  for
security  of  gas  supply.  This  policy,  which  must  contribute  to  the  proper  functioning  of  the
new  open  market  in  gas,  calls  for  a  clear  definition  of  the  roles  and  responsibilities  of  the
various market players as regards security of supply.

When they formulate this general policy on security of supply, the Member States will pay the
greatest possible attention to the importance of ensuring continuity of gas supplies in difficult
circumstances, especially to consumers who have no alternative energy source, and the need
to ensure adequate stocks of  gas or alternative fuels, to diversify supplies  and  to  establish a
balance between the various sources of gas supplies.

This policy of the Member States will have to be transparent. To this end, the Member States
and  the  Commission  will  draw  up  reports  at  regular  intervals  which  will  describe  the
mechanisms put in place for emergency situations and unexpected events to reduce the effects
of  any  crisis  on  the  gas  market  and  the  levels  of  stocks  and  measures  taken  or  planned  to
achieve  the  indicative  stocking  targets.  The  Commission  will  also  evaluate  the  degree  of
harmonisation  of  the  measures  for  the  security  of  supply  and  their  contribution  to  the
functioning of the internal market in gas.

2.

Harmonising minimum standards for security of gas supplies

Member States will take the necessary measures to ensure that the supply to vital consumers
who are not in a position to replace gas with another fuel is assured in the event of disruption
of the single biggest source of supply of gas for a period of sixty days under average weather
conditions.  Harmonised  measures  will  also  be  taken  by  the  Member  States  to  guarantee
security of supply, in the new open gas market, in the event of extremely low temperatures.

These security of supply standards will be implemented by means of instruments that Member
States will use depending on the circumstances of the supply crisis and the peculiarities of the
national gas market of each Member State.

Among the measures to be implemented in response to a disruption of supply, Member States
will take the necessary steps to ensure that gas stocks make at least a minimum contribution
towards  achieving  the  security  of  supply  standards.  The  establishment  or  maintenance  of  a
minimum  level  of  gas  stocks  will  take  account  of  the  geological  and  economic  storage
possibilities in the Member States, since in some Member States the geological sites available
for new underground gas storage facilities are limited or non-existent.

16

3.

Coordinated use of crisis measures - Gas stocks

Uncoordinated  action  by  the  Member  States  in  the  event  of  an  energy  crisis  is  likely  to
jeopardise the proper functioning of the internal market in gas. For the proper functioning of
the internal gas market and security of supply, it is essential that Member States should act in
solidarity  in  extraordinary  supply  situations.  Mechanisms  must  therefore  be  put  in  place
which will allow the coordinated implementation at Community level of measures to face up
to such situations.

Depending on the gravity of the situation, the Commission will therefore have to act to ensure
that the necessary measures are taken to provide specific assistance to Member States which
are particularly affected  by  the  disruption of  gas supplies.  In  these circumstances and  given
the  specific  characteristics  of  the  natural  gas  market,  there  is  good  reason  to  have  a  dual
intervention mechanism.

In  the  event  of  an  extraordinary  gas  supply  situation,  including  a  serious  disruption  of  gas
supplies from one of the main suppliers of the European Union, the Commission will be able
to issue recommendations to urge Member States to take the  necessary measures to provide
specific assistance to the Member States particularly affected by the disruption in supplies.

If the measures taken by the Member States are inadequate in the light of the market trend or
if  the  economic  consequences  of  the  extraordinary  gas  supply  situation  become  extremely
serious,  the  Commission  will  be  able  to  take  a  decision  requiring  Member  States  to  take
specific  measures  to  provide  the  necessary  assistance  to  the  Member  States  particularly
affected by the disruption in gas supplies.

These measures, which  will  be the  subject  of  either  a  recommendation  or  a  decision  by  the
Commission depending on the circumstances, may include the deblocking of gas stocks, the
provision of gas pipelines to supply the gas to the regions affected or the interruption of non-
essential supplies to allow redistribution of the gas and guarantee the flexibility of the system.

As with the measures to be taken in relation to security stocks of oil, the Commission will be
assisted by a committee made up of representatives of the Member States.

The new Community arrangements do not at this stage, as they do for oil stocks, lay down the
minimum  quantities  of  gas  stocks  that  Member  States  should  hold  to  guarantee  security  of
supply.  Nonetheless,  they  do  introduce  quantitative  requirements  as  regards  standards  of
security of supply. The new Community arrangements therefore in particular require Member
States to define how they will guarantee that customers who are not in a position to switch to
substitute  fuels  will  continue  to  be  supplied  for  60  days  in  the  event  of  a  disruption  to  the
largest supplier on the market concerned. To meet this obligation to guarantee supply for 60
days,  each  Member  State  will  have  to  implement  a  combination  of  measures,  including  the
storage of gas, but also the interruption of non-essential supplies to allow redistribution of the
gas and guarantee the flexibility of the system and of supply.

This combination of different measures will enable each Member State to guarantee security
of  gas  supply  equivalent  to  the  security  of  oil  supply  to  which  the  compulsory  oil-storage
measures  contribute,  while  taking  account  of  the  intrinsic  characteristics  of  the  gas  market.
Not all Member States are able to build up underground stocks due to unfavourable geological
conditions. Some countries do not even have appropriate gas storage sites.

17

However,  given  the  importance  of  storage  among  the  various  measures  which  can  be
implemented, it is planned that the Member States will have to determine national indicative
targets for  a  minimum  contribution  of  gas  stocks  to  the  security  of  supply  standards.  These
stocks may be located in the Member States or outside their territory.

It should be noted that the measures with regard to gas supply, like the oil storage obligations,
do  not  affect  any  measures  which  may  be  taken  with  regard  to  the  security  of  storage
installations.

4.

Supply contracts

Long-term  supply  contracts  have  played  a  fundamental  role  in  the  development  of  the
European gas market. They are essential for the launch of major investment projects for the
development of gas fields and long distance infrastructure projects. For  consumer  countries,
these contracts provide an  element of  stability  for their  purchases.  Long-term  contracts  also
facilitate diversification in the medium term of gas supplies in the European Union and help
to  bring  new  sources  of  gas  onto  the  market,  which  encourages  competition  on  the  supply
side. It should therefore be ensured that an appropriate proportion of gas supplies from non-
EU States is based on long-term import contracts. The Commission will monitor the trend in
the Member States' gas supply structure and, where appropriate, will be able to decide upon
any measures that prove to be needed.

Alongside the long-term contracts, Member States will take the necessary measures to ensure
greater  liquidity  on  the  gas  market  and  the  development  of  transparent  prices  in  order  to
promote security of supply, facilitate access to gas and provide possible outlets for companies
tied by  long-term  contractual obligations.  In this  connection,  a  minimum  proportion  of  new
supplies of gas will have to be based on short-term "spot" contracts or on long-term contracts
whose prices are geared to the spot markets in gas.

A  misunderstanding  arose,  first  of  all  in  relations  with  Russia,  when  certain  third  countries
apparently took the view that the European Union was no longer in favour of these long-term
supply contracts. The European Commission confirmed, however, that these contracts were a
necessity, as a factor of stability for both producer and consumer countries. These long-term
contracts are moreover expressly recognised in Community legislation on common rules for
the internal market in natural gas.

The  Commission  will  ensure  that  these  contracts  do  not  create  distortions  of  competition,
whether  as  a  result  of  clauses  which  would  result  in  restrictive  market  conditions  or  by
creating  dominant market  positions.  It  is  therefore  important  these  contracts  develop  in  line
with the new elements of the internal market for gas.

Organising an energy dialogue between producer and consumer countries

All these measures for the coordination of action on the security of oil and  gas  supplies  are
conceivable  only  in  cooperation  rather  than  confrontation  with  the  producer  countries.  The
enlarged European Union borders the main oil and gas producing areas (Russia, Caspian Sea,
North  Africa).  This  geographical  benefit  of  enlargement  will  have  to  be  taken  into  account
when deciding where to locate oil and gas stocks. These stocks could, for example, be held in
the Member States and candidate countries or equally in producer or even transit countries.

18

The European Community must therefore develop, institutionalise and give substance to the
energy  dialogue  between  producer  and  consumer  countries.  In  this  context,  it  will  act  in
cooperation with the International Energy Forum (Riyadh).

An  energy  dialogue  between  producer  and  consumer  countries  will  help  to  provide  greater
stability  of  supply.  It  will  also  enable  the  safety  standards  of  the  European  Union  to  be
applied to external supplies, particularly as regards the construction and operation of oil and
gas infrastructures or the transport by sea of gas and oil and dangerous derivatives.

Moreover, a more intense dialogue between the European Union and the producer countries is
one  of  the  essential  conditions  for  improving  the  price  mechanism  and  the  conclusion  of
satisfactory supply agreements. As the Green Paper on security of energy supply underlined,
such a dialogue must continue whatever the state of the international economy, whether prices
are rising or falling, and it must also cover the conditions for the formation and use of stocks.
More  specifically  as  regards  natural  gas,  this  consultation  framework  could  turn  into  a
negotiation  framework  in  order  to  meet  among  other  things  the  need  for  long-term  supply
contracts.

From  this  point  of  view,  the  dialogue  between  the  European  Union  and  Russia  could
constitute a  basic model.  The  Paris  and Brussels  Summits  have  confirmed  that  its  aim  is  to
create a new energy solidarity. Thus, actions have been initiated on security of networks, the
protection of investments or the identification of major projects of common interest. It may be
hoped that this dialogue will enable more effective use to be made in the future of long-term
intergovernmental agreements and production-sharing agreements.

Moreover,  the  dialogue  with  Russia  will  not  hinder  any  dialogue  with  other  partners  of  the
European  Union,  particularly  Norway,  the  Caspian  Sea  countries,  the  countries  of  the
European  Mediterranean  region  and  the  Middle  East.  Consideration  must  also  be  given  to
relations with OPEC, an organisation with which relations should always be maintained, even
when oil prices are not abnormally high.

Acquiring technical expertise for the implementation of measures

The creation of the internal energy market is a gradual and very complex process insofar as it
involves  very  technical  rules.  It  is  therefore  important  to  ensure  that  the  new  legislative
framework is applied effectively and uniformly by all market players under conditions which
will guarantee competitiveness.

It  is  for  this  reason  that  the  various  stages  of  completing  the  internal  market  in  gas  and
electricity  have  been  accompanied  by  mechanisms  allowing  the  national  regulators,  the
Member  States,  the  economic  operators  and  the  Commission  to  attend  technical  meetings
together  (Florence  Forum  for  electricity;  Madrid  Forum  for  gas).  These  working  meetings
examine  the  most  appropriate  measures  to  take  in  order  to  open  up  the  gas  and  electricity
markets and regularly submit highly technical recommendations to the Commission.

Similarly, the new Community framework to be established to consolidate measures, as part
of the process of constructing the internal market in energy, relating to security of supplies of
oil  and  gas  will  require  complex  and  technical  tasks  to  be  carried  out.  It  will  be  necessary
among  other  things  to  monitor  trends  on  international  oil  and  gas  markets  and  assess  their
impact on the security and safety of supplies of oil and gas. There will have to be continuous
assessment of the effectiveness of the measures taken; in this connection, the level of stocks

19

of oil and gas in the Member States will have to be monitored. For these tasks to be carried
out, objective, reliable and comparable data will have to be available.

In the event of an energy crisis, when the European Commission decides on or recommends
measures to release stocks of oil or gas, it will be necessary to assess the impact on the energy
market and the economy as a whole.

It  could  also  be  mentioned  that  there  is  an  increasing  need  to  develop  more  reliable  price
indices more attuned to the realities of the market than the current ones. The Commission has
already stated, in its communication of 4 October 2000 on oil supplies in the European Union,
that  the  producer  countries,  market  operators  and  the  industry  should  be  encouraged  to
improve price formation indicators,  particularly  on the basis of  a  global index which would
reflect the whole of the market.

It  therefore  appears  essential  to  create,  within  the  Commission,  a  European  observation
system for oil and gas supply, which will gather the necessary expertise in order to respond to
the  highly  technical  issues  involved  in  these  tasks.  It  will  provide,  under  the  aegis  of  the
Commission, the technical and scientific assistance and high level of expertise to assist in the
correct application of Community legislation in the field of oil and gas supply.

This European observation system will be run by the Commission, which should invite to the
meetings  representatives  of  the  Member  States  as  well  as  representatives  of  the  sectors
concerned.

5. 

CONCLUSION

The  European  Community  is  gradually  putting  in  place  the  conditions  required  for  the
establishment of an internal market in energy. The achievement of this objective should make
the economy of the European Union more competitive and lead to a significant reduction in
consumer prices. It will also help to improve internal security of energy supplies.

The  completion  of  the  internal  market  in  energy  must  be  accompanied  by  the  necessary
coordination  of  the  measures  which  will  guarantee  security  of  external  supplies  of  both  oil
and  natural  gas.  The  creation  and  development  of  an  internal  market  in  energy  makes  the
Member  States  increasingly  interdependent  as  regards  the  security  of  their  supplies.  Not
having minimum rules on the security of supplies for all the Member States is therefore likely
to adversely affect the proper functioning of the internal market in oil and gas.

The  only  way  of  guaranteeing  an  adequate  level  of  safety  and  security  of  energy  supplies
which  will  contribute  to  the  smooth  functioning  of  the  internal  market  in  energy  is  to  take
action at Community level and globally. A coordinated and joint reaction by the States which
make up the single internal market is the only effective response to an energy crisis.

The  coordination  of  action  by  the  Community  with  action  by  other  consumer  countries,
including within the IEA framework, should therefore be prioritised, since action in the event
of a crisis or threat of a crisis requires the deployment of means at the most global possible
level.

It is therefore necessary to provide the European Union, in coordination with the International
Energy Forum (Riyadh), all the consumer countries and the producer countries, with its own
means of  responding  to  energy  crises.  It  is  above  all  necessary  to  provide  for  means  which
will  enable  the  European  Union  to  better  coordinate  measures  with  regard  to  security  of

20

supplies.  These  mechanisms  will  contribute  to  the  construction  of  the  internal  market  in
energy.

This  initiative,  which  concerns  an  essential  feature  of  the  functioning  of  our  economies,
should  be  made  even  more  of  a  priority  since  it  will  be  part  of  the  process  leading  to  the
accession  of  new  countries  to  the  European  Union  which  are  highly  dependent  on  energy
from fossil fuels. The European Community will take account of the situation in each of the
candidate  countries  in  order  to  provide,  if  necessary,  for  transitional  periods  for  some
obligations.

Appropriate  measures  for  the  security  of  oil  and  gas  supplies  will  reduce  the  permanent  or
temporary risks of physical disruption and the economic risks linked to supplies. These means
of action will be implemented in cooperation with the partner producer countries as part of an
energy dialogue not only with the OPEC countries but also the main partner which is Russia.

In  the  light  of  the  above,  the  Commission  proposes,  on  the  basis  of  Article  95  of  the  EC
Treaty, two legislative measures, namely:

(1) 

(2) 

A proposal for a Directive of the European Parliament and of the Council concerning
the alignment of measures with regard to security of petroleum product supplies.

A proposal for a Directive of the European Parliament and of the Council concerning
measures to safeguard security of natural gas supply.

21

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

concerning the alignment of measures with regard to security of supply for petroleum
products

22

EXPLANATORY MEMORANDUM

1.

COMPLETION OF THE INTERNAL MARKET IN ENERGY

1.1.

Internal market in petroleum products

The market in petroleum products in the Community is more competitive than the market in
other energy products. Nonetheless, a major effort still needs to be made to achieve a market
in  petroleum  products  which  is  genuinely  open  and  integrated  at  EU  level.  The  European
Community therefore has to take the measures needed for this sector to participate effectively,
together  with  other  energy  sources  and  more  especially  natural  gas,  in  a  genuine  internal
market in energy.

In  its  Communication  of  4 October 2000  on  oil  supply  and  the  Green  Paper  Towards  a
European  strategy  for  the  security  of  energy  supply  adopted  in  November 2000,1  the
Commission  noted  that  the  consumer  prices  of  petroleum  products  before  duties  and  taxes
vary considerably from one Member State to another. It suggested the lack of competition in
the downstream oil sector2 in some Member States was one of the main factors which could
explain  such  price  differences.  The  Commission  therefore  indicated  that  it  was  essential  to
encourage  a  more  open  and  competitive  downstream  oil  structure.  It  noted  that  for  this
purpose it was necessary to ensure the development of a genuine internal market for refined
products (in the wholesale market) to make for ready, competitive supplies to all distributors,
including from refineries in other Member States.

Greater opening up of the distribution sector for petroleum products, in particular to include
new operators, and the existence of a genuine internal market in refined products should help
to guarantee the  conditions for healthy  competition. This would enable the various kinds of
consumers to be supplied on the most economic terms, even if the market remained exposed
to risks due to the EU's high level of external dependence.

The European Union is making steady progress towards the completion of the internal market
for gas and electricity  and is in the process of  creating the largest integrated and most open
regional  market  in  the  world.  The  construction  of  the  internal  market  in  energy  cannot
however be  conceived without  integration  between all energy  sources.  In  particular,  oil  and
gas are two products which are part of the same market: these products can be substituted for
each other and compete with each other for some uses. Gas prices are also largely indexed to
oil  prices.  These  two  energy  sources  are  closely  interlinked,  in  particular  through
non-essential gas supply contracts.

1.2

The EU's external energy dependence and its consequences

As stated in the Green Paper on security of energy supply, dependence on external supplies of
oil, currently 75%, is likely to exceed 85% by 2020. The risks related to EU energy supply are
increased  by  the  fact  that  oil  production  is  geographically  concentrated  in  the  Persian  Gulf

1

2

COM(2000) 769.
The refining and distribution of petroleum products.

23

                                                
region,  and  that  this  concentration  is  likely  to  increase  significantly  over  the  next  few
decades.3

The  oil  market  is  also  highly  inflexible  in  the  short  term,  as  regards  both  supply4  and
demand.5 This structural character of the oil market explains the high volatility of oil prices.
The slightest imbalance between supply and demand, or the expectation of such an imbalance,
has a very profound  impact on  prices. This could be seen during  the  last  oil  crisis  in  1999-
2000, when marginal restrictions on supply caused crude oil prices to triple.

Any  event  which  leads  to  a  breakdown  in  supply,  or  which  simply  creates  a  risk  of  such  a
breakdown,  is  therefore  likely  to  cause  serious  disruption  to  the  European  economy  and  to
society.  Even  if  the  importance  of  oil  to  the  economy  has  shrunk  since  the  1970s,6  any
increase in oil prices always has a marked effect on the EU economy. A rise of $10 dollars in
the price per barrel increases the EU's oil bill for external supplies by about €40 billion a year.
Rises in oil prices affect consumers' purchasing power and add to business costs.

It  can  be  estimated  that  an  increase  of  $10  in  the  price  per  barrel  leads  to  a  loss  of  half  a
percentage point in terms of economic growth. However, this impact cannot be considered to
be linear: sudden, unexpected and large-scale price changes are likely to damage the economy
far more than this estimation would suggest. This impact also depends on the oil intensity of
the economy, which varies from one Member State to another.

More generally, the predominant position of energy products, especially oil, in society means
that  energy  dependence  is  a  question  of  social  equilibrium.  The  first  two  oil  crises  led  to  a
sharp  rise  in  unemployment.  Upsetting  the  balance  is  therefore  likely  to  produce  a  social
backlash and a reaction from the business world.

1.3.

Insufficient harmonisation of the mechanisms to guarantee security of supply

Current  national  laws  with  regard  to  the  security  of  oil  supplies  are  insufficiently
harmonised  and  coordinated  at  EU  level  and  can  lead -  and  indeed  have  led -  to
distortions in the internal market in petroleum products.

Measures were introduced a long time ago by the Member States to mitigate the effects of any
oil supply difficulties. They are to some extent backed up by Community legislation, which
supports the building up of "security stocks" by the Member States which can be put on the
market  in  the  event  of  a  supply  crisis.  Directive  68/414/EEC,7  as  amended  by  Directive
98/93/EC,8 requires Member States  to keep stocks  corresponding to a minimum  of 90 days'

3

4

5

6

7

8

Currently 30%, the share of world oil production from countries in the Persian Gulf region could rise to
40%  by  2020.  65%  of  proven  world  reserves  are  situated  in  this  region  and  30%  of  the  oil  currently
consumed  in  the  Community  comes  from  there  (while  the  USA  is  only  14%  dependent  on  the  Gulf
states).
The only significant amount of flexibility as regards supply is due to unused production capacity, most
of which is situated in the Persian Gulf region.
Changes in the structure of demand (the continuing growth in the proportion accounted for by transport
in oil consumption, the reduction in the proportion of oil used by industry, and the virtual disappearance
of oil as a means of generating electricity) and the simultaneous reductions in the scope for substituting
another fuel for oil in the short term make oil demand which is already very inelastic even more so.
The oil intensity in the EU economy, i.e. the ratio between the  volume of oil consumption and Gross
Domestic Product, has been halved since 1973.
OJ L 308, 23.12.1968, p. 14.
OJ L 358, 31.12.1998, p. 100.

24

                                                
consumption for three categories of petroleum products.9 Moreover, Directive 73/238/EEC10
requires the Member States to take all measures to provide the competent authorities with the
powers  to  adopt  crisis  measures  in  the  event  of  supply  difficulties,  i.e.  to  draw  on  security
stocks and to restrict consumption.

It  nevertheless  has  to  be  acknowledged  that  these  directives  are  no  longer  suitable  for  the
present internal market in energy. They were put in place at a time when the internal market
in energy was in its infancy. The Community provisions in force do not guarantee sufficient
harmonisation and coordination of the national measures which they back up, harmonisation
and coordination nevertheless being necessary for the internal market to function properly: it
is  essential  that  the  internal  market  should  be  based  on  sufficiently  harmonised  and
coordinated rules regarding security of supply.

Two specific types of problem arise:

– 

– 

those posed by the lack of harmonisation in the organisation of security stocks (see
Section 2),

those posed by the lack of harmonisation of the national laws on crisis measures and
the  lack  of  coordinated  action  between  the  Member  States  in  event  of  a  crisis  (see
Section 3).

2.

STOCKHOLDING SYSTEMS

2.1.

Fragmentation of the EU security stocks system

The  Member  States  currently  have  maximum  freedom  as  regards  the  organisation  of  their
security  stock  system.  As  a  result,  the  EU  security  stocks  system  is  divided  into  fifteen
different national systems which differ considerably:

– 

– 

Some Member States have set up ad hoc bodies responsible for holding all or part of
the security stocks; other have not. In Member States which do not have such a body,
the stockholding arrangements are entrusted entirely to industry in the framework of
State-imposed  obligations: industrial operators in that case  keep  the  security  stocks
together with their own operational stocks.11

The  rules  regarding  the  possibility  for  operators  to  fulfil  their  stockholding
obligations  by  holding  stocks  in  another  Member  States  differ,  with  some  Member
States prohibiting this completely.

Against this background, the national provisions for the organisation of security stocks may in
some cases have the effect of partitioning the markets in refined products at the national level
and disadvantaging operators who are not national refiners.12 It must be borne in mind that the
independent distributors or importers of refined products need only limited operational stocks,

9

10

11

12

A similar obligation but one calculated  on  the  basis  of  States'  imports  exists  in  the  framework  of  the
Treaty establishing the International Energy Agency (minimum stocks of 90 days' imports).
OJ L 228, 16.8.1973, p. 1.
In  a  system  based  partially  or  fully  on  stocks  held  by  industry,  there  is  always  confusion  between
operational stocks and security stocks: it is not possible to determine what level of stocks a particular
operator would hold if there were no stockholding obligation.
"National refiner" means an operator with a refinery in the State concerned.

25

                                                
whereas the  refining  companies  would,  in  any  event,  hold  significant  stocks  for  operational
purposes, even where there is no requirement to hold security stocks.

The fact that the national provisions on the organisation of security stocks may in some cases
lead  to  national  partitioning  of  the  markets  in  refined  products  was  demonstrated  in  the
judgement of the Court of Justice of 25 October 2001 (Case C-398/98), which condemned the
Greek  security  stocks  system.  According  to  the  Court,  the  way  in  which  the  stockholding
obligations  were  organised  in  Greece  limited  the  ability  of  Greek  distributors  of  petroleum
products to obtain supplies from refineries situated in another Member State, which the Court
found to be contrary to the principle of the free movement of goods.

This  proposal  for  a  Directive  is  not  aimed  at  total  harmonisation  of  the  organisation  of
security  stocks  systems,  but  rather  at  aligning  them  by  defining  certain  minimum
requirements  which  must  be  complied  with  in  view  of  the  objectives  of  opening  up  the
distribution sector for petroleum products and creating a genuine internal market in petroleum
products.

To this end, the proposal for a Directive contains two reforms:

– 

– 

an obligation on the Member States to set up a national stockholding agency,

reform of the provisions governing the holding of security stocks in another Member
State.

2.2.

Creation by all Member States of a national stockholding agency

For non-refiners, the stockholding obligation  is a particularly burdensome constraint and, in
some cases, a barrier to entry. In many cases, the only economic solution at their disposal is to
join forces with national refiners through the system of stocks "held at disposal" (the system
whereby  refiners  accept  responsibility  for  the  stockholding  obligations  of  other  operators).
The creation of a central body  for  strategic stockholding purposes,  associated with the  right
for non-refiners to fulfil their stockholding obligation via this body by making a fair payment,
would  therefore  provide  a  way  of  improving  the  competitive  functioning  of  the  markets  in
refined  products  by  making  non-refiners  less  dependent  on  arrangements  with  national
refiners.

It should also be noted that the European security stocks are also severely lacking in visibility,
this being particularly striking compared with the USA's Strategic Petroleum Reserve.13 It can
even be said that the EU's security stocks are lacking in credibility in as much as stocks which
are  held  in  addition  to  operational  stocks  for  specific  security  of  supply  purposes  are  very
hard  to  identify  and  therefore  cannot  be  measured.  Moreover,  some  of  the  Member  States
have large-scale oil industry activities directed towards meeting non-national demand which
could  lead  to  the  presence  of  particularly  high  operational  stocks  compared  with  domestic
consumption. In this situation, the obligation to keep a volume of oil and petroleum products
corresponding to 90 days' national consumption is not so relevant.

13

The USA does not impose any stockholding obligation on its industry, but has separately set up state-
owned stocks known as the "Strategic Petroleum Reserve (SPR). This currently consists of 545 million
barrels which are kept in underground repositories (salt caverns) and which may be sold by decision of
the US President. The volume of  stocks  held  by  the  SPR  is  to  be  increased  to  700 million  barrels  by
2004.

26

                                                
Consequently, the proposal for a Directive provides that, in each of the Member States, the ad
hoc stockholding body will be responsible for covering at least one third of the security stock
obligation. These bodies should themselves own the stocks and should not use systems which
would  allow  them  to  resort  to  the  industry's  operational  stocks.  Their  effective  availability
would  then  not  be  in  any  doubt  and  they  would  benefit  from  optimum  credibility  and
visibility.

2.3. Holding of stocks in another Member State

Current EU legislation recognises the right of Member States to prevent security stocks from
being held in other Member States. Under current EU legislation, it is also necessary for there
to be intergovernmental agreements  for stocks to be  able to  be  built  up  in  the  territory  of  a
Member  State  on  behalf  of  businesses,  organisations  or  agencies  established  in  another
Member State. In view of this, the absence of an intergovernmental agreement may constitute
a de facto prohibition for an operator to hold stock outside the national territory. Given that
there  is  normally  a  large  concentration  of  stocks  at  the  refinery  in  any  petroleum  products
supply chain, these restrictions may disadvantage a cross-border downstream supply chain as
compared with a purely national chain.

In order to guarantee the proper functioning of the internal market, the new provisions must
expressly provide that the Member States must take care to ensure that the measures they put
into place with  regard to security of stocks  do not  have  the  effect  of  disadvantaging  supply
from refineries situated in the other Member States as compared with supply from refineries
in  their  own  territory.  In  practical  terms,  the  proposal  for  a  Directive  provides  that  the
Member States must authorise operators to  fulfil their  stockholding obligations  using stocks
held in the Member States which are their sources of supply of refined products.

the  conclusion  of 

intergovernmental  agreements  as  a  prerequisite 

to
Furthermore, 
stockholding  for  the  purposes  of  security  of  supply  in  another  Member  State  is  no  longer
acceptable  in  the  new  internal  market  in  energy.  This  mechanism  must  be  replaced  by  a
system of surveillance in order to ensure the identification, registration and monitoring of the
stocks  held  in  the  territory  of  a  Member  State  on  behalf  of  companies,  organisations  or
agencies established in another Member State.

3.

HARMONISATION AND COORDINATION OF CRISIS MEASURE ARRANGEMENTS

Current EU legislation does not guarantee unified, consolidated and coherent action between
the  Member  States  of  the  European  Union  in  the  event  of  a  crisis  in  the  oil  markets.  Such
unity  and  coherence  of  action  is  however  necessary  to  make  sure  that  the  internal  market
continues to operate properly in this type of situation.

Specifically, two types of problem arise:

– 

– 

the existence in some Member  States of  legal obstacles to releasing  stocks  because
their  laws  lay  down  excessively  strict  preconditions  for  triggering  such  action
(point 3.1),

the lack of an EU decision-making mechanism for deciding on unified, coherent and
coordinated action at EU level (point 3.2).

3.1

Criteria for the use of security stocks

27

Initially, security stocks were intended to enable Member States to cope for a certain period
during  an  oil  shortage  due  to  disruptions  to  supply  from  producer  countries.  They  were
therefore a means of last resort. The use of security stocks was also supposed to be in addition
to proactive, relatively drastic reductions in consumption (e.g. "car-free Sundays").

In  some  Member  States,  the  national  legislation  on  security  stocks  lays  down  very  strict
conditions which must be met for the use of security stocks and which still reflect the original
thinking about the use of stocks (as a means of last resort to deal with a physical shortage).

However,  in  view  of  the  changes  which  have  taken  place  in  the  oil  markets,14  it  may  be
relevant  to  release  security  stocks  in  other  circumstances.  The  perception  by  operators  that
there is a risk of a future possible physical disruption of supply, without it actually needing to
happen, may lead to sudden price rises on the spot markets which are extremely  harmful to
the  economy.  This  type  of  incident  was  seen  during  the  Gulf  War,  during  which,  although
there was no production shortage as compared with consumption,15 prices shot up on the spot
markets in view of the threat to production in Saudi Arabia. The release of oil stocks in this
kind  of  situation  would  help  to  offset  panic  buying,  re-establish  smoother  operation  of  the
market and hence limit price volatility and its disastrous effects on the economy.

The unity and coherence of EU action in such circumstances are absolutely essential to keep
the internal market functioning properly. It is therefore necessary to ensure that, in a situation
in  which  there  is  no  physical  shortage  but  sharp  price  rises  are  being  generated  by  the
expectation  of  a  risk  of  a  physical  disruption,  all  the  Member  States  are  able  gradually  to
release  their  security  stocks.  This  is  not  the  case  at  the  moment  since  some  national
arrangements  are  designed  to  operate  only  if  there  is  a  physical  shortage  and  therefore  lay
down restrictive conditions for the release of stocks. EU legislation must therefore ensure that
national  arrangements  are  designed  in  such  a  way  that  stocks  can  be  released  if  there  is  a
general  perception  of  a  risk  of  a  physical  disruption  which  is  causing  a  large  degree  of
volatility. This is an essential precondition to allow for the unity and coherence of EU action
and thus to keep the internal market operating smoothly.

Oil stocks will be released in two different ways if there is a perception of a risk of disruption
depending  on  whether  they  are  held  by  ad  hoc  stockholding  bodies  or  by  downstream  oil
operators in the framework of stockholding obligations.

– 

– 

Releasing  stocks  held  by  an  ad  hoc  stockholding  body  would  mean  making
them  available  to  downstream  oil  operators,  at  the  market  price  and  at  a
specific rate (x million barrels per day);

Releasing  stocks  held  by  downstream  oil  operators  as  part  of  stockholding
obligations would involve gradually reducing stockholding obligations.

The effect of releasing stocks will be similar in both cases. Downstream oil operators will be
able  to  meet  their  need  for  "discretionary  stocks",  i.e.  stocks  which  are  freely  available  to
them (the need for such discretionary stocks would  be generated by the perception that there
is a risk of physical disruption to supply). They will be able either to buy stocks held by the
agency  or  keep  their  own  security  stocks  which  until  then  were  "frozen"  under  the
stockholding obligation but will then have been "released". The tendency for operators to buy

14

15

In particular, the central role of the spot markets in price formation: on these markets, the price of oil
varies from hour to hour depending on operators' perceptions and expectations.
The  loss  of  volumes  from  Iraq  and  Kuwait  was  made  up  for  by  using  production  capacity  not  used
before, mainly in Saudi Arabia.

28

                                                
oil  on  the  spot  markets  at  any  price  will  be  curbed,  and  speculation  about  the  risk  of
disruption to supply will be dampen. The release of stocks in anticipation of the possibility of
physical  disruption  makes  sense  given  that  the  oil  market  operates  on  the  basis  of
expectations.

Releasing stocks obviously only makes sense if it does not alter the production policy of the
producer countries in a way which would detract from the benefit of using the stocks. This is
why  security  of  stocks  can  never  be  regarded  as  a  way  of  standing  up  to  the  producer
countries. On the contrary, stocks should be used in a coordinated manner with the producer
countries.  The  European  Community  must  therefore  develop,  institutionalise  and  give
substance to the energy dialogue between producer and consumer countries.

This concept for the use of stocks takes account of the changes which have taken place in the
oil markets during the last 30 years. To this end, the proposal for a Directive provides that the
Member States must have powers to use security stocks in two types of situation:

– 

– 

a physical disruption of oil supply: this is the intervention criterion behind the
original idea for the use of security stocks;

a  general perception of a risk of  physical disruption.  This  concerns  situations
where  operators'  perception  of  the  risk  of  a  potential  future  disruption  is
causing unacceptable price volatility on the spot markets.

Aligning  the  national  provisions  on  the  basis  of  these  principles  will,  in  the  event  of  a
crisis, help to ensure the solidarity and unity of action needed for the proper functioning
of the internal market by making sure that some Member States are not prevented from
releasing stocks because of a legislative and administrative system which does not allow
for it.

In  this  situation,  with  stocks  being  required  to  play  a  fundamental  part  in  guaranteeing  a
regular  oil  supply  at  reasonable  prices,  the  present  minimum  level  of  security  stocks
corresponding  to  90  days'  internal  consumption  should  be  gradually  increased  to  120  days'
internal  consumption.  The  average  level  of  Community  stocks  is  currently  about  114  days'
internal consumption. It varies from country to country between the Community minimum of
90 days' consumption and 214 days' consumption.

In this respect, account will have to be taken of the situation in the candidate countries for EU
membership. Under the accession negotiations, transitional periods have already been agreed
with most of these countries  until  31 December  2009,  to  enable  them  to  gradually  build  up
security  stocks  equivalent  to  90  days'  consumption.  The  Commission  expects  the  new
Member  States  to  adhere  to  the  principle  of  building  up  security  stocks  of  a  volume
equivalent to 120 days' consumption. It nevertheless recognises that, in duly justified cases, it
will be necessary to  allow  the  gradual  introduction  of  new  provisions  aimed  at  boosting  oil
stocks beyond the transitional periods already agreed upon.

3.2. A Community intervention mechanism

No mechanism exists at the moment to enable the European Community to decide how to use
the  security  stocks  held  by  the  Member  States  and  to  coordinate  their  use.  Current
Community  legislation,  which  provides  only  for  a  simple  procedure  of  mutual  consultation
between  experts  from  the  Member  States,  under  the  direction  of  the  Commission,  therefore
does not guarantee the unity of action and solidarity between the Member States necessary for
the proper functioning of the internal market in oil. Measures taken individually  by  each of
the Member States are likely to upset the internal market.

29

3.2.1. Inadequacy of the International Energy Agency framework

Since the oil market operates worldwide, the European Union will always have to ensure that
it works together with the other major consumer countries. The International Energy Agency
(IEA),  to  which  all  Member  States  of  the  European  Union  and  the  other  major  consumer
countries (in particular the USA, Japan, and Korea) belong, could serve  as a framework for
this necessary coordination. However, the existence of the IEA does not in any way obviate
the  need  for  an  EU  decision-making  process:  the  specific  character  of  the  European  Union
and the development of  the  internal  market  make  it  essential to  put  an  EU  decision-making
process into place.

The existing framework of the  IEA also has a number of major weaknesses. Since the early
1980s, the IEA has taken the view that the crisis mechanism provided for in its 1974 founding
Treaty  was  not  properly  suited  to  take  account  of  changes  in  the  oil  market.  The  IEA
Governing  Board  introduced  another  crisis  mechanism,  CERM  (Coordinated  Emergency
Response Measures), to enable security stocks to be used more easily. However, unanimity of
the Governing Board, made up of representatives of the 26 participating States, is needed for
a CERM to be triggered, so the lack of any clear criterion for this mechanism to be deployed
and the different approaches of the participating States to intervention mean there are obvious
risks of blockages occurring. Furthermore, even if a CERM is triggered, the broad discretion
left to the States as to how they can make a contribution to the measure means there is a
flagrant lack of unity of action.

In view of the political nature of any oil crisis, it is important to point out that the IEA is a
technical  organisation  and  has  only  limited  authority.  The  adoption  of  an  EU  decision  is
clearly an act whose political and legal implications go far beyond those of an IEA decision.

Nevertheless, in the event of a crisis or threat of a crisis likely to influence economic growth,
priority  should  be  given  to  common  action  involving  the  greatest  possible  number  of
consumer  countries,  including  in  the  framework of  the  IEA. This will help to maximise the
positive effects of Community action.

While  Community  action  needs  to  be  coordinated  with  that  of  the  other  major  consumer
countries, a Community decision-making process is therefore necessary to guarantee unified,
coordinated and coherent action throughout the whole of the European Union so that it acts in
a  unified  and  credible  manner.  Both  the  use  of  security  stocks  and  measures  to  reduce
consumption  require  a  Community  decision-making  mechanism  to  coordinate  them.  These
measures cannot, in an internal market, be taken by each Member State acting independently
of each other.

3.2.2. The Community mechanism proposed

The proposal for a Directive sets up a genuine decision-making mechanism under which the
European  Union  will  be  able  to  define  the  action,  in  particular  as  regard  the  use  of  stocks,
which it plans to take in the event of a crisis. Specifically, if the need urgently arises due to
changes in the oil market, the European Commission will therefore have powers to take the
emergency measures required, taking account of the general aims of the mechanisms for the
use of security stocks.  It  will be  assisted by  a  Committee made  up  of representatives of  the
Member States and chaired by a Commission representative.

The  mechanism  will  be  of  the  "regulatory  procedure"  type,  as  laid  down  in  Article  5  of
Council  Decision  of  28  June  1999  laying  down  the  procedures  for  the  exercise  of
implementing  powers  conferred  on  the  Commission.  The  Commission  representative  will
submit to the Committee a draft of the measures to be taken. The Committee will express its

30

opinion on the draft within a period laid down by the Chairman according to the urgency of
the particular situation. If the measures proposed do not reflect the Committee's opinion, or if
the  Committee  has  not  expressed  an  opinion,  the  Commission  will  immediately  submit  a
proposal on the measures to be taken to the Council.

This mechanism for coordinated action will contribute to the smooth operation of the internal
market in oil and will also help to make the crisis measures more effective.

3.2.3 Potential activation threshold for the mechanism

The  Commission  will  be  able  to  adopt  the  appropriate  measures  in  the  event  of  a  general
perception that supply is likely to be disrupted or if there is an actual disruption to supply.

The  proposal  for  a  Directive  provides  for  a  potential  activation  threshold  in  the  event  of
physical disruption. Measures may be taken to draw on stocks or restrict consumption.

In the event of a general perception of a risk of disruption of supply, notably as a result of an
external shock, in view of the aim of protecting economic growth, employment and the most
vulnerable  social  and  professional  groups  from  high  levels  of  fluctuation  in  oil  prices,  the
"price" factor will be essential for defining an  alert threshold which, if exceeded, will entail
Community action.

This alert threshold is attained when the price of crude oil reached on the spot markets is such
that,  if  the  price  stayed  at  that  level  for  a  period  of  twelve  months,  the  European  Union's
external oil bill during the next twelve months would rise by the equivalent of more than half
a percentage point of EU GDP for the preceding year. The reference point for calculating the
scale  of  the  increase  is  the  average  external  oil  bill  over  the  last  five  years.  By  way  of
example, in the present situation (2002), the price of a barrel of Brent would have to exceed
$3016 for the threshold to be attained.

Exceeding  this  alert  threshold  is  therefore  a  prerequisite  for  releasing  stocks,  but  it  is  not
sufficient  in  itself  for  taking  that  decision,  in  the  event  of  a  general  perception  of  a  risk  of
disruption  of  supply  exceeding  the  threshold  initiates  a  phase  in  which  the  Commission
examines all the factors contributing to the crisis. Any decision about the advisability of, or
need for, action will have to be taken in the light of all these factors.

4.

TECHNICAL EXPERTISE FOR IMPLEMENTATION OF THE MEASURES

The  creation  of  the  internal  energy  market  is  a  gradual  and  very  complex  process  as  it
involves  very  technical  rules.  It  is  therefore  important  to  ensure  that  the  new  legislative
framework  is  applied  effectively,  efficiently  and  uniformly  by  all  market  players  under
conditions which will guarantee competitiveness.

The  various  phases  of  the  development  of  the  internal  market  for  gas  and  electricity  were
therefore  accompanied  by  measures  which  enabled  national  regulatory  authorities,  Member
States, market operators and the Commission to be called together in the context of technical
working groups. These working meetings consider what are the most appropriate measures to
take  to  open  up  the  gas  and  electricity  markets  and  regularly  submit  very  technical
recommendations to the Commission.

16

Corresponding to an OPEC basket price of between $28 and $29 a barrel.

31

                                                
Similarly, the new EU arrangements to be put in place to harmonise the measures to safeguard
oil supplies, in the context of the internal market in energy, will involve complex, technical
tasks.  These  will  in  particular  concern  monitoring  the  development  of  international  markets
and  assessing  their  impact  on  the  safety  and  security  of  supplies.  There  will  have  to  be
continuous assessment of the effectiveness  of  the  measures  taken.  In  this  context,  it  will  be
necessary to monitor the level of oil stocks held by the Member States. For these tasks to be
carried out, objective, reliable and comparable data will have to be available.

Should an energy crisis occur and the European Commission takes and coordinates measures
to  release  oil  stocks,  the  effects  of  this  action  on  the  energy  market  and  the  economy  as  a
whole will have to be considered.

It is therefore essential to create, within the Commission, a European observation system for
oil and gas supply which will gather the necessary expertise in order to respond to the highly
technical  issues  involved  in  these  tasks.  Under  the  Commission's  direction,  it  will  provide
technical  and  scientific  assistance  and  a  high  level  of  expertise  to  assist  in  the  proper
application of EU legislation in the field of oil and gas supply.

This European observation system will be managed by the Commission, which should invite
representatives of the Member States to the meetings as well as representatives of the sectors
concerned.

5.

CONCLUSION

The  aim  of  this  proposal  for  a  Directive  is  to  encourage  greater  harmonisation  and
coordination of national measures regarding security of oil supplies, thereby helping to
ensure that the internal market functions properly. It aims to provide the European Union
with the means to act in a unified, credible manner when oil supply difficulties are disrupting,
or threaten to disrupt, the functioning of the economy and society.

These measures will, in the event of a crisis, provide the solidarity and the joint Community
action necessary in order to respond effectively to uncertainties in the energy market and to
promote in this context the proper functioning of the internal market. They are necessary to
ensure  the  opening  up  of  the  market  in  petroleum  products  to  non-refiners,  to  avoid
cross-border  downstream  supply  chains  from  being  disadvantaged  as  compared  with  purely
national chains, and thus to create a genuine internal market in refined products. Article 95 of
the Treaty therefore represents the appropriate legal basis for the proposal for a Directive.

32

2002/0219 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

concerning the alignment of measures with regard to security of supply for petroleum
products

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
95 thereof,

Having regard to the proposal from the Commission,1

Having regard to the opinion of the Economic and Social Committee,2

Having regard to the opinion of the Committee of the Regions,3

Acting in accordance with the procedure laid down in Article 251 of the Treaty,4

Whereas:

(1)

(2)

(3)

The completion of the internal energy market must be accompanied by the necessary
coordination  of  measures  to  guarantee  the  security  of  the  Community's  external  oil
supplies. The internal market is based on the need for solidarity between the Member
States, which can be  seen more particularly in the essential energy  supply sectors of
oil and gas.

Crude oil and petroleum products occupy a central position in the Community's supply
of energy products and play  an essential part  in  the  functioning  of  the  economy  and
society, in particular in view of their role in the field of transport. Oil prices are also
used as a reference for the establishment of natural gas prices.

Current  national  laws  with  regard  to  the  security  of  oil  supplies  are  insufficiently
harmonised  and  coordinated  at  Community  level  can  lead -  and  indeed  have  led -  to
distortions  in  the  internal  market  in  petroleum  products.  Greater  harmonisation  and
coordination  of  the  national  measures  relating  to  the  security  of  oil  supplies  are
therefore necessary to ensure the proper functioning of the internal market.

1

2

3

4

OJ C [...], [...], p. [...].
OJ C [...], [...], p. [...].
OJ C [...], [...], p. [...].
OJ C [...], [...], p. [...].

33

                                                
(4)

(5)

(6)

(7)

(8)

(9)

In order to ensure supply on the most economic terms for consumers, it is necessary to
promote a more open and competitive structure in the petroleum product markets. This
involves developing a genuine internal market in petroleum products which enables all
distributors to be supplied on a straightforward and competitive basis, including those
which are not national refiners.

The  security  stocks  systems  differ  considerably  from  one  Member  State  to  another.
The  national  provisions  may  have  the  effect  of  partitioning  the  petroleum  products
markets nationally and disadvantaging operators which are not national refiners.  It is
therefore necessary to take measures to align, at least partially, the stocks systems and
to  ensure  that  the  organisation  of  these  stocks  does  not  adversely  affect  the  proper
functioning of the internal market.

For  non-refiners,  a  stockholding  obligation  is  a  particularly  burdensome  constraint
and, in some cases, a barrier to entry. It is therefore necessary, to ensure the opening
up of the markets in petroleum products, to guarantee these operators the possibility of
complying  with  their  obligations  otherwise  than  by  themselves  holding  the  security
stocks or concluding agreements with the national refiners.

To this end also, it is appropriate to harmonise the national provisions relating to the
management of stocks by setting up a public body, as exists in certain Member States,
responsible  for  managing  at  least  one-third  of  the  stockholding  obligations  in
accordance with the principles relating to the opening-up of the national market.

Since  restricting  provisions  concerning  the  holding  of  security  stocks  outside  of  the
national territory may disadvantage a cross-border petroleum products supply chain as
compared with a purely national chain, it is necessary, to ensure the proper functioning
of the internal market, to allow and provide a basis for stocks to be built up outside of
the national territory.

As  stated  in  the  Green  Paper  Towards  a  European  strategy  for  security  of  energy
supply,5 the Community's external oil dependence and the geographical concentration
of  production  capacities  are  substantial  and  are  likely  to  increase.  This  situation
creates major risks for the security of oil supplies.

(10) Any  difficulty  which  substantially  reduces  supplies  of  petroleum  products  or
substantially increases their price is likely to cause serious damage to the Community
economy.  It  is  therefore  essential  to  be  able  to  make  good,  or  at  least  mitigate,  the
damage caused by any such difficulties. To this end, it is necessary to build up security
stocks  which  can  be  used  in  a  coordinated  manner  in  such  circumstances  at
Community level.

(11) Apart from the release onto the market of security stocks built up to deal with a crisis
situation,  the  measures  intended  to  mitigate  the  effects  of  difficulties  related  to  the
supply  of  crude  oil  and  petroleum  products  also  include  measures  to  curb
consumption.  It is essential to provide for appropriate procedures  and  instruments  to
ensure  the  rapid,  coordinated  and  unified  implementation  of  these  two  types  of
measures.

5

COM(2000)769.

34

                                                
(12)

(13)

To this end, all the Member States must have the necessary powers to take the relevant
measures, where appropriate and without delay, including in situations in which there
is not an actual physical shortage, but sharp price rises have come about as a result of
the expectation of the risk of a physical disruption.

In the event of difficulties relating to oil supply, it is necessary, in order to ensure the
proper  functioning  of  the  internal  market,  to  make  sure  that  there  is  solidarity  and
uniformity of action in the Community, taking account of the need to coordinate such
action with that of other major consumer countries.

(14) A  European  observation  system  for  oil  and  gas  supplies  should  be  set  up  within  the
Commission  in  order  to  assist  in  designing  and  properly  applying  Community
legislation  regarding  oil  supplies,  monitoring  the  application  of  this  legislation  and
helping to evaluate the effectiveness of the measures  in  force,  as  well  as  monitoring
more closely the changes with regard to the security of oil supplies in the framework
of the internal market.

(15)

(16)

The measures required for the implementation of this Directive need to be adopted in
accordance  with  Council  Decision  1999/468/EC  of  28  June  1999  laying  down  the
the
procedures  for 
Commission.6

implementing  powers  conferred  on 

the  exercise  of 

the 

In accordance with the principles of subsidiarity and proportionality, as referred to in
Article 5 of the Treaty, the aims of the proposed action, namely the creation of a fully
operational  internal  market  in  petroleum  products  based  on  free  competition  and
security of supply for petroleum products, cannot be achieved by  the Member States
acting  independently  of  each  other  and  therefore  can  best  be  achieved  at  the
Community  level.  This  Directive  does  not  go  beyond  what  is  necessary  for  that
purpose.

HAVE ADOPTED THIS DIRECTIVE:

Article 1

The  aim  of  this  Directive  is  to  ensure  the  proper  functioning  of  the  internal  market  in
petroleum  products.  For  this  purpose,  it  provides  for  the  alignment  of  the  provisions  of  the
Member States with regard to oil stocks and crisis measures and coordinated action between
the Member States in the event of a supply crisis.

Article 2

1.

Member States shall take all necessary measures to maintain at all times, subject to
the  provisions  of  Article  6,  a  level  of  stocks  of  petroleum  products  equivalent,  for
each  of  the  categories  of  petroleum  products,  to  at  least  90  days'  average  daily
internal consumption in the preceding calendar year.

6

OJ L 184, 17.7.1999, p. 23.

35

                                                
2.

3

4.

5.

1.

2.

3.

1.

2.

1.

The  level  of  minimum  stocks  referred  to  in  paragraph  1  shall  be  increased  to  120
days as soon as possible following the publication of this Directive and no later than
1 January 2007.

Member  States  shall  ensure  the  availability  and  accessibility  of  the  stocks  held  in
accordance  with  paragraphs  1  and  2,  in  order  to  be  able  to  take,  without  delay,
appropriate measures for their use in accordance with Article 6.

Member States shall send the Commission, no later than one year following the entry
into force of this Directive and then every six months until the level of stocks defined
in paragraph  2 has been achieved, a detailed report on  the  measures  taken  or  to  be
taken to achieve this level of stocks.

The  stocks  referred  to  in  paragraphs  1  and  2  shall  be  built  up  and  maintained  by
Member States within their territory or in the territory of another Member State

Article 3

The Member States shall set  up  a  public  oil stockholding  body. They  shall take  all
necessary measures to ensure that, as soon as possible following the entry into force
of this Directive and no later than 1 January 2007, the stockholding body owns, for
each  of  the  categories  of  product,  stocks  representing  at  least  one  third  of  the
obligations set out in Article 2(1) and (2).

Where a Member State imposes stockholding obligations on operators in the market,
the  public  stockholding  body  shall  assume  the  stockholding  obligations  of
non-refiners which so wish, subject to a payment with shall not exceed the costs of
the services rendered.

Two  or  more  Member  States  may  decide  to  use  the  same  stockholding  body  or
agency.  In  such  a  case,  they  are  jointly  responsible  for  complying  with  the
requirements of this Directive.

Article 4

Member States shall ensure that fair and non-discriminatory conditions apply in their
stockholding arrangements.

Member  States  shall  ensure  that  their  arrangements  do  not  disadvantage  supplies
from  refineries  located  in  other  Member  States  as  compared  with  supplies  from
refineries  located  in  their  own  territory.  They  shall  in  particular  authorise  any
undertaking  which  has  a  stockholding  obligation  and  which  obtains  its  supplies  of
refined  products  from  one  or  more  other  Member  States  to  fulfil  this  obligation
through stocks held in the Member States concerned.

Article 5

In  the  event  of  stocks  being  built  up,  for  the  purposes  of  the  application  of  this
Directive, in the territory of a Member State on behalf of undertakings, organisations
or agencies established in another Member State, the Member State in the territory of

36

2.

1.

2.

1.

2.

3.

1

which  such  stocks  are  stored  may  not  in  any  circumstances  object  to  their  being
transferred to the other Member States on behalf of which the stocks are held.

Member States shall put in place a system of verification to ensure the identification,
registration  and  monitoring  of  the  stocks  held  in  their  territory  on  behalf  of
undertakings, organisations or agencies established in another Member State.

Article 6

Member States shall provide their competent authorities with powers to enable them
to use the stocks maintained under the obligation referred to in Article 2(1) and (2) in
the event of difficulties relating to the functioning of the internal market in petroleum
products due to supply problems, in accordance with Articles 7 and 8.

Apart from the cases referred to in Articles 7 and 8, Member States shall refrain from
drawing  on  stocks  where this would  have  the effect  of reducing them  to  below  the
minimum compulsory level, except in cases of local supply difficulties, after having
informed the Commission, or to comply with their international obligations.

Article 7

In the event of a disruption of oil supply which may seriously disrupt the functioning
of the economy and the internal market in petroleum products, the Commission may,
by taking a decision in accordance  with the procedure provided  for  in Article 9(2),
require the Member States to:

a)

b)

make the security stocks referred to in Article 2(1) and (2) gradually available,

restrict consumption in a specific or overall manner.

The measures to be taken by the Member States must restrict competition as little as
possible.  The  Commission  shall  ensure  that  this  principle  is  complied  with
throughout the period of application of the measures.

The  Commission  may  take  measures  of  the  type  referred  to  in  paragraph  1  when
there is a 7% disruption of the normal level of crude oil supply at world level.

The  Commission  decision  may  lay  down  specific  arrangements  and  conditions  for
the implementation of the measures to be taken by the Member States.

Article 8

In the event of a general perception of a risk of disruption of oil supply, notably in
the  context  of  an  external  shock,  giving  rise  to  a  high  level  of  volatility  in  the  oil
markets which may seriously disrupt the functioning of the economy and the internal
market  in  petroleum  products,  the  Commission  may,  by  taking  a  decision  in
accordance  with  the  procedure  provided  for  in  Article  9(2),  require  the  Member
States  to  make  the  security  stocks  referred  to  in  Article  2(1)  and  (2)  gradually
available  taking  into  account  international  agreements  concluded  by  the  Member
States and decisions taken in the context of such agreements.

37

2

3

4.

1.

2.

3.

1.

2.

1.

The measures to be taken by the Member States must restrict competition as little as
possible.  The  Commission  shall  ensure  that  this  principle  is  complied  with
throughout the period of application of the measures.

The  Commission  may  examine  the  need  for  measures  of  the  type  referred  to  in
paragraph  1  when  the  price  of  crude  oil  on  the  spot  markets  is  such  that,  were  the
price maintained at that level for 12 months, the Community's external oil bill during
the next 12 months would be increased by the equivalent of more than 0.5% of the
European Union's gross domestic product as compared with the average external oil
bill during the previous five years.

In the context of the examination provided for in paragraph 2, the Commission shall
take  account  of  all  the  elements  necessary  for  an  evaluation  of  the  Member  States'
supply  conditions.  It  shall  take  into  consideration  in  particular  the  nature,  duration
and scale of the elements giving rise to the situation referred to in paragraph 1.

The  Commission  decision  may  lay  down  specific  arrangements  and  conditions  for
the implementation of the measures to be taken by the Member States.

Article 9

The Commission shall be assisted by a Committee made up of representatives of the
Member States and chaired by the Commission representative.

Where  reference  is  made  to  this  paragraph,  Articles  5  and  7  of  Decision
1999/468/EC shall apply, in accordance with the provisions of Article 8 thereof. The
period provided for in Article 5(6) of Decision 1999/468/EC shall be one week.

The Committee shall adopt its internal rules of procedure.

Article 10

Member  States  shall  adopt  all  the  provisions  and  put  in  place  all  the  mechanisms
necessary to ensure the identification and supervision of stocks.

They shall determine a system of penalties applicable in case of infringements of the
national  provisions  adopted  pursuant  to  this  Directive  and  shall  take  all  necessary
measures  to  ensure  the  implementation  of  those  provisions.  The  penalties  provided
for must be effective, proportionate and dissuasive.

Member States shall have intervention plans which can be applied in the event of a
disruption of oil supply or the general perception of a risk of disruption of oil supply
which  is  giving  rise  to  a  high  level  of  volatility  in  the  oil  markets.  They  shall
designate the bodies responsible for implementing the measures to be taken pursuant
to this Directive.

Article 11

The  Commission  shall  take  all  the  measures  necessary  for  the  application  of  this
Directive. It shall in particular lay down:

38

2.

1.

2.

3.

a)

b)

c)

a definition of the categories of products referred to in Articles 2 and 3,

the  arrangements  for  calculating  internal  consumption  and  the  stockholding
obligations referred to in Article 2, including taking indigenous oil production
in the Member States into account in these calculations,

the  arrangements  for  the  transmission  to  the  Commission  of  statistical
summaries  for  surveillance  of  the  Member  States'  implementation  of  the
obligations under this Directive.

The Commission shall adopt the measures referred to in paragraph 1 in  accordance
with the procedure laid down in Article 9(2).

Article 12

Not later than  1  January 2004, the  Commission shall adopt  the  necessary measures
for  setting  up  a  European  observation  system  for  oil  and  gas  supply  to  assist  in
preparing  and  ensuring  the  proper  implementation  of  Community  legislation  in  the
field  of  oil  supply,  to  monitor  its  application  and  to  assist  in  evaluating  the
effectiveness  of  the  measures  in  force  and  their  effects  on  the  functioning  of  the
internal  market  in  petroleum  products.  The  Commission  shall  ensure  that  adequate
resources  are  made  available  to  permit  effective  monitoring  of  the  arrangements
provided for in this Directive.

The  European  observation  system  for  oil  and  gas  supply  shall  be  managed  by  the
Commission, which will invite representatives of the Member States and the sectors
concerned to meetings. It shall provide the Commission with the technical assistance
necessary  for  the  formulation  and  evaluation  of  measures  taken  pursuant  to  this
Directive,  and  shall  contribute  to  a  better  understanding  of  the  development  of  the
internal  market  and  the  international  oil  markets  and  the  factors  driving  these
markets.

The European observation system for oil and gas supply shall carry out the following
tasks with regard to oil:

(a) Monitor  the  functioning  of  the  internal  market  and  the  international  oil

markets;

(b) Contribute  to  the  setting  up  of  a  system  for  the  physical  monitoring  of  the
infrastructures  inside  and  outside  of  the  Community  which  contribute  to  the
security of oil supply;

(c) Monitor  the  security  of  oil  supply  and  the  procedures  intended  to  guarantee

security of oil supplies in crisis situations;

(d)

Study the development of  effective security measures in the oil sector;

(e) Monitor  the  level  of  security  stocks  of  oil  and  petroleum  products  and  the
procedures  for  their  use,  and  the  implementation  of  measures  to  reduce
consumption;

(f)

Create objective, reliable and comparable databases to fulfil its tasks.

39

Article 13

Member  States  shall  adopt  the  laws,  regulations  and  administrative  provisions  necessary  to
conform  with  this  Directive  no  later  than  1 January 2004  and,  as  regards  Article 2(2)  and
Article 3, no later than 1 January 2007. They shall forthwith inform the Commission thereof.

When Member States adopt those provisions, they shall contain a reference to this Directive
or be accompanied by such a reference on the occasion of their official publication. Member
States shall determine how such reference is to be made.

This Directive shall enter in force on the twentieth day following that of its publication in the
Official Journal of the European Communities.

Article 14

Article 15

This Directive is addressed to the Member Sates.

Done at Brussels, […]

For the European Parliament
The President

For the Council
The President
[…]

40

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND THE COUNCIL

concerning measures to safeguard security of natural gas supply

41

EXPLANATORY MEMORANDUM

1.

BACKGROUND

1.1.

Completion of the internal market for energy

The European Union is making steady progress towards the completion of the internal market
for gas and electricity. In fact, the EU is in the process of creating the largest, integrated and
most  open  regional  electricity  and  gas  market  in  the  world.  As  demonstrated  by  the  Green
Paper  “Towards  a  European  strategy  for  security  of  energy  supply”  (COM(2000)  769),  this
market integration will contribute to security of supply, provided, however, that markets are
truly integrated. The European Council at Barcelona on 15-16 March 2002 therefore stressed
the  importance  of  powerful  and  integrated  energy  networks  as  the  backbone  of  the  internal
market and an important precondition for connecting the European economies.

However, market opening and sufficient physical interconnection of markets are not in itself a
guarantee of a liquid market based on secure gas supplies from both indigenous and external
sources.  It  is  therefore  important  that  the  current  profound  changes  in  the  market  and  the
transition  towards  a  fully  open  internal  energy  market  are  supplemented  by  transparent  and
unambiguous  new  policies  defining  the  overall  framework  as  well  as  clear  roles  and
responsibilities  of  the  different  market  players  with  regard  to  security  of  supply  within  the
new market context.

In order to ensure the continued well-functioning of the internal market for gas, it is equally
important  to  ensure  that  appropriate  measures  are  implemented  to  deal  with  extraordinary
supply situation.

1.2.

Increasing importance of gas and expected rising import dependence.

Natural gas is becoming an increasingly important source of energy in the EU's fuel mix. In
2000,  natural  gas  accounted  for  approximately  24%  of  total  EU  primary  energy  supply
compared to 16% in 1985 and less than 2% in 1960. The steady growth trend continues, even
in times of low economic growth. In 2001, Western European gas consumption increased by
2.5% notably as a result of significant increase in the number of household customers and in
gas consumption in power generation.

Natural  gas  has  sustained  its  position  as  the  fuel  of  choice  in  EU  power  generation.  Since
1995, gas-fired power generation has every  year represented 50-60% of new investments in
EU  power  generation.  The  most  remarkable  development  over  the  last  decade  has  been  the
increasing share of combined-cycle gas turbines (CCGTs) due to a combination of a change in
the EC stance on gas-fired power generation at the start of the 1990s, technological progress,
relatively competitive gas and environmental considerations.

EU  demand  for  gas  and  electricity  is  expected  to  increase  considerably  over  the  coming
twenty years. Both EU gas and electricity demand is expected to increase by more than 40%
before 2020 and a market share of gas in EU energy supply of up to around 30% is realistic.
The key driver in gas demand growth is power generation. Two-thirds of the increase in gas
demand  is  forecast  to  come  from  gas-fired  power  generation  and  co-generation.  The
increasing dependence on gas in power generation raises a number of issues with regard to the
increasing interdependence between the two sectors notably with regard to security of supply.

42

Europe, however, is in  a  relatively  favourable  gas supply situation with significant own  gas
reserves and 70-80% of global gas reserves within economic reach of the  European market.
When  implementing  the  EU  Gas  Directive  later  this  year,  Norway  will  become  a  fully
integrated part of the internal  gas market. Combined EU/EEA gas production is expected to
increase  over  the  coming  decade  based  on  proven  and  additional  discovered  gas  reserve
potential. By 2010, the internal EU/EEA gas market is expected to depend on imports for up
to  25-30%.  An  enlarged  internal  market  including  the  10  Central  and  Eastern  European
candidate countries is expected to depend on imports for 35-40% by 2010.

Further EU/EEA gas reserves may well be mobilised before 2010, which could help  further
sustain EU/EEA gas production levels and hence delay a significant increase in EU/EEA gas
import  dependency.  However,  as  a  function  of  the  expected  rapid  increase  in  gas  demand
combined  with  an  expected  gradual  levelling  off  and  decline  in  domestic  EU/EEA  gas
production  at  some  point  in  time,  the  EU/EEA  is  expected  in  the  longer-term  to  become
increasingly  dependent  on  imported  gas.  Based  on  the  current  demand  forecast  by  Eurogas
and the Commission and production forecast by the International Association of Oil and Gas
Producers (OGP)  for  EU  and  Norway,  the  level  of  import  dependency  of  EU15/EEA  could
reach nearly 60% by 2020. For EU25/EEA, the level could reach 65% by 2020. According to
recent analysis made by the OGP, these levels could, however, be lower if allowance is made
for  developing  possible  upside  resource  potential  including  "undiscovered  potential"  and
given the right economic conditions.

On the other hand, however, the import dependency of the EU as such (i.e. without Norway)
would be significantly higher and possibly as high as three-quarters by 2020 for EU15.

Import  dependency  varies  significantly  between  Member  States.  A  number  of  EU  Member
States  are  already  completely  dependent  on  imports  while  others  will  see  their  dependence
rise close to 100%.

On this background, security of supply and Europe's continued ability to attract sufficient gas
supply naturally becomes a priority. Security and continuity of supply is particularly crucial in
the  power-generating  sector.  Cost  of  failing  security  of  supply  can  be  very  substantial  to
modern society as the California electricity  supply crisis has  borne  evidence  to.  The  cost to
society of the rolling black-outs in California in January 2001 has been estimated at 42 billion
USD or some 3.4% of California's GDP.

Continuity  of  gas  supply  is  also  essential  to  other  consumer  categories  notably  small
customers  without  switching  capabilities  to  alternative  fuel  such  as  many  large  industrial
customer have notably with the possibility to interrupt gas supply and switch to back-up oil
supply.

The  Green  Paper  "Towards  a  European  strategy  for  the  security  of  energy  supply"  (COM
(2000) 769)  therefore  suggested  that  in  order  to  widen  and  renew  policy  of  fuel  stocks,  the
European  Union  "could  consider  extending  the  [oil] stocks  mechanism  to  natural  gas…The
Union needs to guard itself against excessive vulnerability, resulting from too great a degree
of dependence".

In  its  Communication  on  "Security  of  EU  Gas  Supply"  (COM(1999)  571  final),  the
Commission  announced  that  it  would  report  on  a  regular  basis  to  the  Council  and  the
European Parliament on EU gas security issues and if and when appropriate, the Commission
would  "make  proposals  to  strengthen  security  of  EU  gas  supply  and  further  develop  the
common framework for security of gas supply".

43

1.3.

The internal market for natural gas of the EU and security of supply

The  completion  of  the  internal  market  for  natural  gas  in  the  European  Union  and  ensuring
security  of  supply  are  compatible  objectives.  It  is  obvious  that  a  well  functioning  single
market for gas relies on a sufficient level of secure gas supplies from  a diversified range of
supply sources. For this reason, an integral part of the creation of the EU internal gas market
are measures ensuring security of gas supplies in the new market environment.

Directive  98/30/EC  of  the  European  Parliament  and  of  the  Council  of  22  June  1998
concerning  common  rules  for  the  internal  market  in  natural  gas1  has  made  very  important
contributions  towards  the  creation  of  the  internal  market  for  gas.  The  directive  already
acknowledged the importance of security of supply for the internal market. Consequently, it
allows  Member  States  the  possibility  of  imposing  public  service  obligations  on  natural  gas
undertakings in relation to security of supply.

The  creation  and  development  of  an  internal  market  for  natural  gas  inevitably  renders
Member  States  increasingly  interdependent  regarding  security  of  supply  issues.  As  a  result,
failure  to  adopt  adequate  measures  in  one  Member  State  can  have  serious  consequences
regarding the operation of the internal market throughout the European Union. It is therefore
essential,  in  order  to  ensure  the  proper  functioning  of  the  internal  market,  to  provide  for  a
minimum  level  of  harmonisation  regarding  security  of  gas  supply  policies  in  each  Member
State,  in  order  to  avoid  market  distortions  and  ensure  the  well  functioning  of  the  internal
market for gas on a level playing field.

Liquidity forms an indispensable ingredient of a proper functioning EU internal gas market.
Measures aimed at enhancing liquidity, such as spot markets, incentives for new gas supplies
from  internal  and  external  sources  and  non-discriminatory  authorisation  procedures  for
building storage and LNG facilities, should, among other things, be fully taken into account
by security of supply policies in a competitive market environment.

2.

THE EUROPEAN GAS MARKET IN TRANSITION - CLEAR SECURITY OF SUPPLY RULES
ARE IMPORTANT AS AN INTEGRAL PART OF THE INTERNAL MARKET.

The  European  gas  industry  has  managed  security  of  supply  in  a  steadily  growing  European
gas market over the last four decades very successfully. However, the European gas market is
undergoing rapid change these years and the role of traditional market actors is also changing.

Hitherto, the task of planning and developing the gas network to fulfil gas security targets (as
often  defined  by  the  gas  industry  itself)  was  relatively  straightforward  as  the  dominant
suppliers controlled all the infrastructure requirements, gas supply and demand side portfolio,
information and other necessary instruments to conduct this planning. In addition, direct state
involvement  was  less  necessary  as  the  national  gas  companies  responsible  for  security  of
supply  in  many  cases  were  partly  or  fully  publicly  owned.  Until  now,  few  Member  States
have therefore been directly involved in setting security of supply policies for natural gas.

In  the  new  liberalised  gas  market,  however,  no  single  player  will  necessarily  maintain  the
overall  responsibility  for  short-  and  longer-term  security  of  gas  supply  at  national  level  as
industry  restructures,  national  markets  integrate,  new  entrants  emerge  and  competition
develops. While security of gas supply forms an integral part of the internal market for  gas,

1 

OJ L 204, 21.7.1998, p.1.

44

                                                
security  of  supply  policies  and  procedures  need  to  be  reviewed  and  formalised  in  this  new
context, which represents different circumstances. In  a  competitive  market,  it  is  not  evident
that  strategic  priority  will  be  given  by  gas  suppliers  to  security  of  supply.  The  primary
objective  and  role  of  gas  companies  is  changing  towards  being  competitive.  Organising
security  of  supply  can  therefore  not  be  left  to  industry  alone  and  Member  States  have  an
obligation to ensure that all market players take minimum measures with regard to security of
supply.  Moreover,  security  measures  can  be  costly  and  it  is  perfectly  feasible  that  certain
operators could neglect these measures to reduce costs if no agreed minimum standards apply.

The adoption by Member States of measures requiring industry to meet minimum standards is
therefore an important integral part of market opening. The creation of an internal market is
not simply freeing customers to choice, but also ensuring that the market provides high levels
of public service, foremost amongst which is security of supply. The existing Gas Directive
(98/30/EC) therefore acknowledges the right of Member States to consider security of supply
as a public service obligation. Security provisions are not a consequence of the creation of the
internal  market,  but  a  central  part  of  it.  Without  a  common  framework  establishing
harmonised minimum standards with respect to security of supply obligations, a real risk of
market distortion exists.

Security  of  supply  and  competition  are  compatible  objectives  and  gas  security  can  be
enhanced in the single EU gas market when properly planned for by companies in liaison with
the  responsible  authorities.  A  sufficient  and  appropriate  level  of  security  of  supply  will
contribute  to  a  proper  functioning  of  the  internal  market.  The  transition  to  the  new  market
regime is obviously particularly important with regard to clearly defining  the new  rules  and
ensuring in operational terms a continued high level of security of gas supply.

Article 24 of Directive 98/30/EC concerning common rules for the internal market in natural
gas  allows  Member  States  to  take  necessary  safeguard  measures  in  the  event  of  a  sudden
crisis  in  the  energy  market.  Such  measures  shall,  however,  cause  the  least  possible
disturbance  to  the  functioning  of  the  internal  market  and  shall  be  least  restrictive  to
competition.  Measures taken shall be notified  to other Member  States  and  the  Commission,
which may decide that the Member State concerned must amend or abolish such measures if
they  distort  competition  or  trade  in  a  manner  which  is  not  in  the  common  interest.  It  is
necessary to  complement  these  measures  by  establishing  minimum  levels  of  action  by  each
Member State, which need to be compatible with the requirements of the internal market.

A clear need exists therefore to have such emergency measures defined and agreed in advance
rather than Member States developing these if and when a sudden crisis arises.

The  European  gas  industry  including  both  GTE  (the  European  association  of  transmission
system  operators)  and  Eurogas  have  stressed  the  need  for  the  definition  of  clear  roles  and
responsibilities  of  the  individual  market  players  with  regard  to  security  of  supply2.  In  a
rapidly changing market, it is extremely important that any uncertainty with regard to security
of supply responsibilities is avoided. Lack of clarity with regard to security of supply will in
itself increase the risk of a supply crisis.

2  GTE  i.a.  in  "GTE  Position  Paper",  15  June  2001.  Eurogas  i.a.  in  "Response  of  Eurogas  to  the  DG  TREN

Strategy Paper", 19 March 2001.

45

                                                
The  primary  responsibility  for  an  overall  definition  of  such  clear  roles  and  responsibilities
within the new legislative, regulatory and market framework of the internal market lies with
Member States.

While  the  operational  responsibility  must  remain  with  the  gas  industry,  Member  State
governments  as  well  as  the  Community  have  therefore  an  important  co-ordinating  and
supporting  role  to  play  in  this  respect.  The  role  of  government  will  be  to  ensure  that  the
market is working efficiently and giving true signals to guide the participants in interpreting
and managing change while maintaining the appropriate level of security of supply. The role
of the Community will be to monitor implementation of the new security of supply policies
and ensure their compatibility with the requirements of a well functioning internal market.

The  fifth  meeting  held  in  February  2002  of  the  European  Gas  Regulatory  Forum,  which
brings  together  the  Commission,  national  regulatory  authorities,  Member  States  and  all
relevant  gas  market  stakeholders  agreed  on  a  set  of  recommendations  on  "Guidelines  for
Good Practice" in relation to third party access services. The guidelines include some initial
elements  aimed  at  clarifying  the  roles  and  responsibilities  of  the  main  parties  in  gas
transportation  notably  the  transmission  system  operators  (TSOs)  and  network  users.  In
addition, the Forum agreed that3:

"Within  the  new  regulatory  and  market  environment  of  the  internal  market  for  gas
characterised by a multitude of market players and unbundling of integrated gas companies,
security of supply can no longer be assumed to be the responsibility of one single party.

A new chain of responsibilities with regard to security of supply and infrastructure planning
between  public  authorities  and  the  different  market  players  including  shippers  and  TSOs
therefore needs to be enshrined in order to ensure certainty in this respect. Obligations must
be allocated clearly to different players and appropriate to their role.

In this respect Member States will have a role in defining security of supply output standards
within  a  public  policy  framework.  Within  this  framework  it  may  be  left  to  the  market  and
industry to develop the most efficient solutions to meet the agreed outputs."

However, security of gas supply is not merely a question of balancing demand and supply in a
competitive market every day. It also has a long-term strategic aspect.

In view of the above and in view of the transition towards a fully operational and integrated
single  gas  market,  Member  States  should  therefore,  in  function  of  their  gas  market  features
and structures, monitor and ensure that security of gas supply policies are adapted to the new
market  environment  and  properly  translated  into  clear  roles,  operational  responsibilities,
security  criteria  and  emergency  procedures  for  all  participants  involved  in  the  gas  business
within the new legislative framework. This is also important  in order  to  avoid that  different
approaches  to  security  of  supply  become  a  barrier  to  entry  and  cross-border  trade  and  so
impede the completion and well functioning of the internal gas market. It is equally important,
however, to ensure that the new framework and procedures are implemented in a way which
does not create significant difficulties for companies with small market shares or new market
entrants.

3 "Conclusions of the 5th meeting of the European Gas Regulatory Forum, Madrid, 7-8 February 2002".

46

                                                
3.

THE IMPORTANCE OF STORAGE

Gas  production  and  long-distance  transportation  is  capital-intensive.  Due  to  much  lower
energy  density  for  gas  than,  for  example,  for  oil,  the  cost  of  gas  transportation  per  unit  of
energy is much higher for  gas than for oil and represents  a  very  significant part of the total
end-consumer price for gas.  In practice therefore, most production from far away fields and
long-distance  gas  transportation  pipelines  are  operated  at  high  utilisation  rates  with  a
relatively constant flow. As, however, demand for gas fluctuates considerably during the year,
a significant difference exists between supply and demand profiles.

For optimum results, gas storage facilities (either in underground depleted fields, aquifers or
salt  cavities  or  in  above-ground  LNG  peak  shaving  installations)  are  therefore  used,
preferably close to demand centres, to help balance the inevitable mismatch between supply
and demand thereby reducing unit costs of gas supply. If there were no gas storage at all, both
production and transportation capacity would have had to be designed to meet the  peak day
demand and therefore most of the time have significant over-capacity.

Underground  gas  storage  therefore  plays  a  key  role  in  EU  gas  supply  both  under  normal
operational  circumstances  as  well  as  in  case  of  supply  emergencies  and  there  are  economic
and strategic reasons why gas storage should be located close to the market. Gas companies
therefore seek, as far as geology  and economy allows, to spread storage facilities as well as
possible and to locate them as near to large demand centres as possible i.e. preferably not too
far from large cities.

Underground storage therefore serves several functions including:

(cid:1)  strategic reserve for security of supply in case of disruption (particularly used in Member

States with high dependence on non-EU gas imports);

(cid:1)  seasonal load balancing to match peak demand (gas is pumped into the storage during the
spring and summer and typically withdrawn from October/November to February/March);

(cid:1)  achieving daily balance;

(cid:1)  arbitrage of gas prices i.e. commercial optimisation of variations in gas prices e.g. around
periods of recalculation of gas prices (e.g. beginning of quarters) and more generally as a
commercial tool in liberalised markets (notably in the UK). As gas prices in a competitive
gas market is expected to increasingly reflect demand and supply for gas, new patterns of
price  variations  and  volatility  may  be  expected.  Under  such  circumstances,  it  should  be
expected  that  gas  from  storage  would  be  released  in  case  of  high  prices  hence  limiting
volatility.

(cid:1)  overall system optimisation including facilitating swaps;

(cid:1)  transmission  support  such  as  mitigating  localised  capacity  constraints  or  critical  pressure

thresholds.

While  there  may  be  short-term  adjustments  with  regard  to  requirements  for  storage  and  the
wish  of  market  players  to  carry  the  costs  of  gas  storage,  it  is  generally  expected  that
availability of storage facilities will become increasingly important over time due to growing
EU gas demand and import dependency and thus the need for additional storage for security
of supply reasons. Furthermore, additional need for storage will exist for load balancing and

47

due  to  increasing  import  dependency  and  relative  declining  flexibility  from  domestic
production.

The availability of storage and equivalent alternative flexibility mechanisms as an integrated
part of the overall  gas  supply  system is  crucial  for an  efficient operation of  the  gas  system.
Providing for non-discriminatory  third party  access to storage  is  therefore  essential both for
the functioning of the internal market and for security of supply reasons. In addition, based on
experience from other regions of the world, it may be  expected that  the  development  of the
internal market will offer new commercial opportunities to owners of storage facilities.  It is
therefore  important  that  the  European  Union  is  prepared  to  meet  the  challenges,  which  this
represents in terms of ensuring sufficient development and availability of storage.

The  Community  should  therefore  also  give  high  priority  to  support  the  development  of  gas
storage as appropriate under the TEN-Energy programme.

The development of a fully operational and liquid internal market for  gas with spot markets
gradually  developing  will  contribute  to  security  of  supply.  Security  schemes  and  gas  stock
requirements  at  national  level  should  be  compatible  with  and  not  hamper  but  support  the
development  of  a  competitive  internal  market  for  gas.  In  this  respect,  non-discriminatory
access to storage is particularly important.

Mixed picture regarding storage requirements at Member State level

The graph below shows the storage volume in percentage of annual gas consumption.

Storage/consumption in %

35

32

30

25

20

15

10

5

0

26

22 22

18

14

6

6

4

4

4

0

0

0

A

F

D

I DK EU NL E

B GR UK FIN IRL L

0

P

0

S

The graph  clearly illustrates  the different relative importance  of  underground  gas  storage  in
the different Member States and the absence in some Member States of storage. On average,
EU gas storage capacity is equivalent to approximately 50 days of gas consumption (or 14 %
of total consumption). Austria holds storage equivalent to 115 days of  average  gas demand,
France for 95 days, Germany and Italy for around 80 days and Denmark for around 65 days.
The UK, Greece, Belgium, Spain and The Netherlands have storage equivalent to in the order
of  10-20  days  of  average  gas  consumption  while  the  remaining  Member  States  have  no
storage  capacity.  In  some  Member  States,  the  geological  sites  available  for  construction  of
new  underground  gas  storage  facilities  are  limited  or  non-existent.  Some  Member  States
therefore rely on storage  or  back-up  services from other Member  States.  Normally it  would
not be optimal - but it can be necessary - to cover a storage need in a specific area through

48

remote  storage  facilities.  With  a  view  to  both  strengthen  the  internal  EU  solidarity  and  co-
operation  with  external  suppliers,  there  may  be  certain  projects  of  common  interest  with
regard to storage development in Europe which merit further analysis.

4.

THE IMPORTANCE OF LONG-TERM CONTRACTS AND LIQUID GAS MARKETS

Long-term  Take-or-Pay  contracts  have  played  a  very  important  role  for  the  build-up  and
development  of  the  European  gas  market.  In  particular,  in  the  past,  investment  in  the  gas
supply  industry  has  usually  been  underpinned  by  the  conclusion  of  long-term  contracts  by
European  gas  companies.  Long-term  contracts  provide  an  important  element  of  stability  for
external suppliers and enhance their ability to continue the development of large-scale capital-
intensive gas supply projects. Long-term contracts may also facilitate the diversification in the
medium  term  of  EU's  gas  supply  and  help  bring  new  sources  of  gas  to  the  market  hence
enhance supply-side competition.

The  Commission considers that the conditions established by the internal energy market will
ensure  that  such  contracts  will  continue  to  exist,  and  will  continue  to  underpin  security  of
supply  in  the  internal  gas  market  in  an  appropriate  manner.  Indeed,  it  is  clear  that  EU  gas
undertakings,  as  part  of  their  overall  contract  portfolio,  will  continue  to  meet  gas  needs
through such contracts for supply in a competitive market.

Nonetheless, given the importance of long-term contracts for the security of supply of the EU
gas market – such contracts are likely to remain necessary to underpin the financing of major
new gas supply projects such as the Stockman field – it is appropriate to provide for a safety
net, in the unlikely and unforeseeable event that insufficient long-term contracts develop. It is
equally  important,  however,  that  the  existence  of  long-term  contracts  does  not  frustrate
competition  either  via  the  explicit  inclusion  of  restrictive  conditions,  or  by  significantly
foreclosing markets. Furthermore, it is important that long-term Take-or-Pay contracts evolve
and adapt to the new gas market environment.

On  the  other  hand,  it  is  important  to  ensure  that  sufficient  liquid  gas  supplies  develop  to
enable the internal gas market to function properly and competitively, and also to provide the
necessary conditions for gas companies to adopt a balanced contract portfolio.

This implies not only  the  development  of  gas  spot  markets  throughout  the  EU  –  which  can
provide certainty that producers, suppliers or customers having sold or bought gas on a long-
term basis can sell the gas, at the prevailing spot price, if they are unable to find direct outlet
for the gas in the market – but equally concerns the adoption, where necessary, of gas release
programmes by Member States.

Considerable  progress  on  the  development  of  liquid  gas  supplies  has  been  made  in  recent
years,  notably  in  the  UK  and  North-Western  Europe  where  trading  hubs  are  operating  or
emerging.  In  certain  countries,  gas  release  programmes  have  been  implemented  and  have
contributed  to  new  market  entry.  Furthermore,  action  taken  by  the  Commission  under
competition law in the gas sector, such as the GFU case, have further contributed to increased
liquidity. The Commission is convinced that this process will, and indeed needs to, continue.
Nonetheless, again a safety  net needs to be provided in the event that such development  do
not take place.

49

5.

EXISTING SECURITY OF SUPPLY POLICIES AT MEMBER STATE LEVEL

It  is  important  to  notice  that  the  gas  supply  situation  varies  considerably  between  Member
States as natural resource, geological and market circumstances differ. The supply situations
of Member States vary significantly both in terms of availability of domestic gas production,
the  importance  of  gas  in  the  overall  energy  balance,  dependence  on  external  gas  supplies,
availability of underground storage, the level of interconnection etc.

Member States and their gas industries therefore also deal with security of supply in different
ways  depending  on  their  individual  circumstances,  market  characteristics  and  technical
options available and their relative costs.

Given these different situations, the European gas industry employs different combinations of
supply-side and demand-side tools and procedures to respond to short-term security of supply
difficulties.  These  include  system  and  supply-side  flexibility;  storage  and  interruptible
customers. The range  of facilities  available  to  gas  companies  allow  them  to  ensure  that  gas
demand  and  supply  are  matched  at  any  given  time  i.e.  seasonally  and  within-day,  and  that
emergency situations can be dealt with.

In order to meet customer demand, the gas supply system necessarily needs to be designed to
meet the combined, aggregated peak demand. Gas supply systems are often designed to meet
the  peak  demand  of  the  coldest  day,  which  statistically  occurs,  for  example,  once  every  20
year and the coldest winter, which statistically occurs once every 50 year.

A number of Member States and large gas companies have in some way specified conditions
which  need  to  be  fulfilled  in  relation  to  security  of  supply  or  availability  of  storage  for
existing and new entrants into the market:

– 

– 

– 

– 

– 

In Italy, for example, new entrants importing non-EU gas into the Italian market are
required to hold gas stocks equivalent to 10% of the annual supply.

In Spain, overall gas supply dependency upon any single external supply source must
not exceed 60% and there is an obligation on gas suppliers to keep gas reserves for at
least 35 days of supply.

In the UK, security of supply standards are defined to meet "1 in 20 years" peak day
demand  and  "1  in  50  years"  winter  duration.  Similar  standards  are  applied  in  The
Netherlands and France and other Member States.

The  French  gas  system  has  also  been  designed  in  order  to  be  able  to  withstand
(notably  through strategic  gas stocks) disruption of the largest source of supply  for
up to one year.

In  Denmark,  the  integrated  gas  company,  has  designed  its  back-up  and  storage
capacity to be able to continue gas supplies to the non-interruptible market with no
alternative fuel switching capacity in case of a disruption of one of the two offshore
gas pipelines supplying gas to Denmark.

50

6.

EFFECTIVE MECHANISMS ESSENTIAL FOR DEALING WITH EXTRAORDINARY SUPPLY
SITUATIONS

While  it  appears  that  a  number  of  Member  States  base  their  security  of  gas  supply  on  a
combination of extreme weather conditions and an "n-1" availability of gas supply sources i.e.
that  one  of  the  range  of  supply  sources  available  is  disrupted,  there  appears  to  be  a  lack  of
transparency in the security of supply policies applied at national level which in many cases
appear  not  to  be  sufficiently  well-defined  and  formalised  and  not  reflecting  the  market
changes  taking  place.  Improving  co-ordination  at  both  national  and  EU  level  and
improving transparency in this respect must therefore be a first priority.

Despite the diversity in the supply situations in Member States and due to the structure of the
gas supply to the EU, the main supply risks of individual Member States is often a common
risk shared with other countries. The risk of disruption in gas supplies to Europe from any of
the principle suppliers, for example, would have serious implications in a number of Member
States.  In  such  a  situation,  only  co-ordinated  efforts  to  remedy  a  disruption  will  be
sufficient.  This  gives  a  common  EU  dimension  to  measures  aimed  at  preventing  or
managing  a  major  gas  supply  crisis  and  it  requires  solidarity  at  EU  level  to  minimise
any negative impact.

In view of the increased market integration within the internal gas market and the  European
inter-dependence  (the  "weakest  link"  in  security  terms  could  have  an  impact  on  security
elsewhere  in  the  internal  gas  market)  and  in  order  to  ensure  a  balanced,  transparent  and
coherent system of risk sharing, it is necessary to ensure that adequate and effective European
mechanisms  for  safeguarding  security  of  supply  and  co-ordination  and  intervention  at  EU
level  in  case  of  extraordinary  supply  situations  are  adopted  with  a  view  to  ensuring  proper
functioning of the internal market.

It  is  important  that  in  pursuing  this,  proper  account  is  taken  of  the  diversity  of  supply
situations  in  Member  States  and  that  the  European  gas  industry  maintains  the  operational
responsibility for implementing the necessary measures.

With  regard  to  gas,  the  proposed  new  Community  framework  pursues  the  same  aims
regarding security of supply as the proposal regarding oil stocks. Thus, it introduces strict and
quantitative requirements with regard to security of supply standards, and defines the manner
in which these standards must be met. In particular, it requires Member States to define and
publish the  manner  in  which  they  guarantee  that  non-interruptible  customers,  i.e.  customers
who cannot immediately switch to  alternative  back up  fuels, are  ensured continued supplies
during  sixty  days  in  the  event  of  a  disruption  of  the  largest  supply  source  to  the  market  in
thus
question.  Similar  provisions  exist  regarding  extreme  weather  conditions  and 
extraordinarily  high  demand,  which  require  supplies  to  such  customers  to  be  guaranteed
throughout the entire period of exceptional demand in question.

Given  the  considerable  differences  between  the  gas  and  oil  markets,  these  measures  are  de
facto  equivalent  to  the  obligation  to  maintain  minimum  oil  stocks.  However,  the  new
framework does not envisage at  this  stage,  as  for  oil  stocks,  the  definition  of  minimum  gas
stock levels that Member States should hold in order to guarantee security of supply. This is
because not all Member States have equal geological conditions for underground storage and
indeed in some countries no suitable storage sites exist. Thus, each country needs to rely on a
different mix of instruments to achieve the 60 day obligations and the high demand coverage
requirements,  based  on  storage  (within  or  outside  the  country  in  question),  production
flexibility arrangements, linepack and other available measures.

51

Furthermore,  whilst  the  different  geological  conditions  and  the  significant  advantages  of
having storage close to demand (and thus avoiding the additional costs of relying on distant
storage)  mean  that  a  legally  binding  minimum  storage  requirement  on  a  Member-State  by
Member-State  basis  would  not  at  this  stage  be  appropriate,  storage  will  and  must  play  an
important  role  in  Member  States’  security  policies.  The  proposal  therefore  requires  all
Member States to publish indicative quantitative targets for the future contribution of storage
in meeting their security of supply standards.

Finally,  it  is  important  to  underline  that,  in  view  of  the  different  degree  of  availability  of
storage in Member States and hence the importance of ensuring Community solidarity and co-
operation  across  borders,  non-discriminatory  access  to  available  underground  storage
capacity,  as  emphasised  in  the  Commissions  proposal  of  March  2001  for  a  Directive
amending  Directives  96/92/EC  and  98/30/EC  concerning  common  rules  for  the  internal
markets in electricity and natural gas, is essential.

More generally, it is absolutely indispensable that the security of supply policies to be defined
and implemented by Member States are compatible with and contribute to the completion of a
fully operational internal market for gas. It is particularly important that the security of supply
policies are implemented in a non-discriminatory manner and in no way hamper the entrance
of new market participants.

7.

TECHNICAL EXPERTISE SUPPORTING THE IMPLEMENTATION OF THE MEASURES

The  creation  of  the  internal  market  for  energy  is  gradual  and  very  complex  in  particular  in
relation to the implementation  of  technical rules.  It is  therefore  important  to  ensure  that  the
new  legislative  framework  is  applied  in  an  effective,  efficient,  non-discriminatory  and
homogeneous  manner  by  all  market  participants  under  conditions,  which  will  guarantee  the
competitiveness of the companies.

The  various  phases of  the  development  of the internal market for  gas  and  electricity  should
therefore  be  accompanied  by  measures  which  would  allow  notably  to  convene  national
regulatory authorities, Member States, market operators and the Commission in the context of
technical  working  groups.  These  working  group  meetings  should  examine  the  most
appropriate measures to be taken in order to implement the opening of the gas and electricity
markets, and should regularly make technical recommendations to the Commission.

Similarly, the new Community framework, which will be created in order to enhance security
of  gas  supply,  within  the  context  of  the  internal  energy  market,  will  require  complex  and
technical  tasks  to  be  undertaken  and  accomplished.  These  will  notably  relate  to  monitoring
the development of international markets and assessing their impact on safety and security of
supply. The effectiveness of the measures in place will have to be continuously evaluated. In
this respect, the measures aimed at guaranteeing security of gas supply including the level of
gas stocks held by Member States will have to be monitored. In order to be able to carry out
these tasks, objective, reliable and comparable data will be necessary.

In  the  event  of  an  energy  crisis,  the  European  Commission  may  issue  recommendations  on
appropriate  measures  to  be  taken  by  Member  States  or  may,  by  decision,  require  Member
States to take specified measures. The effects of these measures will need to be evaluated.

It  therefore  appears  essential  to  create,  within  the  Services  of  the  Commission,  a  European
Observation System for supply of hydrocarbons, which will gather the necessary expertise in

52

order to respond to the highly technical issues involved in these tasks. It will provide, under
the  aegis  of  the  Commission,  the  technical  and  scientific  assistance  and  a  high  level  of
expertise  to  assist  in  the  correct  application  of  Community  legislation  in  the  field  of  gas
supply.

The  European  Observation  System  shall  be  run  by  the  Commission,  which  should  invite  to
the  meetings  representatives  of  the  Member  States  as  well  as  representatives  of  the  sectors
concerned.

8.

CONCLUSIONS

On  the  basis  of  the  foregoing,  it  may  be  concluded  that  security  of  gas  supply  will  not
diminish  in  strategic  importance  to  the  European  Union.  On  the  contrary.  In  view  of  the
demand and supply outlook for gas for the EU and in view of the rapid ongoing change with
the completion of the internal market for gas, there is a need to undertake co-ordinated action
to ensure that security of gas supply is safeguarded and by this will complement other actions
taken to achieve the completion of the EU internal energy market. Security of supply policies
in a competitive market have to be based on clearly defined and non-discriminatory policies
and operational responsibilities. Appropriate monitoring and safeguard mechanism as well as
adequate emergency response measures will have to be implemented and kept under review at
national and Community level.

The  Commission  therefore  presents  the  following  proposal  for  a  Directive  concerning
measures  to  safeguard  security  of  EU  gas  supply.  These  measures  will  ensure  the  proper
functioning  of  the  EU  internal  gas  market  by  safeguarding  security  of  gas  supplies  in  a
competitive market framework. In the event of a crisis, they will ensure the solidarity and the
joint  Community  action  necessary  in  order  to  respond  effectively  to  uncertainties  in  the
energy market and to  promote  in  this  context  the  proper  functioning  of  the  internal  market.
Article 95 of the Treaty therefore represents the appropriate legal basis for the proposal for a
Directive.

53

2002/0220 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND THE COUNCIL

concerning measures to safeguard security of natural gas supply

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
95 thereof,

Having regard to the proposal from the Commission4,

Having regard to the opinion of the Economic and Social Committee5,

Having regard to the opinion of the Committee of the Regions6,

Acting in accordance with the procedure laid down in Article 251 of the Treaty7

Whereas :

(1)

(2)

(3)

4

5

6

7

8

Directive  98/30/EC  of  the  European  Parliament  and  of  the  Council  of  22  June  1998
concerning  common  rules  for  the  internal  market  in  natural  gas8  has  made  very
important  contributions  towards  the  creation  of  internal  market  for  gas.  Directive
98/30/EC allows Member States the possibility of imposing public service obligations
on natural gas undertakings, inter alia, in relation to security of supply;

The  European  Council  at  Barcelona  agreed  on  a  rapid  adoption  of  the  pending
proposals  for  a  completion  of  the  internal  market  for  gas  and  electricity.  The
completion  of  the  internal  market  for  gas  will  significantly  change  the  market
framework and must be supplemented with common rules with respect to the security
of supply context and the appropriate policies required in this respect;

The guarantee of a high level of security of supply is therefore a key condition for the
successful operation of the internal  gas market. With a view to complete the internal
market  for  gas  and  thereby  ensuring  a  level  playing  field,  a  minimum  common

OJ C […], […], p. […].
OJ C […], […], p. […].
OJ C […], […], p. […].
OJ C […], […], p. […].
OJ L 204, 21.7.1998, p.1.

54

                                                
(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

approach to supply security is necessary throughout the Community in order to avoid
market distortions;

Gas  is  becoming  an  increasingly  important  component  in  EU  energy  supply.  In
function  of  the  increased  importance  of  gas,  ensuring  the  proper  functioning  of  the
single EU natural gas market by safeguarding security of gas supply also becomes of
higher strategic importance;

A  competitive  single  EU  gas  market  necessitates  transparent  and  non-discriminatory
security  of  supply  policies  compatible  with  the  requirements  of  such  a  market.
Definition of clear roles and responsibilities of all market actors is therefore crucial in
safeguarding  the  well-functioning  of  the  internal  market  and  security  of  gas  supply
while  at  the  same  time  avoiding  creating  obstacles  to  new  entry  or  significant
difficulties for companies with small market shares;

As  indicated  by  the  Green  Paper  "Towards  a  European  strategy  for  the  security  of
energy  supply",  the  European  Union  is  expected  in  the  longer  term  to  become
increasingly dependent on gas imported from non-EU sources of supply;

In order to meet growing demand for gas and diversify gas supplies as a condition for
a  competitive  internal  market  for  gas,  the  EU  will  need  to  mobilise  significant
additional volumes of gas over the coming decades much of which will have to come
from distant sources and transported over long distances;

The  European  Union  has  a  strong  common  interest  with  gas  supplying  and  transit
countries in ensuring continued investments in gas supply infrastructure;

Long-term  contracts  have  played  a  very  important  role  in  securing  gas  supplies  for
Europe and will continue to  do  so.  Whilst  the  current level of  long term contracts is
more than satisfactory on the Community level, it is believed that such contracts will
continue  to  make  a  significant  contribution  to  overall  gas  supplies  as  companies
continue to include such contracts in their overall supply portfolio and it is appropriate
to provide a safety net in this respect;

The development of liquid gas supplies in the internal market plays an important role
in  enabling  the  internal  gas  market  to  function  properly  and  competitively.
Considerable  progress  has  been  made  in  developing  liquid  trading  platforms  and
through gas release programmes at national level. This trend is expected to continue.
Nonetheless, it is appropriate to provide for a safety net in this respect;

It is  important  that  Member States lay down  an  unambiguous  framework  which  will
facilitate  security  of  supply  and  is  conducive  to  investments  in  gas  supply
infrastructure. It is important to monitor that appropriate measures are taken to ensure
regulatory and fiscal frameworks for exploration and production, storage and transport
of natural gas which provide appropriate incentives for investment;

 (12) Domestic gas resources  and measures designed to extend their availability, in a  non-
discriminatory manner that is compatible with the requirements of a competitive single
market  for  natural  gas  and  competition  rules,  contribute  to  enhancing  the  level  of
security of supply in the internal gas market.

55

(13)

(14)

(15)

(16)

In  the  interest  of  a  well  functioning  internal  market  for  gas  to  which  secure  gas
supplies are crucial, the supply/demand balance in individual Member States should be
monitored  and  appropriate  action  taken  if  security  of  supply  is  compromised  on  a
Community level;

For  the  well  functioning  of  the  internal  market  for  gas  and  the  security  of  supply,
solidarity between Member States in emergency supply situations is essential;

It is inherent to the creation and development of an internal market that Member States
become  increasingly  interdependent  regarding  security  of  supply  issues.  Failure  to
adopt  adequate  measures  in  one  Member  State  can  have  serious  consequences
regarding  the  operation  of  the  internal  market  throughout  the  Community.  It  is
therefore essential, in order to ensure the proper functioning of the internal market, to
provide  for  a  minimum  level  of  harmonisation  regarding  security  of  gas  supply
policies in each Member State;

In  the  event  of  extraordinary  gas  supply  situations,  the  Commission  shall  take
appropriate  action proportionate to the  severity of  the  supply  situation  to  ensure  that
the  necessary  measures  to  provide  specific  assistance  to  those  Member  States
particularly  effected  by  the  gas  supply  disruption  are  implemented  in  order  to
safeguard, as far as possible, the continued functioning of the internal market for gas;

(17) With  a  view  to  assist  in  preparing  and  implementing  Community  legislation  in  the
field  of  safety  and  security  of  gas  supply,  to  monitor  its  application  and  assist  in
evaluating the effectiveness of the measures in force as well as to better monitor  the
development  of  security  of  gas  supply,  a  European  Observation  System  of
hydrocarbons should be established within the services of the Commission;

(18)

(19)

The necessary measures should be adopted for the implementation of this Directive in
conformity  with  Council  Decision  1999/468/EC  of  28  June  1999  laying  down  the
procedures for the exercise of implementing powers conferred to the Commission;9

In  accordance  with  the  principles  of  subsidiarity  and  proportionality  as  set  out  in
Article 5 of the Treaty, the objectives of the proposed action, namely the creation of a
fully operational internal gas market, based on fair competition and secure natural gas
supplies, cannot be sufficiently achieved by the Member States and can therefore, by
reason  of  the  scale  and  effects  of  the  action,  be  better  achieved  by  the  Community.
This  Directive  confines  itself  to  the  minimum  required  in  order  to  achieve  those
objectives and does not go beyond what is necessary for that purpose.

HAVE ADOPTED THIS DIRECTIVE:

Article 1

This  Directive  establishes  measures  aimed  at  ensuring  the  proper  functioning  of  the  EU
internal  market  for  gas  by  safeguarding  security  of  gas  supply.  It  establishes  a  common
framework  within  which  Member  States  shall  define  general,  transparent  and  non-
discriminatory security of supply policies compatible with the requirements of a competitive
single EU market for gas; clarify the general roles and responsibilities of the different market

9

OJ L 184, 17.7.1999, p. 23

56

                                                
actors  and  implement  specific  non-discriminatory  procedures  to  safeguard  security  of  gas
supply.

For the purpose of this Directive:

Article 2

1.

2.

3.

4.

1.

2.

3.

“source of gas supply” shall mean gas supply originating from one single gas supply
country;

“long-term gas supply contract” shall mean a gas supply contract with a duration of
more than one year;

“new market entrants” shall mean undertakings that are not yet active in the Member
State  in  gas  supply,  or  have  only  entered  the  market  within  5  years  following  the
entry into force of this Directive and which have a small market share”

“small market share” shall mean a market share of less than 10% of the national gas
market.

Article 3

Member  States  shall  take  the  necessary  measures  to  define  the  general  policies  for
security  of  supply  which  are  necessary  and  integral  part  of  competitive  internal
natural gas market. This may include clarifying the general roles and responsibilities
of the different market actors in fulfilling the security of supply standards.

The measures and standards to ensure security of supply in the context of the internal
gas market shall be developed in accordance with paragraph 3 of this article and with
article 4. The implementation of these measures and standards shall complement the
completion of the internal gas market, shall be implemented in a non-discriminatory
and transparent way and shall be published.

In developing the measures and standards referred to in paragraph 1, Member States
shall take the utmost account of:

a)

b)

c)

d)

e)

f)

the importance of ensuring continuity of gas supplies under severe conditions
notably to household customers without alternative fuel options;

the need to ensure adequate levels of gas storage or alternative back-up fuels;

the  need  to  diversify  supplies  and  ensure  a  reasonable  balance  between
different gas supply sources;

the  need  to  create  incentives  for  new  gas  supplies  from  internal  and  external
sources to the single European gas market;

the risk of the most serious system failure or of disruption of the largest single
supply source and the cost related to mitigate such supply disruption;

the  internal  market  and  the  possibilities  for  cross-border  co-operation  in
relation to security of gas supply.

57

4.

5.

6.

1.

2.

3.

4.

5.

In developing the measures and standards referred to in paragraph 1, Member States
shall also take account of the need for setting high security  of supply  standards  for
gas  supplies  for  power  generation  in  particular  with  regard  to  the  level  of
interruptible demand and alternative fuel back-up capacities in this sector.

The  security  of  supply  policies  shall  be  compatible  with  and  contribute  to  the
completion  of  a  fully  operational  internal  market  for  gas.  The  security  of  supply
policies  shall  be  implemented  in  a  non-discriminatory  manner  and  shall  in  no  way
hamper the entrance of new market participants.

In  order  to  ensure  that  security  of  supply  criteria  established  by  Member  States
would not lead to a significant restriction of competition or barriers to market entry,
Member States  shall exempt  companies with small market shares  and  new  entrants
from obligations imposed pursuant to articles 3 and 4 of this Directive.

Where Member States consider that the imposition of obligations adopted pursuant to
articles  3  and  4  of  this  Directive  would  not  result  in  a  significant  restriction  of
competition  or  barriers  to  market  entry,  they  may  apply  to  the  Commission  for
authorisation to lift this exemption. The  Commission shall decide on the request in
conformity with article 9, paragraph 2 of this Directive.

Article 4

In order to fulfil the security of supply policies and achieve the standards referred to
in article 3, Member States shall take the necessary measures to ensure that security
of  supply  can  be  maintained  to  non-interruptible  customers  without  fuel  switching
capabilities  in  case  of  disruption  of  the  single  largest  source  of  gas  supply  during
sixty days given average weather conditions.

Member  States  shall  take  the  necessary  measures  to  ensure  that  security  of  supply
can be maintained to non-interruptible customers without fuel switching capabilities
in  case  of  extremely  cold  temperatures  during  a  period  of  three  days  statistically
occurring every twenty years.

Member  States  shall  take  the  necessary  measures  to  ensure  that  security  of  supply
can be maintained to non-interruptible customers without fuel switching capabilities
in case of a cold winter statistically occurring every fifty years.

In  order  to  achieve  these  security  of  supply  standards,  Member  States  may  use  a
combination of at least the following instruments:

a)

b)

c)

d)

interruptible customers

gas storage

supply flexibility

spot markets

Member  States  shall  take  the  necessary  measures  to  ensure  that  gas  storage,  either
located within or outside the territory of the Member State, contributes to a necessary
minimum  degree  to  achieving  the  security  of  supply  standards  referred  to  in  this

58

6.

7.

1.

article in function of the geological and economical feasibility of storage within each
Member State.

In this respect, Member States shall, initially not later than  one  year after the  entry
into force of this Directive and every two years thereafter, adopt and publish a report
setting  national  indicative  targets  for  future  contribution  of  storage,  either  located
within or outside the territory of the Member State, to security of supply in terms of
gas  storage  working  volume  and  withdrawal  capacities  and  the  percentage  of  gas
storage  capacity  of  gas  consumption  for  the  next  ten  years.  The  targets  for  future
contribution of storage shall be established in accordance with the form set out in the
annex to this Directive.

The security of supply criteria set out in this article shall be established by Member
States  in  a  manner  compatible  with  the  objectives  of  the  internal  gas  market
including  the  harmonisation  of  the  measures  implementing  these  criteria  where
economically  and  technically  possible  and  appropriate.  In  particular,  minimum
storage objectives imposed on undertakings shall take account of the availability of
non-discriminatory  access  to  storage  and  the  terms  and  conditions  on  which  such
access is granted by those companies that operate storage facilities.

When  implementing  security  of  supply  standards  and  imposing  obligations  on  a
market  participant  established  and  registered  in  another  Member  State,  Member
States shall take proper account of measures already taken by the market participant
in fulfilling security of supply criteria in that Member State.

Article 5

In  the  Report  published  by  Member  States  pursuant  to  article  [4a]  of  Directive
XX/YY/EC  [proposed  new  Directive  amending  Directives  96/92/EC  and  98/30/EC
concerning  rules  for  the  internal  markets  in  electricity  and  natural  gas],  Member
States shall, in particular, cover the following:

a)

b)

c)

d)

e)

f)

g)

the  competitive  impact  of  the  measures  taken  pursuant  to  articles  3  and  4  of
this Directive on companies with small market shares or  new market entrants
and  in  particular  the  effectiveness  of  measures  taken  by  Member  States
pursuant  to  article  3  paragraph  6  to  redress  any  restriction  of  competition  or
barrier to entry to such companies resulting from these measures;

the supply/demand balance on their territory;

the level of expected future demand and available supplies;

envisaged additional capacity under planning or construction;

the emergency and contingency instruments in place to cater for a sudden crisis
in the market;

the levels of stocks and the measures taken and to be taken in order to achieve
the indicative storage targets and

the  extent  of  long-term  contracts  concluded  by  companies  established  and
registered on their territory.

59

In  addition,  Member  States  shall  monitor  that  appropriate  measures  are  taken  to
ensure  regulatory  and  fiscal  frameworks  for  exploration  and  production,  storage,
LNG  and  transport  of  natural  gas  which  provide  appropriate  incentives  for  new
investment.

2.

In  the  Report  issued  by  the  Commission  pursuant  to  article  [28]  of  Directive
XX/YY/EC  [proposed  new  Directive  amending  Directives  96/92/EC  and  98/30/EC
concerning  rules  for  the  internal  markets  in  electricity  and  natural  gas],  the
Commission shall examine

a)

b)

c)

d)

issues  relating  to  security  of  supply  in  the  Community,  and  in  particular  the
existing  and  projected  balance  between  demand  and  supply  including  the
appropriateness  of  incentives  given  to  investment  in  new  gas  supply
infrastructure;

the  scope  for  harmonisation  of  security  of  supply  measures  aiming  at  better
functioning of the single European gas market;

the  situation  with  regard  to  stock  levels  in  relation  to  the  indicative  storage
targets;

the  level  of  long-term  contracts  for  gas,  and  the  consequences  in  practice  of
this  level  for  ensuring  adequate  levels  of  new  gas  supplies  for  the  European
Union in the future.

Where appropriate, this report shall include recommendations.

Article 6

With a view to ensure continued long-term security of gas supply for the Community
and  the  gradual  development  of  a  more  liquid  internal  market  for  gas,  the
Commission  shall  closely  monitor  the  degree  of  new  gas  supply  import  contracts
from  non-EU  countries  concluded  on  a  long-term  basis  as  well  as  the  existence  of
adequate  liquid  gas  supplies  and  transparent  gas  price  references  within  the
Community  to  underpin  stable  long-term  gas  supplies.  The  Commission  may  issue
Recommendations  on  appropriate  measures  to  be  taken  by  Member  States  in  this
respect.  The  Recommendations  may  only  address  an  insufficient  degree  of  such
contracts on a Community level. Member States shall inform the Commission of the
manner  in  which  the  Recommendations  are  implemented.  In  making  such
Recommendations,  the  Commission  shall  pay  particular  attention  to  the  possible
effect  such  measures  may  have  on  companies  with  small  market  shares  and  new
entrants.

Where  the  measures  taken  by  Member  States  in  relation  to  the  Recommendations
referred to in paragraph 1 are inadequate with regard to the long-term security of gas
supply,  the  Commission  may,  by  Decision,  in  conformity  with  the  procedure  laid
down in article 9, paragraph 3 require the Member States concerned to take specified
measures to ensure that an appropriate minimum share of new gas supply from non-
EU  countries  over  the  five  years  following  the  entry  into  force  of  this  Directive  is
based  on  long-term  contracts  and  that  adequate  liquid  gas  supplies  are  developing
and transparent gas price references are available within the Community to underpin
stable  long-term  gas  supplies.  When  taking  such  Decisions,  the  Commission  shall

60

1.

2.

pay particular attention to the possible effect such measures may have on companies
with small market shares and new entrants.

3.

The  Commission  shall,  within  five  years  of  the  entry  into  force  of  this  Directive,
submit a review report to the European Parliament and the Council on the experience
gained  from  the  application of this Article, so  as  to  allow the  European  Parliament
and the Council to consider, in due course, the need to adjust it.

Article 7

With  a  view  to  enhancing  liquidity  of  natural  gas,  Member  States  shall  take  appropriate
measures to ensure non-discriminatory authorisation procedures for building storage and LNG
facilities and remove any obstacles for building such facilities. These procedures shall apply
equally to EU natural gas undertakings as to non-EU gas suppliers.

1.

2.

3.

4.

Article 8

The  Commission  may,  in  conformity  with  the  procedure  laid  down  in  article  9,
paragraph  2,  in  the  event  of  extraordinary  gas  supply  situations  including  a  major
interruption  of  gas  supplies  from  one  of  the  European  Union’s  principal  gas
suppliers, issue Recommendations to Member States to take the necessary measures
to provide specific assistance to those Member States particularly effected by the gas
supply disruption. Such measures may include, but are not limited to, the following:

a)

b)

c)

release of gas stocks;

provision  of  pipeline  capacity  enabling  diversion  of  gas  supplies  to  affected
areas;

interruption  of  interruptible  demand  to  allow  reallocation  of  gas  and  system
flexibility.

Member  States  shall  inform  the  Commission  of  their  implementation  of  the
Recommendations.

Where  the  measures  taken  by  Member  States  are  inadequate  in  the  light  of  market
developments,  and/or  where  the  economic  consequences  of  the  extraordinary  gas
supply  situation  become  extremely  severe,  the  Commission  may,  by  Decision,  in
conformity with the procedure laid down in  article 9, paragraph 3, require Member
States  to  take  specified  measures  to  provide  necessary  assistance  to  those  Member
States particularly effected by the gas supply disruption. Such measures may include,
but are not limited to, those mentioned in paragraph 1 points a), b) and c).

The recommendations and decisions to be taken in accordance with this article shall
restrict  competition  as  little  as  possible.  The  Commission  shall  ensure  that  this
principle  is  complied  with  throughout  the  entire  period  of  application  of  the
measures.

61

Article 9

1.

2.

3.

The Commission shall be assisted by a Committee of representatives of the Member
States and chaired by the representative of the Commission.

Where  reference  is  made  to  this  paragraph,  articles  3  and  7  of  Council  Decision
1999/468/EC  shall  apply  in  respect  of  the  provisions  of  article  8  of  that  Council
Decision.

Where  reference  is  made  to  this  paragraph,  articles  5  and  7  of  Council  Decision
1999/468/EC  shall  apply  in  respect  of  the  provisions  of  article  8  of  that  Council
Decision.

The period foreseen in article 5, paragraph 6 of Council Decision 1999/468/EC shall
be one week.

4.

The Committee shall establish its internal rules.

1.

2.

3.

Article 10

Not  later  than  1  January  2004,  the  Commission  shall  make  the  necessary
arrangements to set up a European Observation System for supply of hydrocarbons
to  assist  in  preparing  and  implement  Community  legislation  in  the  field  of  gas
supply,  to  monitor  its  application  and  assist  in  evaluating  the  effectiveness  of  the
measures  in  force  and  their  effects  on  the  functioning  of  the  internal  natural  gas
market. The Commission shall ensure that adequate resources are made available to
enable the effective monitoring of measures provided for in the present Directive.

The  European  Observation  System  for  supply  of  hydrocarbons  shall  be  run  by  the
Commission,  which  should  invite  to  meetings  representatives  of  Member  States  as
well  as  representatives  of  sectors  concerned.  It  shall  provide  the  Commission  with
the  technical  assistance  necessary  for  the  formulation  and  evaluation  of  measures
taken in relation to the application of the present Directive and shall contribute to a
better understanding of the evolution of the internal market and the international gas
market and the factors driving these markets.

The European Observation System for supply of hydrocarbons shall carry out, in the
field of natural gas, following technical tasks:

a) Monitor the functioning of the internal market and the international market for

gas;

b)

Contribute  to  the  implementation  of  a  physical  monitoring  system  of  the
internal  EU  and  external  gas  infrastructures  to  the  European  Union  which
contribute to the security of gas supply;

c) Monitor gas supply and  the procedures  aimed  at  guaranteeing  security  of  gas

supply in cases of emergency;

d) Monitor  the  level  of  strategic  gas  stocks  and  the  procedures  for  their  use  as
well  as  the  procedures  applied  with  regard  to  access  to  storage  including
aspects of market dominance in relation to access to storage;

62

e)

Create a basis of objective, reliable and comparable data as a basis for fulfilling
its tasks.

Article 11

The  Commission  shall  closely  monitor  the  manner  in  which  Member  States  implement  this
Directive,  and  in  particular  the  compatibility  of  the  measures  taken  with  regard  to  article  4
and  their  effect  on  the  internal  gas  market  and  the  development  of  competition  within  the
European Union. The Commission shall closely monitor the availability of third party access
to  storage  on  non-discriminatory  terms  and  conditions.  In  the  light  of  the  results  of  this
monitoring,  the  Commission  shall,  if  necessary,  no  later  than  1  January  2004  present
proposals regarding further measures to ensure effective access to storage.

Where  appropriate,  the  Commission  shall  issue  recommendations  or  make  appropriate
proposals.

Article 12

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative  provisions
necessary to comply with this Directive by 1 January 2004. They shall forthwith inform the
Commission thereof.

When Member States adopt those provisions, they shall contain a reference to this Directive
or be accompanied by such a reference on the occasion of their official publication. Member
States shall determine how such reference is to be made.

This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities.

Article 13

Article 14

This Directive is addressed to the Member States.

Done at Brussels, […]

For the European Parliament
The President

For the Council
The President

63

EU storage capacity - national indicative targets

ANNEX

The  table  below  illustrates  gas  storage  capacities  in  absolute  as  well  as  relative  terms  in
relation to consumption.

Storage capacities at 1 January 2001.

Working
Volume
(BCM)

2.295

0.675

0.810

11.1

0.0

18.556

0.075

0.0

15.1

0.0

2.5

0.0

1.0

0.0

3.577

55.688
BCM

Austria

Belgium

Denmark

France

Finland

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Portugal

Spain

Sweden

UK

EU-15

In % of 2000
Demand

Withdrawal
capacity

(million m3/day)

2010 Target
BCM
Storage

2010 Target
%

2010 Target

Withdrawal
capacity

31.6

4.2

17.6

26.2

0.0

22.3

3.8

0.0

22.0

0.0

6.1

0.0

5.5

0.0

3.7

14.2%

24

19

25

180

0

425

5

0

265

0

145

0

8

0

137

1233

million
m3/day

64

Proposal for a

COUNCIL DIRECTIVE

repealing Council Directives 68/414/EEC and 98/93/EC imposing an obligation on
Member States of the EEC to maintain minimum stocks of crude oil and/or petroleum
products, and Council Directive 73/238/EEC on measures to mitigate the effects of
difficulties in the supply of crude oil and petroleum products

65

EXPLANATORY MEMORANDUM

The Commission has put forward a proposal for a new Directive of the European Parliament
and of the Council concerning the alignment of measures with regard to security of supply for
petroleum  products.  More  specifically,  this  proposal  for  a  Directive  provides  for  Member
States' provisions on oil stocks and crisis measures to be more closely aligned with each other,
and for coordinated action between the Member States in the event of a supply crisis.

The abovementioned proposal for a Directive is in two parts:

– 

– 

The  first  part  defines  the  stockholding  obligations  and  the  criteria  with  which  the
security stock systems must comply.

The  second  part  covers  aspects  relating  to  the  adoption  of  measures  in  a  crisis
situation,  more  especially  the  institutional  mechanism  for  ensuring  a  coordinated
response from the Member States in the event of a crisis.

In  this  situation,  existing  legislation  on  this  subject  is  no  longer  relevant.  The  aim  of  this
proposal for a Directive is therefore to repeal some of the texts concerned.

66

2002/0221 (CNS)

Proposal for a

COUNCIL DIRECTIVE

repealing Council Directives 68/414/EEC and 98/93/EC imposing an obligation on
Member States of the EEC to maintain minimum stocks of crude oil and/or petroleum
products, and Council Directive 73/238/EEC on measures to mitigate the effects of
difficulties in the supply of crude oil and petroleum products

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
100 thereof,

Having regard to the proposal from the Commission,1

Having regard to the opinion of the European Parliament,2

Having regard to the opinion of the Economic and Social Committee,3

Whereas:

(1)

(2)

(3)

Directive …./.…/EC provides for the alignment of measures with regard to security of
supply for petroleum products.

More  specifically,  in  order  to  ensure  the  proper  functioning  of  the  internal  market,
Directive  .../.../EC  brings  the  provisions  of  the  Member  States  with  regard  to
petroleum stocks and crisis measures closer into line with each other and provides for
coordinated action between Member States in the event of a supply crisis.

It  also  incorporates,  in  a  new  and  coherent  text,  all  the  relevant  aspects  which  were
dealt  with  in  particular  in  Council  Directive  68/414/EEC  of  20 December 1968
imposing an obligation on Member States of the EEC to maintain minimum stocks of
crude oil and/or petroleum products,4 and in Council Directive 73/238/EEC of 24 July
1973 on measures to mitigate the effects of difficulties in the supply of crude oil and
petroleum products.5

(4)

Those legislative texts are therefore now obsolete,

1

2

3

4

5

OJ C […], […], p. […].
OJ C […], […], p. […].
OJ C […], […], p. […].
OJ L 308, 23.12.1968, p.14. Directive amended by Council Directive 98/93/EC of 14 December 1998;
OJ L 358, 31.12.1998, p.100
OJ L 228, 16.8.1973, 1.

67

                                                
HAS ADOPTED THIS DIRECTIVE:

Article 1

Council  Directive  68/414/EEC  and  Council  Directive  98/93/EC  amending  Directive
68/414/EEC are hereby repealed.

Council Directive 73/238/EEC is hereby repealed.

Article 2

Article 3

This Directive shall enter in force on the twentieth day following that of its publication in the
Official Journal of the European Communities.

Article 4

This Directive is addressed to the Member States.

Done at Brussels, […]

For the Council
The President
[…]

68

Proposal for a

COUNCIL DECISION

repealing Council Decision 68/416/EEC on the conclusion and implementation of
individual agreements between governments relating to the obligation of Member States
to maintain minimum stocks of crude oil and/or petroleum products and Council
Decision 77/706/EEC on the setting of a Community target for a reduction in the
consumption of primary sources of energy in the event of difficulties in the supply of
crude oil and petroleum products

69

EXPLANATORY MEMORANDUM

The Commission has put forward a proposal for a new Directive of the European Parliament
and of the Council concerning the alignment of measures with regard to security of supply for
petroleum  products.  More  specifically,  this  proposal  for  a  Directive  provides  for  Member
States' provisions on oil stocks and crisis measures to be more closely aligned with each other,
and for coordinated action between the Member States in the event of a supply crisis.

The abovementioned proposal for a Directive consists of two parts:

– 

– 

The  first  part  defines  the  stockholding  obligations  and  the  criteria  with  which  the
security stock systems must comply.

The  second  part  covers  aspects  relating  to  the  adoption  of  measures  in  a  crisis
situation,  more  especially  the  institutional  mechanism  for  obtaining  a  coordinated
response from the Member States in the event of a crisis.

In  this  situation,  existing  legislation  on  this  subject  is  no  longer  relevant.  The  aim  of  this
proposal for a Decision is therefore to repeal some of the texts concerned.

70

Proposal for a

COUNCIL DECISION

repealing Council Decision 68/416/EEC on the conclusion and implementation of
individual agreements between governments relating to the obligation of
Member States to maintain minimum stocks of crude oil and/or petroleum
products and Council Decision 77/706/EEC on the setting of a Community target
for a reduction in the consumption of primary sources of energy in the event of
difficulties in the supply of crude oil and petroleum products

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular
Article 100 thereof,

Having regard to the proposal from the Commission,1

Whereas :

(1)

(2)

(3)

Directive  …./.…/EC  provides  for  the  alignment  of  measures  with  regard  to
security of supply for petroleum products.

More  specifically,  in  order  to  ensure  the  proper  functioning  of  the  internal
market,  Directive  .../.../EC  brings  the  provisions  of  the  Member  States  with
regard to petroleum stocks and crisis measures closer into line with each other
and provides for coordinated action between Member States in the event of a
supply crisis.

It also incorporates, in a new and coherent text, all the relevant aspects which
were dealt with in particular in the Council Decision of 20 December 1968 on
the  conclusion  and  implementation  of  individual  agreements  between
governments relating to the obligation of Member States to maintain minimum
stocks  of  crude  oil  and/or  petroleum  products,2  and  the  Council  Decision
77/706/EEC of 7 November 1977 on the setting of a Community target for a
reduction  in  the  consumption  of  primary  sources  of  energy  in  the  event  of
difficulties in the supply of crude oil and petroleum products.3

(4)

Those legislative texts are therefore now obsolete,

1

2

3

OJ C […], […], p. […].
OJ L 308, 23.12.1968, p.19.
OJ L 292, 16.11.1977, p. 9.

71

                                                
HAS ADOPTED THIS DECISION:

Council Decision 68/416/EEC is hereby repealed.

Article 1

Council Decision 77/706/EEC is hereby repealed.

Article 2

Article 3

This Decision is addressed to the Member States.

Done at Brussels, […]

For the Council
The President
[…]

72

LEGISLATIVE FINANCIAL STATEMENT

Policy area(s): Energy

Activity(ies): Underpinning the security of oil and gas supply to the European Union

TITLE  OF  ACTION:  CREATION  OF  AN  EUROPEAN  OBSERVATION  SYSTEM  FOR  OIL  AND  GAS

SUPPLY

1.

BUDGET LINE(S) + HEADING(S)

Budget line to create:

B5-710  A  “Financial  Support  for  Energy  Infrastructure  –  Expenditure  on
administrative management”

2.

2.1.

2.2.

OVERALL FIGURES

Total allocation for action (Part B): € million for commitment  4.478 M€

Period of application:

2004 – 2009 and subs. years

(subject to renewal of the budget line concerned)

2.3.

Overall multiannual estimate on expenditure:   14.022 M€

As for the  years  2007  onwards,  commitments  and  payments  are  subject  to  renewal  of
the TEN regulation.

a) Schedule of  commitment  appropriations/payment appropriations  (financial intervention) (see
point 6.1.1)

€ million ( to 3rd decimal place)

2004

2005

2006

2007

2008

2009
and
subs.
years

Total

Commitments

Payments

b) Technical and administrative assistance and support expenditure(see point 6.1.2)

Commitments

1.474

1.721

0,761

0,411

0.111

4.478

Payments

0,338

1.136

1.721

0,761

0,411

0.111

4.478

Subtotal a+b

73

Commitments

Payments

1.474

1.721

0,761

0,411

0.111

4.478

0,338

1.136

1.721

0,761

0,411

0.111

4.478

c)  Overall  financial  impact  of  human  resources  and  other  administrative  expenditure
(see points 7.2 and 7.3)

Commitments/
payments

1.591

1.591

1.591

1.591

1.591

1.591

9.544

Figures do not add up due to rounding

TOTAL a+b+c

Commitments

4.655

3.312

2.352

2.002

1.702

14.022

Payments

1.929

2.727

3.312

2.352

2.002

1.702

14.022

74

2.4.

Compatibility with the financial programming and the financial perspective

X

Proposal compatible with the existing financial programming

(cid:1) This proposal will entail reprogramming of the relevant heading in the financial 

perspective

(cid:1) This may entail application of the provisions of the Interinstitutional Agreement.

2.5.

Financial impact on revenue1:

No financial implications (involves technical aspects regarding implementation of

X
a measure)

   OR

(cid:1) Financial impact – the effect on revenue is as follows:

 Note:  All details and observations pertaining to the method of calculating the effect
on revenue should be included in a separate annex.

Budget line    Revenue

€ million  (to 1 decimal place)

Situation following action

Year n

n+1

n+2

n+3

n+4

n+5

Prior to
action
(Year
n-1)

a) Revenue in absolute terms

b) Change in Revenue

 (cid:1)

(Please state each budget line involved, adding the appropriate number of rows to the table if
there is an effect on more than one budget line)

3.

BUDGET CHARACTERISTICS

Type of expenditure

New

Comp/
Non-comp

Diff/
Non-diff

YES/
NO

EFTA
participation

Participation
applicant
countries

Heading
Financial
Perspective

YES/NO

YES/NO

No           

1 For further information see a separate guidance paper

75

          
          
          
          
          
                                                
4.

LEGAL BASIS

Article 95 EUT

Directive concerning the alignment of measures with regard to security of supply for petroleum
products [COM(2002)488]

Directive concerning measures to safeguard security of natural gas supply [COM(2002)488]

5.

DESCRIPTION AND GROUNDS

5.1. 

Need for Community intervention 2

5.1.1. 

 Objectives pursued

The Green Paper “Towards a European strategy for the security of energy supply” revealed the
structural  weaknesses  of  the  Communities  energy  supply.  Growing  dependency  on  energy
imports  from  external  suppliers  entailing  physical  and  economic  risks  and  the  forthcoming
completion  of  the  internal  energy  market  clearly  demonstrate  the  need  to  define  a  Community
framework  for  the  implementation  of  measures  to  ensure  security  of  external  energy  supplies
which will place minimum restrictions on competition. The new Community framework relating
to Security of supplies of oil and gas will require complex and technical tasks to be carried out.
In  addition,  it  will  necessitate  very  close  co-operation  with  partner  countries  supplying  and
transiting resources to the enlarged EU. It will be necessary among other things to monitor trends
on international oil and gas markets and assess their impact on the security and safety of supplies
of  oil,  gas  and  strategic  infrastructure.  There  will  have  to  be  continuous  assessment  of  the
effectiveness of the measures taken; in this connection, the level of stocks of oil and gas in the
Member States will  have to be monitored.  For  these tasks to  be  carried  out,  objective,  reliable
and comparable data will have to be available.

In  the  event  of  an  energy  crisis,  when  the  European  Communities  decide  on  or  recommend
measures  related  to  oil  and  gas  stocks,  it  will  be  necessary  to  assess  the  impact  on  the  energy
market and the economy as a whole.

In this context,  there is an increasing need to develop more reliable price indices more attuned to
the  realities  of  the  market  than  the  current  ones.  The  Commission  has  already  stated,  in  its
communication  of  4  October  2000  on  oil  supplies  in  the  European  Union,  that  the  producer
countries,  market  operators  and  the  industry  should  be  encouraged  to  improve  price  formation
indicators,  particularly  on  the  basis  of  a  global  index  which  would  reflect  the  whole  of  the
market.

It therefore appears essential to create, within the Commission, a European observation system
for oil and gas supply. This system will
(cid:1)  assist in preparing and implementing Community legislation in the field of oil and gas supply

(cid:1)  monitor its application and assist in evaluating the effectiveness of the measures in force and
their effects on the functioning of the internal market for petroleum products, oil and natural
gas.

2 For further information see a separate guidance paper

76

                                                
5.1.2. 

 Measures taken in connection with ex ante evaluation

a)  Explain  how  and  when  the  ex-ante  evaluation  was  conducted  or  how  the  corresponding
information was gathered.

In November 2000, the Commission issued a Green paper “Towards a European strategy for the
security of energy supply”. The Green Paper was based on a profound analysis of the challenges,
risks  and  needs  of  the  European  Union  in  terms  of  secure  energy  supplies.  It  identified  the
structural  weaknesses  and  geopolitical,  social  and  environmental  shortcomings  of  the  EU’s
energy  supply.  Its  publication  triggered  a  comprehensive  public  debate  on  security  of  energy
supplies  and  how  to  ensure  it  in  the  future.  In  the  final  report  on  the  Green  Paper,  the
Commission  stated  that  energy  imports  would  be  much  higher  in  30  years  time,  amounting  to
70%  of  total  needs.  The  need  to  develop  a  Europe-wide  security  of  supply  concept  was  also
highlighted. As a consequence, the Commission has developed a Community framework aiming
at ensuring secure gas and oil supplies to the EU.

In  addition,  further  input  has  been  gathered  by  the  Madrid  Regulatory  Forum,  the  Oil  Supply
Group as well as other, less formal sources from Member States and industry.

b) Describe briefly the findings and lessons learnt from the ex-ante evaluation:

In  October  2000,  the  Commission  issued  a  Communication  on  European  oil  supply  and  in
November 2000, it adopted  the  Green Paper  “Towards a European Strategy for the  security  of
energy  supply”.  In  February  2002,  the  Madrid  Regulatory  Forum  agreed  on  extensive
conclusions and presented a wide range of different working papers and presentations3. In these
documents, among others, the following facts have been identified and highlighted:

1. The European Union will face a considerably rising dependency on oil and gas imports over
the next decades; the most recent figures available to the Commission suggest a rise from 75% to
85% for oil and from 40% up to 70% for gas.

2.  The  volatility  of  oil  prices,  to  which  gas  prices  are  still  linked,  does  not  exclusively  reflect
market  development,  but  also  point  to  political  interests  (OPEC)  and  massive  speculation
involved  in  the  international  oil  market.  Unreasonably  high  oil  prices  as  a  consequence  of
speculation caused rising inflation rates in the past with all the negative economic consequences
arising from it4.

3.  The  creation  of  the  internal  energy  market  is  very  complex  in  particular  in  relation  to  the
implementation  of  technical  rules  that  are  introduced  as  a  consequence  of  introducing
competition  to  the  European  natural  gas  market  and  in  order  to  create  and  maintain  a  level
playing field not only, but also in terms of security of supply.

4. Existing price differences in the downstream oil sector of Member States are likely to be due
to a lack of competition.

5.  The  present  security  stock  system  in  EU  Member  States  is  very  fragmented:  some  Member
States have set up ad hoc bodies responsible for holding all or part of the security stocks; others

3 see http://europa.eu.int/comm/energy/en/gas_single_market/madrid3/madrid5.html
4 In its Communication from October 2000, the Commission stated: “If oil prices stay at around $30 a barrel during
the rest of the year the negative effect on the price increase on growth would be 0.3% for the year 2000 and
0.5% for 2001. the increase in price would add 1% to the inflation rate.”

77

                                                
have not. The rules for operating the security stocks vary widely, and as a consequence, there is
insufficient harmonisation of the mechanisms to guarantee security of supply.

6. The same findings apply to crisis measure arrangements currently in place in Member States.

5.1.3.  Measures taken following ex post evaluation

The  activities  of  the  observatory  will  be  subject  of  regular  midterm  reviews  to  identify
recommendations designed to improve the performance of the Observatory.

5.2. 

Actions envisaged and arrangements for budget intervention

In the following, each action is specified according to the following:

A. The target population(s) (specify number of beneficiaries if possible);

B. The specific objectives set for the programming period (in measurable terms);

C. The concrete measures to be taken to implement the action  ;

D. The immediate outputs of each action, and their contribution to

E. The expected outcomes solving needs or problems

Actions:

1. Monitoring the functioning of the internal oil and gas market and the  international oil
and gas market:

A. The target population(s) (specify number of beneficiaries if possible)

Commission, Member States, relevant industry and partner countries (producers, transit)

B. The specific objectives set for the programming period (in measurable terms

1.  Ensuring  that  Member  States,  the  Commission  and  relevant  decision  makers  in  the
industry and partner countries are up to date with respect to short and long term security
of supply developments and risk assessments in the internal and international oil and gas
market.

2. Agreements with partner countries;

C. The concrete measures to be taken to implement the action

1. Analysis of relevant economic and political developments affecting the internal
and international oil and gas markets (bi-annual workshop)

2.  Analysis  of  the  impact of  relevant  Community  legislation  by  evaluating  public
and other sources (workshops with MS and Candidate Countries, when necessary
and appropriate)

78

 
3.  Conduct  a  permanent  dialogue  with  partner  countries  (roundtable  every  two
years, supplemented by bilateral meetings)

D. The immediate outputs of each action, and their contribution to

Issue  an  annual  report  including  recommendations  if  appropriate  which  identifies  the
development  of  the  main  political,  economic  and  technical  challenges,  risks  and
opportunities  to  the  EU  oil  and  gas  supply  in  the  short  and  long  term  and  the  well
functioning of the internal and, as far as relevant, international oil and gas markets.

E. The expected outcomes solving needs or problems

Adopt policy measures in line with the requirements of short and long term secure oil and
gas supplies

2. Contribute to the implementation of a system for the physical monitoring of the oil and
gas infrastructures inside and outside of the EU:

A. The target population(s) (specify number of beneficiaries if possible)

Commission, Member States, relevant industry and partner countries

B. The specific objectives set for the programming period (in measurable terms

Develop a monitoring system for accident prevention and, if case may be, intervention, in
strategic  oil,  gas  and  petroleum  products  infrastructure,  based,  among  other  things,  on
satellite communication system (Galileo)

C. The concrete measures to be taken to implement the action

1.  Collect,  update  and  analyse  available  information  on  relevant  gas  and  oil
infrastructure.

2.  Launch  of  a  technical  and  economic  feasibility  study  of  the  design  of  a  pan-
European  dispatching  model  for  oil  and  gas  involving  a  satellite  based
communication  system  (Galileo)  as  well  as  develop  a  computer  based  pan-
European dispatching model for oil and gas.

4. Analysis and (as far as possible) implementation of the results of the study.

5.  Launch  of  negotiations  with  partner  countries  on  their  inclusion  in  the
monitoring  system  (roundtable  in  2006,  bilateral  meetings  covered  by  measure
1C31)

6. Elaboration of a technical and physical implementation plan of the monitoring
system (experts).

D. The immediate outputs of each action, and their contribution to

1. Complete survey of relevant infrastructure inside and outside the EU.

2. Assessment of technical features and economic costs of the monitoring system.

3. Agreement with partner countries on their inclusion in the monitoring system.

4. Disposition of a technical and physical implementation plan of the monitoring system.

79

E. The expected outcomes solving needs or problems

Contribution to the implementation of the monitoring system

3.  Monitor  oil  and  gas  supplies  to  the  EU  and  the  procedures  aimed  at  guaranteeing  the
security of these supplies in emergency cases

A. The target population(s) (specify number of beneficiaries if possible)

Commission, Member States, relevant industry and partner countries

B. The specific objectives set for the programming period (in measurable terms

1. Identification of potential challenges and development of appropriate policy measures.

2. Minimising the impact of emergency measures on the well functioning of the internal
energy market.

C. The concrete measures to be taken to implement the action

1. Monitoring oil and gas demand and supply developments by analysing relevant
information  (subscription,  regular  workshop  with  Member  States,  industry  and
partner countries).

2.  Monitoring  the  transposition  and  implementation  of  the  relevant  Community
legislation  on  security  of  oil  and  gas  supply  (study,      one  follow-up  meeting  in
2007).

3. Investigate and evaluate Member State policies in emergency cases and analyse
their impact on  the  internal market  (study  in  2004,  precedent  meetings  with  MS,
then annual meetings).

4.  Prepare  input  to  Commission  with  a  view  to  updating  and  appropriately
amending  security  of  supply  legislation  based  on  the  findings  from  the  above
meetings.

5. Develop security of supply standards applicable to all Member States (study).

D. The immediate outputs of each action, and their contribution to

To ensure up to date measures and policies with respect to the respective supply situation.

E. The expected outcomes solving needs or problems

Being prepared for future challenges of secure oil and gas supplies

4.  Monitor  the  level  of  oil  and  gas  stocks  as  well  as  stocks  of  oil  products  and  the
procedures  for  their  use,  the  implementation  of  measures  to  reduce  oil  and  oil  product
consumption  as  well  as  the  procedures  applied  with  regard  to  access  to  gas  storage
including aspects of market dominance in relation to access to storage

A. The target population(s) (specify number of beneficiaries if possible)

Commission, Member States, relevant industry and partner countries

80

B. The specific objectives set for the programming period (in measurable terms

1. Maintaining adequate levels of oil stocks and gas storage facilities.

2. Set up of recommendations for the use of stocks.

3. Identification of means to reduce oil and oil product consumption.

4. Set up of recommendations for a code of good conduct to ensure non-discriminatory,
transparent and cost-effective access to gas storage facilities.

C. The concrete measures to be taken to implement the action

1.  Monitor  and  analyse  stock  developments  including  the  identification  of  a
mechanism to gather relevant data (workshops, study, follow up workshop).

2. Analyse and identify appropriate stock levels against the background of specific
supply situations.

3. Launch a study on how to reduce oil  and  oil  product  consumption taking into
account the most recent developments in the transport sector.

4.  Investigate  TPA  terms  for  gas  storage  facilities  and  identify  best  practices
adapted to the respective situation (study, publication).

D. The immediate outputs of each action, and their contribution to

1.  Issuing  quarterly  reports  on  oil  and  gas  stock  developments  and  terms  on  access  to
storage (including tariffs).

2. Proposals for measures to reduce consumption of oil and oil products.

E. The expected outcomes solving needs or problems

1. Maintenance of adequate levels of stocks.

2. Improved third party access to gas storage also to avoid market dominance of certain
players.

3. Contribution to reduced level of oil and oil product consumption.

5.  Create  a  basis  of  objective,  reliable  and  comparable  data  as  a  basis  for  fulfilling  the
above tasks

A. The target population(s) (specify number of beneficiaries if possible)

Commission, Member States, relevant industry and partner countries

B. The specific objectives set for the programming period (in measurable terms

Creation of EU data base to facilitate and enable the above actions.

C. The concrete measures to be taken to implement the action

1. Launch a study to identify the most appropriate design of the database.

81

2. Develop a mechanism to establish the database, collect and update the relevant
data.

3. Organise workshops to take account of methodological changes with respect to
data acquisition and interpretation.

D. The immediate outputs of each action, and their contribution to

Identification of the most appropriate design of the database and a mechanism to collect
and update the relevant data.

E. The expected outcomes solving needs or problems

Provide the relevant database for the work of the Observatory.

5.3.  Methods of implementation

The European Observation System for oil and gas supply is run by the Commission and located
at Commission premises. Human resources of the observation system will be gradually phased-in
as from 2004, starting with around 8 people.  Estimated HR needs at cruising speed, that will be
reached around 2006, stand at 13 people and  it is foreseen that five Commission officials (one of
them  will  act  as  head  of  the  observation  system),  five  national  experts  seconded  from  their
government  and  three  temporary  agents  should  contribute  to  the  objectives  of  the  observation
system.

It  is  also  foreseen  to  benefit  from  the  expertise  of  third  country  experts,  paid  by  their
governments and without any financial implication for the Community budget.

6. 

FINANCIAL IMPACT

6.1. 

Total financial impact on Part B - (over the entire programming period)

(The method of calculating the total amounts set out in the table below must be explained by the
breakdown in Table 6.2. )

6.1.1.  Financial intervention

Commitments in € million (to the 3rd decimal place)

Breakdown

2004

2005

2006

2007

2008

Total

2009 and
subs.
years

Action 1

Action 2

Etc.

TOTAL

82

6.1.2. 

  Technical  and  administrative  assistance,  support  expenditure  and  IT  expenditure  (
Commitment appropriations)

2004

2005

2006

2007

2008

Total

2009  and
subs.
years

1) 
administrative assistance

Technical 

and

Technical 

a) 
offices

assistance

b)  Other 
administrative assistance:

technical 

and

- intra muros :

- extra muros :

of  which  for  construction
and 
of
maintenance 
computerised  management
systems

0,1

0,1

0,3

0.3

Subtotal 1

0

0,1

0,3

0

0

2) Support expenditure

a) Studies

0,275

0,885

1,310

0,650

0,300

b) Meetings of experts

0

0

0

0

0

0

0

0

0,4

0.4

0,4

3,420

0

c) Information and
publications

0,063

0,151

0,111

0,111

0,111

0,111

0,658

Subtotal 2

0,338

1,036

1,421

0,761

0,411

0,111

4,078

TOTAL 0,338

1,136

1,721

0,761

0,411

0,111

4,478

83

6.2. 

Calculation  of  costs  by  measure  envisaged  in  Part  B  (over  the  entire
programming period)1

(Where there is more than one action, give sufficient detail of the specific measures to be
taken for each one to allow the volume and costs of the outputs to be estimated. ).

For this table, please see Annex 1.

Breakdown

Commitments in € million  (to the 3rd decimal place)

Type
of outputs
(projects, files )

Number of
outputs

Average unit
cost

(total for years
1…n)

Total cost

(total for years
1…n)

1

2

3

4=(2X3)

Action 1:

- Measure 1:

- Measure 2

Action 2

- Measure 1

- Measure 2

- Measure 3

Etc.

TOTAL COST

If necessary explain the method of calculation

7. 

IMPACT ON STAFF AND ADMINISTRATIVE EXPENDITURE

The  needs for  human  and  administrative  resources  shall  be  covered  within  the
allocation  granted  to  the  managing  DG  in  the  framework  of  the  annual
allocation procedure.

7.1. 

Impact on human resources

Calculations are based on the cruising speed situation.

Types of post

Staff to be assigned to management of the
action using existing and/or additional
resources

Total

Description of tasks deriving from the
action

1 For further information see a separate guidance paper

84

                                                
Number of
permanent posts

Number of
temporary posts

              5

             3

    8

Permanent
officials 
Temporary staff

or

A

B

C

Other human resources

             5 (END)

Total

             5

            8

    5

   13

85

7.2. 

Overall financial impact of human resources

Type of human resources

Amount €

Method of calculation  *

Officials

Temporary staff

Other human resources END A7003

0,54

0,324

0,108 per official

0,108 per temporary agent

(give budget line)

0,215

0,043 per END

Total

1,079

The amounts are total expenditure for twelve months.

7.3. 

Other administrative expenditure deriving from the action

Amount €

Method of calculation

Budget line

(number and heading)

Overall allocation (Title A7)

A0701 – Missions

A07030 – Meetings
A07031 – Compulsory committees (1)
A07032 – Non-compulsory committees (1)

A07040 – Conferences

A0705 – Studies and consultations

… Other expenditure (state which)

Information systems (A-5001/A-4300)

Other expenditure - Part A (state which)

0,1

0,1

0,312

Total

0,512

The amounts are total expenditure for twelve months.

(1) Specify the type of committee and the group to which it belongs.

I.

II.

III.

Annual total (7.2 + 7.3)                      1.590.667

Duration of action                                            6

Years

Total cost of action (I x II)                9.544.002

8. 

FOLLOW-UP AND EVALUATION

8.1. 

Follow-up arrangements

The  work  programme  of  the  observatory  will  be  drawn  up  and  approved  in  the
framework of the normal DG TREN work programme.

86

€
€
8.2. 

Arrangements and schedule for the planned evaluation

See above.

9. 

ANTI-FRAUD MEASURES

The observatory will  employ  a  number  of  important rules  with  respect  to  financial  and
administrative control, which will be adapted to features of the action concerned. These
rules  and  procedures  will  be  applied  throughout  the  whole  period  of  the  actions.  they
concern in particular:

-  before  the  signature  of  contracts:  a  qualitative  and  financial  analysis  of  offers  or
proposals and, if case may be, the involvement of other services of the Commission with
a view to avoid duplication of work.

- after the signature of contracts: examination of the list expenditures before payment at
several  levels  (financial  and  technical);  successive  payments  in  line  with  progress  of
work; internal audit:

87

Action

No

Type

Type of output

Number of
output

Average unit cost

Total cost

1

2

3

Total for 4=(2X3)

Action 1

Monitoring the functioning of the internal oil and gas market

and the international oil and gas market

1D

Annual report including recommendation

Publication

Action 2

Contribute to the implementation of a system for the physical

monitoring of the oil and gas infrastructure inside and outside the EU

2 2C21

Dispatching model

2C22

Computer model

2C6

Implementation plan

Action 3

Monitor oil and gas supplies to the EU and procedures aimed

 at guaranteeing the security of these supplies in emergency cases

3 3C11

Subscription and purchase of relevant material

3C21

Transposition of relevant Community legislation

3C3

Study on emergency cases and impact on internal market

3C5

Security Standards

Study

Software

Study

Study

Study

Study

88

6

1

1

1

6

1

1

1

40000

240000

1800000

400000

250000

15000

120000

250000

250000

1800000

400000

250000

90000

120000

250000

250000

Action 4

Monitor the level of oil and gas stocks as well as stocks of oil

products and the procedures for their use, the implementation

of measures to reduce oil and oil product consumption as

well as the procedures applied with regard to access to gas

storage including aspects of market dominance in relation

to access to storage

4C12

Identification of appropriate stock levels

4C3

Oil reduction

4C41

TPA to storage

4C42

publication of study findings

4D1

Oil and gas stock development

Action 5

Create a basis of objective, reliable and comparable data

as a basis for fulfilling the above tasks

5 5C1

Database design

5C2

database mechanism

total

Study

Study

Study

Publication

Publication

Study

89

1

1

1

1

150000

150000

200000

200000

150000

150000

40000

40000

11

8000

88000

1

5

250000

250000

40000

200000

4478000

LEGISLATIVE FINANCIAL STATEMENT

Policy area(s): Energy

Activity(ies): Underpinning the security of oil and gas supply to the European Union

TITLE  OF  ACTION:      CONVENING  A  COMMITTEE  TO  ASSIST  THE  COMMISSION  IN  CASE  OF

SUPPLY CRISIS (OIL)

1.

BUDGET LINE(S) + HEADING(S)

Budget line: A07031, heading: Meetings and convocation in general

2.

2.1

2.2

OVERALL FIGURES

Total allocation for action (Part B): € million for commitment: none

Period of application:

2004 to 2009 and subsequent years

2.3

Overall multiannual estimate on expenditure: 0,24 M€

a) Schedule of commitment  appropriations/payment appropriations  (financial  intervention) (see
point 6.1.1)

€ million ( to 3rd decimal place)

2004

2005

2006

2007

2008

2009
and
subs.
years

Total

Commitments

Payments

b) Technical and administrative assistance and support expenditure(see point 6.1.2)

Commitments

Payments

Subtotal a+b

Commitments

Payments

c)  Overall  financial  impact  of  human  resources  and  other  administrative  expenditure
(see points 7.2 and 7.3)

Commitments/
payments

90

TOTAL a+b+c

Commitments

Payments

0,08

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,28

0,24

91

2.4

Compatibility with the financial programming and the financial perspective

X

Proposal compatible with the existing financial programming

(cid:1) This proposal will entail reprogramming of the relevant heading in the financial 

perspective

(cid:1) This may entail application of the provisions of the Interinstitutional Agreement.

2.5

Financial impact on revenue1:

No financial implications (involves technical aspects regarding implementation of

X
a measure)

   OR

(cid:1) Financial impact – the effect on revenue is as follows:

 Note:  All details and observations pertaining to the method of calculating the effect
on revenue should be included in a separate annex.

Budget line    Revenue

€ million  (to 1 decimal place)

Situation following action

Year n

n+1

n+2

n+3

n+4

n+5

Prior to
action
(Year
n-1)

a) Revenue in absolute terms

b) Change in Revenue

 (cid:1)

(Please state each budget line involved, adding the appropriate number of rows to the table if
there is an effect on more than one budget line)

3.

BUDGET CHARACTERISTICS

Type of expenditure

New

Comp/
Non-comp

Diff/
Non-diff

YES/
NO

EFTA
participation

Participation
applicant
countries

Heading
Financial
Perspective

YES/NO

YES/NO

No           

1 For further information see a separate guidance paper

92

          
          
          
          
          
                                                
4.

LEGAL BASIS

Art 95 EUT

5.

5.1

DESCRIPTION AND GROUNDS

Need for Community intervention 2

5.1.1

 Objectives pursued

The European Union has to cope with a rising dependency on oil supply from external sources.
This  entails  physical  and  economic  risks,  as  most  of  the  producer  countries  are  located  in
politically rather unstable regions. In view of the immense importance of a secure oil supply for
the  European  economies  and  societies,  the  Commission  has  proposed,  as  an  outcome  of  the
debate  on  the  Green  Paper  “Towards  a  European  strategy  for  the  security  of  energy  supply”  a
Community framework designed to ensure a secure supply of oil also in the future.

However, in case of emergency and /or crisis situations, it cannot be excluded that a secure oil
supply is put on jeopardy due to physical interruptions and/or dramatically high prices. In order
to  cope  efficiently  and  with  only  the  least  possible  delay,  the  Commission  has  proposed  a
genuine  decision-making  mechanism  under  which  the  European  Union  will  be  able  to  define
rapidly and efficiently the most appropriate response to a actual or potential threat.

This decision-making process involves Member States who will  be convened in order to  assist
the Commission to define the most appropriate action in a given emergency or crisis situation.

5.1.2 Measures taken in connection with ex ante evaluation

In the framework of the oil crisis in autumn 2000 and while preparing the debate on the Green
Paper, the Commission  has carried out several in-depth analysis on crisis mechanisms currently
in force (such as the IEA mechanism) and came to the conclusion that these mechanisms would
be  inadequate  in  a  given  crisis.  These  conclusions  are  reflected  in  the  Green  Paper  and  in  the
Communication of the Commission on oil supply3. As a result, the Commission proposes a new
Community framework for security of oil and gas supplies, which foresees the above-mentioned
new decision-making process.

5.1.3 Measures taken following ex post evaluation

(Where  a  programme  is  being  renewed  the  lessons  to  be  learned  from  an  interim  or  ex  post
evaluation should also be described briefly.)

5.2

Actions envisaged and arrangements for budget intervention

not applicable

2 For further information see a separate guidance paper
3 COM(2000)769

93

                                                
5.3

Methods of implementation

The  Committee  will  be  chaired  by  the  Commission,  which  is  assisted  by  representatives  of
Member State.

6.

6.1

FINANCIAL IMPACT

Total financial impact on Part B - (over the entire programming period)

not applicable

6.1.1

Financial intervention

Commitments in € million (to the 3rd decimal place)

Year N

N + 1

 N + 2

N + 3

N + 4

Total

N + 5 and
subs.
years

Breakdown

Action 1

Action 2

Etc.

TOTAL

6.1.2  Technical  and  administrative  assistance,  support  expenditure  and  IT  expenditure  (

Commitment appropriations)

Year N

N + 1

 N + 2

N + 3

N + 4

Total

N + 5 and
subs.
years

1) 
administrative assistance

Technical 

and

Technical 

a) 
offices

assistance

b)  Other 
administrative assistance:

technical 

and

- intra muros :

- extra muros :

of  which  for  construction
and 
of
maintenance 
computerised  management
systems

Subtotal 1

2) Support expenditure

a) Studies

b) Meetings of experts

c) Information and
publications

94

Subtotal 2

TOTAL

95

6.2

Calculation of costs by measure envisaged in Part B (over the entire programming
period)1

not applicable

Breakdown

Commitments in € million  (to the 3rd decimal place)

Type
of outputs
(projects, files )

Number of
outputs

Average unit
cost

(total for years
1…n)

Total cost

(total for years
1…n)

1

2

3

4=(2X3)

Action 1

- Measure 1

- Measure 2

Action 2

- Measure 1

- Measure 2

- Measure 3

Etc.

TOTAL COST

If necessary explain the method of calculation

7.

IMPACT ON STAFF AND ADMINISTRATIVE EXPENDITURE

The needs for human and administrative resources shall be covered within the allocation
granted to the managing DG in the framework of the annual allocation procedure.

7.1

Impact on human resources

not applicable

Staff to be assigned to management of the
action using existing and/or additional
resources

Number of
permanent posts

Number of
temporary posts

Total

Description of tasks deriving from the
action

Types of post

Permanent
officials 
Temporary staff

or

A

B

C

Other human resources

1 For further information see a separate guidance paper

96

                                                
Total

97

7.2

Overall financial impact of human resources

not applicable

Type of human resources

Amount €

Method of calculation  *

Officials

Temporary staff

Other human resources

(give budget line)

Total

The amounts are total expenditure for twelve months.

7.3

Other administrative expenditure deriving from the action

Amount €

Method of calculation

        0,04

Budget line

(number and heading)

Overall allocation (Title A7)

A0701 – Missions

A07030 – Meetings
A07031 – Compulsory committees (1)
A07032 – Non-compulsory committees (1)

A07040 – Conferences

A0705 – Studies and consultations

… Other expenditure (state which)

Information systems (A-5001/A-4300)

Other expenditure - Part A (state which)

Total

      0,04

The amounts are total expenditure for twelve months.

(1) Specify the type of committee and the group to which it belongs.

I.

II.

III.

8.

8.1

Annual total (7.2 + 7.3)                   40 000

Duration of action                                    6

Years

Total cost of action (I x II)           240 000

FOLLOW-UP AND EVALUATION

Follow-up arrangements

The  Commission  will  take  care  for  the  correct  implementation  of  the  decisions  taken  by  the
Committee.  In  particular,  it  will  ensure  that  the  internal  rules  of  procedure  are  adequate  and
strictly followed by Committee Members.

98

€
€
8.2

Arrangements and schedule for the planned evaluation

If  necessary  and  appropriate,  the  Commission  will  issue  recommendation  and/or  proposals  to
streamline the work of the Committee.

9.

ANTI-FRAUD MEASURES

not applicable

99

LEGISLATIVE FINANCIAL STATEMENT

Policy area(s): Energy

Activity(ies): Underpinning the security of oil and gas supply to the European Union

TITLE  OF  ACTION:      CONVENING  A  COMMITTEE  TO  ASSIST  THE  COMMISSION  IN  CASE  OF

SUPPLY CRISIS (GAS)

1.

BUDGET LINE(S) + HEADING(S)

Budget line: A07031, heading: Meetings and convocation in general

2.

2.1

2.2

OVERALL FIGURES

Total allocation for action (Part B): € million for commitment: none

Period of application:

2004 to 2009 and subsequent years

2.3

Overall multiannual estimate on expenditure: 0,24 M€

a) Schedule of commitment  appropriations/payment appropriations  (financial  intervention) (see
point 6.1.1)

€ million ( to 3rd decimal place)

2004

2005

2006

2007

2008

2009
and
subs.
years

Total

Commitments

Payments

b) Technical and administrative assistance and support expenditure(see point 6.1.2)

Commitments

Payments

Subtotal a+b

Commitments

Payments

c)  Overall  financial  impact  of  human  resources  and  other  administrative  expenditure
(see points 7.2 and 7.3)

Commitments/
payments

100

TOTAL a+b+c

Commitments

Payments

0,08

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,04

0,28

0,24

101

2.4

Compatibility with the financial programming and the financial perspective

X

Proposal compatible with the existing financial programming

(cid:1) This proposal will entail reprogramming of the relevant heading in the financial 

perspective

(cid:1) This may entail application of the provisions of the Interinstitutional Agreement.

2.5

Financial impact on revenue1:

No financial implications (involves technical aspects regarding implementation of

X
a measure)

   OR

(cid:1) Financial impact – the effect on revenue is as follows:

 Note:  All details and observations pertaining to the method of calculating the effect
on revenue should be included in a separate annex.

Budget line    Revenue

€ million  (to 1 decimal place)

Situation following action

Year n

n+1

n+2

n+3

n+4

n+5

Prior to
action
(Year
n-1)

a) Revenue in absolute terms

b) Change in Revenue

 (cid:1)

(Please state each budget line involved, adding the appropriate number of rows to the table if
there is an effect on more than one budget line)

3.

BUDGET CHARACTERISTICS

Type of expenditure

New

Comp/
Non-comp

Diff/
Non-diff

YES/
NO

EFTA
participation

Participation
applicant
countries

Heading
Financial
Perspective

YES/NO

YES/NO

No           

1 For further information see a separate guidance paper

102

          
          
          
          
          
                                                
4.

LEGAL BASIS

Art 95 EUT

5.

5.1

DESCRIPTION AND GROUNDS

Need for Community intervention 2

5.1.1

 Objectives pursued

Despite  the  considerable  achievements  in  terms  of  introducing  competition  on  the  European
natural gas market, the gas market is still in a transitional period. The Commission has to closely
follow the developments in order to help competition gaining ground. For this reason, a close co-
operation between the Commission and the Member States is necessary.

In an integrated competitive internal market for gas, emergency or crisis situation of gas supplies
will affect a large number of customers, who are not likely to be located within the same national
boundary. In order to maintain a secure gas supply to certain customers also in crisis situations,
but also to ensure the least possible disturbances of the market in such situation, a co-ordination
mechanism at Community level is necessary.

For these  reasons, the new Community framework  for secure  gas and  oil  supplies requests  the
convocation  of  a  Committee  made  up  of  representatives  of  Member  States  and  chaired  by  the
Commission.

5.1.2 Measures taken in connection with ex ante evaluation

The  analysis  carried  out  in  the  Green  Paper  “Towards  a  European  strategy  on  energy  supply”
demonstrated clearly that imports of natural gas will grow and come from more distant regions.
The  new  competitive  market  environment  introduced  by  liberalisation  did  not  enable  full
transparency in terms of security of supply policies. For these reasons the Commission proposes
a  new  Community  framework  for  security  of  oil  and  gas  supplies,  which  foresees  the  above-
mentioned new decision-making process.

5.1.3 Measures taken following ex post evaluation

(Where  a  programme  is  being  renewed  the  lessons  to  be  learned  from  an  interim  or  ex  post
evaluation should also be described briefly.)

5.2

Actions envisaged and arrangements for budget intervention

not applicable

2 For further information see a separate guidance paper

103

                                                
5.3

Methods of implementation

The  Committee  will  be  chaired  by  the  Commission,  which  is  assisted  by  representatives  of
Member State.

6.

6.1

FINANCIAL IMPACT

Total financial impact on Part B - (over the entire programming period)

not applicable

6.1.1

Financial intervention

Commitments in € million (to the 3rd decimal place)

Year N

N + 1

 N + 2

N + 3

N + 4

Total

N + 5 and
subs.
years

Breakdown

Action 1

Action 2

Etc.

TOTAL

 6.1.2  Technical  and  administrative  assistance,  support  expenditure  and  IT  expenditure  (

Commitment appropriations)

Year N

N + 1

 N + 2

N + 3

N + 4

Total

N + 5 and
subs.
years

1) 
administrative assistance

Technical 

and

Technical 

a) 
offices

assistance

b)  Other 
administrative assistance:

technical 

and

- intra muros :

- extra muros :

of  which  for  construction
and 
of
maintenance 
computerised  management
systems

Subtotal 1

2) Support expenditure

a) Studies

b) Meetings of experts

c) Information and
publications

104

Subtotal 2

TOTAL

105

6.1

Calculation  of  costs  by  measure  envisaged  in  Part  B  (over  the  entire
programming period)1

not applicable

Breakdown

Commitments in € million  (to the 3rd decimal place)

Type
of outputs
(projects, files )

Number of
outputs

Average unit
cost

(total for years
1…n)

Total cost

(total for years
1…n)

1

2

3

4=(2X3)

Action 1

- Measure 1

- Measure 2

Action 2

- Measure 1

- Measure 2

- Measure 3

Etc.

TOTAL COST

If necessary explain the method of calculation

7.

IMPACT ON STAFF AND ADMINISTRATIVE EXPENDITURE

The  needs  for  human  and  administrative  resources  shall  be  covered  within
the  allocation  granted  to  the  managing  DG  in  the  framework  of  the  annual
allocation procedure.

7.1

Impact on human resources

not applicable

Staff to be assigned to management of the
action using existing and/or additional
resources

Number of
permanent posts

Number of
temporary posts

Total

Description of tasks deriving from the
action

Types of post

Permanent
officials 

A

or

1 For further information see a separate guidance paper

106

                                                
Temporary staff

B

C

Other human resources

Total

107

7.2

Overall financial impact of human resources

not applicable

Type of human resources

Amount €

Method of calculation  *

Officials

Temporary staff

Other human resources

(give budget line)

Total

The amounts are total expenditure for twelve months.

7.3

Other administrative expenditure deriving from the action

Amount €

Method of calculation

        0,04

Budget line

(number and heading)

Overall allocation (Title A7)

A0701 – Missions

A07030 – Meetings
A07031 – Compulsory committees (1)
A07032 – Non-compulsory committees (1)

A07040 – Conferences

A0705 – Studies and consultations

… Other expenditure (state which)

Information systems (A-5001/A-4300)

Other expenditure - Part A (state which)

Total

      0,04

The amounts are total expenditure for twelve months.

(1) Specify the type of committee and the group to which it belongs.

I.

II.

III.

8.

8.1

Annual total (7.2 + 7.3)                   40 000

Duration of action                                    6

Years

Total cost of action (I x II)           240 000

FOLLOW-UP AND EVALUATION

Follow-up arrangements

The Commission will take care for the correct implementation of the decisions taken
by the Committee. In particular, it will ensure that the internal rules of procedure are
adequate and strictly followed by Committee Members.

108

€
€
8.2

Arrangements and schedule for the planned evaluation

If  necessary  and  appropriate,  the  Commission  will  issue  recommendation  and/or
proposals to streamline the work of the Committee.

9.

ANTI-FRAUD MEASURES

not applicable

109