U.K. Could Breach Emergency Fuel Commitments Because of EU Exit

(Bloomberg) -- The U.K. might fail to honor commitments relating to emergency fuel stockpiles as its exit from the European Union approaches, a trade group representing the nation’s oil refiners said.

Europe manages its fuel inventories as a bloc, so part of the U.K.’s emergency stocks can be held in other member states. In some cases, the fuels are held by companies on behalf of governments on a quarterly or an annual basis, under what’s known as a ticketing system. Because of uncertainty over Brexit, some other nations are reluctant to renew the storage arrangements, according to the U.K. Petroleum Industry Association.

“Brexit is having an impact on U.K. companies, with some EU countries choosing not to allow oil stocking tickets from the beginning of 2019 due to the Brexit uncertainty,” Jamie Baker, a UKPIA spokesman, said in a statement. “UKPIA members believe this significant risk to international oil stocking tickets must be addressed as a matter of priority, or risk non-compliance with international obligations.”

Were Britain to exit the EU without a deal, the country would almost certainly end up switching to a program coordinated by the International Energy Agency in Paris, involving countries as far away as Japan, Australia and the U.S. Any potential shortfalls, while unlikely to pose a long-term threat to Britain’s energy security, nonetheless highlight the myriad logistical challenges the country faces as it prepares to leave the EU.

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As of August, the U.K. stored almost 2.6 million metric tons of fuels in other countries, the largest amount of any European Union country, according to Eurostat data. It holds 783,000 tons for others. The U.K. holds about 45 percent of its requirements elsewhere in the EU, according to UKPIA estimates.

At the moment, the draft Brexit deal reached by British Prime Minister Theresa May makes no direct reference to how emergency oil stockpiling will be dealt with, but there would be a two-year grace period where everything stays the same. Without a deal, the government envisages switching to the IEA’s rules, requiring the U.K. to hold 90 days of net imports, a smaller buffer than the country has today.

Under the EU’s rules, countries must maintain emergency stocks of crude oil and/or petroleum products equal to at least 90 days of net imports or 61 days of consumption, whichever is higher. For Britain, the requirement relates to consumption.

In practice, if the U.K. did join the IEA system, it’s unlikely the country would ever need to receive supplies directly from faraway countries. Instead, the IEA might organize for supplies among its member states to be reshuffled, possibly as part of a coordinated draining of inventories.

There are times when countries do suffer localized supply shortfalls and need to tap emergency stockpiles. In the past few months, Germany and Switzerland tapped reserves because low water levels on the Rhine River hampered fuel deliveries.

There have been three globally coordinated emergency stockpile releases since the 1970s, according to the U.K.’s Department for Business, Energy & Industrial Strategy. The department wasn’t immediately able to comment when contacted by phone on Thursday.

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