Part 1 - Strategy overview
1. Introduction
1.1 The Strategy will assist the government as necessary to respond to both international and national oil supply disruptions. The overall objectives of the Strategy are:
- to ensure that New Zealand is able to meet its obligations as a member of the IEA; and
- to ensure that the effects of an oil supply disruption on New Zealand are minimised.
1.2 The Strategy addresses short term oil supply disruptions only. Mid to long term energy and transport goals are covered by the New Zealand Energy Strategy, the New Zealand Energy Efficiency and Conservation Strategy and the forthcoming New Zealand Transport Strategy. Over time these initiatives will help reduce reliance on oil, thereby increasing New Zealand's resilience to disruptions in the oil market.
1.3 If an oil supply disruption were part of a broader national emergency, the arrangements in this Strategy would be implemented in coordination with the all-of-government response using the system of domestic and external security co-ordination (DESC).2
1.4 In September 2006 the Minister of Energy released a discussion paper entitled Options for Government Response to an Oil Supply Disruption, which sought feedback on key aspects of an oil emergency response strategy.3
1.5 The submissions received have been considered in developing this Strategy. One of the principal concerns was that the arrangements in the Strategy need to integrate with other oil contingency plans under development in New Zealand. This issue is discussed later in the document.
1.6 Given the need for a high degree of flexibility to respond to specific scenarios, the details in the Strategy will necessarily remain relatively high-level.
New Zealand's IEA oil emergency response obligations
1.7 The IEA was founded after the 1973/1974 oil crisis to coordinate measures amongst oil importing countries in times of oil supply emergencies. As a member of the IEA, New Zealand may be called upon to participate in the IEA's oil emergency response procedures.
1.8 The IEA's oil emergency response mechanisms were set up under the 1974 Agreement on an International Energy Program (IEP Agreement). The IEP Agreement requires IEA countries to hold oil stocks equivalent of at least 90 days of net imports of the previous calendar year and, in the event of a major international oil supply disruption, to release oil stocks, restrain demand, switch to other fuels, increase domestic production and share available oil, if necessary.
1.9 To supplement the mechanisms defined in the IEP Agreement, the IEA has elaborate flexible arrangements for co-ordinated use of stockdraw, demand restraint and other measures that could be implemented in response to a disruption in oil supplies.
1.10 IEA collective response actions are designed to mitigate the negative impacts of sudden international oil supply shortages by making additional oil available to the global market through a combination of oil emergency response measures, which include both increasing supply and reducing demand.4
Fulfilling New Zealand's IEA 90 day obligation
1.11 To fulfil part of the 90 day obligation, commercial stocks are held within New Zealand (owned by the oil companies). In addition, the government holds contracts for reserve oil stocks. During 2008 these reserves are held in Japan, Australia, the Netherlands and the United Kingdom, whereby the government has an option to purchase oil in the event of an IEA declared emergency.
1.12 Criteria governing the release of reserve stocks ensure that the stocks may only be released to meet New Zealand's obligations to the IEA. Releasing the stocks would be part of a concerted IEA member release onto the international market to improve global supply.5
1.13 Oil companies remain responsible for ensuring that adequate commercial stock levels throughout New Zealand are maintained.
2. Triggering a government response
2.1 The measures outlined in the Strategy would only be used if required to either fulfil New Zealand's obligations under the IEA, or respond to a disruption to oil supplies in New Zealand in circumstances where an industry response is unlikely to be sufficient. The measures in the Strategy would not be activated where the primary purpose is price management or to assist any particular supplier.
2.2 It is difficult to list all the scenarios that could trigger government activation of the measures in the Strategy. In general, oil companies will have the initial role in responding to an oil supply disruption. However, if the severity of situation warranted it, the government could assist industry and intervene using the legislative and non-legislative measures contained in the Strategy and/or civil defence powers. A description of the measures available for government to respond to an oil supply disruption is outlined in Part 3.
IEA declared emergencies
2.3 For IEA declared emergencies, declaration by the IEA of an oil emergency is sufficient for a government response.
Non-IEA declared emergencies
2.4 For non-IEA declared emergencies, an event's impact on oil infrastructure dictates the need for government response. Generally speaking, this would be for an event that significantly impacts on national supply, and when an industry response alone is likely to be insufficient.
2.5 The Strategy partly overlaps with oil companies' contingency plans and response arrangements in Civil Defence Emergency Management (CDEM) plans6, which could be activated at a national, regional or local level depending on the nature of the event. Figure 1 below broadly illustrates the various response arrangements for the oil sector and government in a non-IEA declared oil emergency (this illustration is not prescriptive).
Figure 1: Response arrangements for the oil sector in non-IEA event 7
2.6 While oil companies have sole responsibility for response in certain localised or minor disruptions, they will remain significantly involved when a government response is required.
2.7 The Strategy's focus on national oil supply dovetails with the National CDEM Petroleum Contingency Plan (under development), which, when completed, is expected to outline and integrate oil companies' contingency plans and set out a framework for how these plans would be supported by the CDEM sector in a civil defence emergency that materially impacts on regional oil distribution.
2.8 Some local and regional authorities are also developing CDEM petroleum contingency plans. The government expects that these plans will be able to be effectively integrated with, and support, the National CDEM Petroleum Contingency Plan and this Strategy as necessary.
3. Legislative powers
3.1 The two key pieces of legislation that currently provide government with emergency powers in the event of an oil supply disruption are the International Energy Agreement Act 1976 and the Petroleum Demand Restraint Act 1981.
3.2 The International Energy Agreement Act 1976 provides for maintaining a minimal level of reserve oil supplies. It does this by providing for the making of emergency regulations and Ministerial directions to control the production, acquisition, distribution, supply, or use of petroleum. Such measures can only be taken after the Governor-General has considered New Zealand's IEA obligations require the taking of emergency measures and issued a proclamation of an oil emergency accordingly.
3.4 The Petroleum Demand Restraint Act 1981 authorises regulation-making for the purpose of restraining demand, reducing consumption, or ensuring the equitable distribution of processed petroleum products in New Zealand. Under this Act, the government may make these regulations if petroleum products are or are likely to be in short supply in New Zealand.
3.5 With regard to petroleum production, there are also powers under the Crown Minerals Act 1991 to direct a permit holder to refine or process petroleum in New Zealand, and to prohibit its export.
3.6 The Civil Defence Emergency Management Act 2002 provides a range of specific powers to authorised officers in a civil defence emergency. Some of these powers, such as the power to conserve essential supplies and regulate traffic, could assist in dealing with certain types of oil supply disruptions.
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