The UK is required to hold certain levels of stocks of oil to mitigate the effects of a supply disruption reflecting International Energy Agency membership, as well as EU obligations. The Compulsory Stocking Obligation (CSO) provides the UK with a decentralised mechanism to meet these requirements using significant producers and suppliers. However, the UK started to fall short of its obligations and DECC was concerned that structural changes in the downstream oil sector would worsen the situation. IPA and Muse, Stancil & Co. were commissioned to identify whether further measures were required.
IPA and Muse, Stancil & Co. provided independent research, modelling and analysis to assess the level of CSO arrangements that needed to be imposed on refiners and importers to ensure that the UK could meet its oil stocking obligations.
IPA developed a bespoke model of the UK’s oil consumption, production and imports up to 2030 in order to forecast future stockholding requirements. The model was designed to calculate the obligations that would need to be imposed on specific market participants to ensure that the national aggregate obligation was met. It was also used to assess the cost of meeting the obligation under different UK continental shelf production, declining refinery throughput and CSO policy scenarios. The economic strengths and weaknesses of each policy scenario were also assessed.
IPA also held stakeholder meetings with the UK Petroleum Industry Association and the Downstream Fuel Association in order to discuss and understand their views on the current stockholding arrangements and their approach to meeting any changes to the stockholding differential and obligation.
Based on the results of the assessment, IPA developed policy recommendations and drafted an independent policy paper for DECC. IPA also delivered a user-friendly model which encapsulated all of the analysis, could easily be updated, and provided sufficient flexibility for additional sensitivity analyses.