Oil Security: Final report

• Client: Ministry of Economic Development
• Co-writer: Covec Limited
• Final report published: February 2005

This report presents the results of an investigation into New Zealand’s oil security and recommendations as to the steps that should be taken.

As a member of the International Energy Agency (IEA), New Zealand is required to hold oil stocks to cover 90 days of net oil imports. Hale & Twomey provided an initial report to the Ministry of Economic Development on the issue of New Zealand’s oil security following the discovery that New Zealand no longer meet the IEA requirement.

Hale & Twomey then worked with the economics consultancy Covec to assess policy options for the Government to improve oil security and meet the 90 days net import requirement. The resulting final report was released in February 2005.

Table of Contents

• Introduction
  • 1. Background
  • 1.1 The IEA Arrangement
  • 1.2 Current Industry Model
  • 1.3 Security of Supply
  • 1.4 Responses to the Draft Report
• 2. Problem Definition
  • 2.1. Components of the Security Problem
  • 2.2. Compliance with the IEA Requirements
  • 2.3. Potential Security Issues
  • 2.4. Market Failure
  • 2.5. IEA targets versus Supply Security
  • 2.6. Quantification of Security Risks
  • 2.7. Indicators of Security
• 3. Optimal Levels of Storage
  • 3.1. Methodology
  • 3.2. Impacts of the Rationing Approach to the Costs of Supply Failure
  • 3.3. Benefits of Storage
  • 3.4. Costs of Storage
  • 3.5. Costs and Benefits – Optimal Levels of Storage
  • 3.6. Comparing Optimal Storage Levels with IEA Requirements
  • 3.7. Factors Not Assessed
• 4. Solution Options
  • 4.1. Approaches used elsewhere
  • 4.2. Company specific scale issues
  • 4.3. Contractual options
  • 4.4. Non-storage options
  • 4.5. Institutional Arrangements and Implementation
  • 4.6. Conclusion on solution options
• 5. Conclusions & Recommendations
  • 5.1. Socially Optimal Levels of Storage
  • 5.2. Who Pays?
  • 5.3. How to Achieve It
  • 5.4. Recommendations
• Appendices
  • Appendix A: Carbon Costs
  • Appendix B: Consultation
  • Appendix C: Tank Costs
  • Appendix D NZRC’s Reliability Risk Management

Oil Security: Final Report

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