IEA Studying Natural Gas Security Measures

TOKYO, Dec 27, 2006 (Dow Jones Newswires)

The International Energy Agency is studying ways to bolster the security of global natural gas supply, including the setting up of national strategic reserves by member-states of the IEA, said the newly elected head of the OECD energy watchdog.

Replacing Claude Mandil next year, Nobuo Tanaka also said cooperation with China and India - two non-IEA member nations that consume large amounts of energy - will be one of his biggest challenges as the agency's chief.

Tanaka will be the first non-European to take the helm of the Paris-based energy watchdog of the Organization for Economic Cooperation and Development. Mandil's tenure expires in August 2007.

"The IEA is currently discussing issues such as whether natural gas strategic reserves are possible," Tanaka told Dow Jones Newswires in an interview Wednesday.

In a press meeting held in Tokyo earlier this week, Tanaka said security of natural gas supply has grown in importance, with many countries increasingly relying more on the clean-burning fuel as they diversify their energy mix.

He also said he wants to conduct a study on how foreign investment in natural gas projects located in producing countries could support stable output, thus creating steady revenue streams for these nations.

"The IEA is still talking about what kind of issues should be discussed," Tanaka said Wednesday.

Possible topics include whether such gas reserves should be compulsory among IEA member-nations, the manner in which natural gas can be stored in its gaseous and liquefied forms, and the politics of pipelines, said Tanaka.

IEA was founded by developed countries following the oil shocks of the 1970s, and has since worked toward stabilizing the world's energy supply, especially that of crude oil.

But Tanaka said the IEA should also focus more on other energy sources such as natural gas, nuclear power and renewables to promote the building of a bigger energy security net.

In early 2006, natural gas supplies from Russia to Ukraine were temporarily cut, which then affected other European countries. About 80% of Russian gas piped to Europe is routed through Ukraine.

Japan Can Help IEA To Engage China

Tanaka also stressed that he will look at ways in which the IEA can cooperate with major non-IEA oil consumers China and India in anticipation of possible supply disruptions.

He said strategic oil reserves should be used as a buffer against supply disruptions, rather than as a means of manipulating world prices.

Current IEA Managing Director Mandil said earlier this month that some of the risks to a stable and transparent global oil market come from consuming countries such as China and India using strategic stockpiles to counter price spikes rather than only in the case of genuine supply disruptions such as a war in the Middle East.

Although IEA has so far not reached an agreement on this point with either of the countries, Tanaka said he is optimistic, as he believes there is sufficient diplomatic space in which China and India can separately discuss this issue with IEA.

"Sino-Japan relations were considered bitter under the Koizumi administration. But there are a lot of relationships on many different levels between the two countries, and therefore mutual trust," said Tanaka, indicating Japan could help IEA engage with China.

India plans to start building a strategic stockpile next month, while China began constructing its strategic reserves in August.

China, which is looking to set aside about 100 million barrels of oil for strategic purposes, has built storage facilities at four sites around the country. It has also reached a supply agreement with Saudi Arabia, the world's largest oil producer.

As of September, IEA member nations hold a total of around 4 billion barrels of oil in storage, including strategic and commercial reserves, according to the agency's data.

Tanaka is currently the director for Science, Technology and Industry at the OECD.

Copyright (c) 2006 Dow Jones & Company, Inc.


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