KEY POINTS:
Motorists have been hit by a world oil squeeze sending prices of crude oil, petrol and diesel soaring.
But how would this country fare in a serious oil supply disruption, perhaps caused by a confrontation between the US, Israel and their allies on the one hand. Or Iran on the other over Tehran's nuclear programme?
The fulcrum of oil shocks is the Middle East. It has accounted for close to 90 per cent of oil lost in serious supply ruptures since 1967. The International Energy Agency was set up in 1974 as the energy watchdog of leading industrialised democracies.
It has 26 members, including New Zealand, and one of its aims is to maintain and improve systems for coping with oil supply disruptions.
The energy agency says that the biggest oil shock since the 1973 Arab oil embargo occurred in 1978-79 during the Iranian revolution.
This resulted in a supply shortfall in the global market of about 5.6 million barrels a day for six months.
This was close to 10 per cent of world oil output in 1979.
That shortfall doubled oil prices, plunging the global economy over the next three years into its longest and deepest recession since World War II.
The other three largest oil supply disruptions since 1973 were also related to the Gulf and Middle East.
Each resulted in a supply shortfall of more than four million barrels of oil a day that lasted for more than four months on world markets, undercutting economic growth.
What can countries do to protect themselves from another dislocation in the global supply of oil?
Member states of the IEA such as New Zealand that are net oil importers are supposed to hold emergency reserves equivalent to at least 90 days of their oil imports of the previous year, even though it is expensive to do so.
At least until recently, the Government has been lax in fulfilling this obligation. New Zealand relies on imported oil (costing $4.4 billion in 2006) for around half its energy needs. Its oil production has been declining since 1997 when it met around 45 per cent of national demand. Last year, the country consumed just over 150,000 barrels of oil per day. Self-sufficiency is now down to about 15 per cent. The steady decline in local oil output in the past decade prompted the Government to decide in 2005 to secure additional oil stocks.
In December 2006 the Energy Minister, David Parker, announced that from the start of 2007 the country would meet its IEA obligation to hold 90 days of oil reserves.
He noted that oil stocks had recently fallen as low as 60 days of net oil imports as a result of rising demand and falling domestic oil production.
New Zealand is understandably wary of the costs involved in buying high-priced crude oil or products on the global market and then holding them in a strategic petroleum reserve on national territory as a buffer against a serious supply disruption.
Instead, it has chosen to buy the rights to oil for use in an emergency and rely on friendly foreign governments that are also IEA members to guarantee delivery if needed.
In 2006, the Government called a global tender for so-called ticket contracts, which give it an option to buy petroleum in the event of an IEA-declared emergency.
According to the Ministry of Economic Development, tickets have been secured for 406,000 tonnes of petrol and diesel in 2007 and 170,000 tonnes for this year.
The tickets cover stock held in Australia, the Netherlands and Britain.
The contracts are with three big oil companies, BP, Shell and Total.
The Government says that the cost of the tickets for 2007 alone is US$7.2 million ($9.1 million). A further tender for around 100,000 tonnes of petrol and diesel for 2008 was due by the end of 2007.
New Zealand's official energy strategy published in October said reserve stock levels using this system would average 94 days of net oil imports in 2007.
In November New Zealand supplemented its emergency supply arrangements in a deal with Japan - an oil stocks contract with Japanese companies so that the amount of petroleum involved can be counted as part of New Zealand's reserves for IEA purposes, equivalent to 119 days of oil supply, well in excess of the IEA's 90-day requirement.
Would this scheme work as intended in a crisis in which the demand for oil could become acutely competitive? It has yet to be tested.
* Michael Richardson, a former Asia editor of the International Herald Tribune, is an energy and security specialist at the Institute of Southeast Asian Studies in Singapore.
