Karuizawa, Japan — The major escalation in risks to oil and gas shipments through the Strait of Hormuz dominated talks between ministers on the sidelines of the G20 energy meeting in Japan over the weekend, prompting the group to commit to finding ways to increase energy security for producing and consuming nations.
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Saudi Arabia's energy minister Khalid al-Falih said Saturday that the attacks have damaged global confidence in oil security, and he called for a "rapid and decisive response" to the threat to energy supplies.
"This is something my government takes very seriously and we intend to take every measure we can to protect our infrastructure, our own territorial waters, our own ships," Falih said. "But we cannot protect the seas of the world, and therefore this is a connected global responsibility."
The Front Altair and the Kokuka Courageous were carrying cargoes including naphtha when they were attacked Thursday. Neither tanker was said to be holding any crude, and the Strait of Hormuz remained open for safe passage. The incidents followed May 12 attacks on four tankers near the major regional bunkering port of Fujairah.
International Energy Agency chief Fatih Birol said Friday that he was very concerned about the attacks. He said IEA was ready to respond in the event of a supply disruption with a range of options, from providing members immediate policy advice to coordinating a release of emergency oil stockpiles.
"We are not yet there, but we are following very closely," Birol said.
EMERGENCY OIL STOCKPILES ON STANDBY Asked if the Trump administration would tap the US Strategic Petroleum Reserve in response to a blockage of the Strait of Hormuz, US Deputy Energy Secretary Dan Brouillette told Platts Capitol Crude: "The SPR is intended for large disruptions in the marketplace."
"I can't tell you without knowing the details whether this particular event constitutes an emergency under the federal law," Brouillette added. "But it's these types of events we look at with regard to release of the SPR."
The IEA chief and US deputy energy secretary both noted the relatively modest price reaction to the tanker attacks, given concerns about weaker-than-expected global demand and abundant supply.
ICE Brent futures closed $1.34/b higher at $61.31/b Thursday, the day of the attacks. Around midday London time on Monday, the front-month contract was trading a little over $61/b.
"What that says to the world as well as all the G20 participants is that the markets are stable," Brouillette said. "As long as oil production continues where it is, as long as we continue to innovate, as long as we continue to develop new energy technologies, I think we'll continue to see that resilience of our energy markets."
Birol said growth in US oil production has kept prices at "reasonable levels" despite the tanker attacks and other supply risks.
"There is substantial amount of oil coming from the United States, which puts a strong ceiling on oil prices," Birol said in an interview with Platts Capitol Crude. "Growth from the United States is a welcome addition to oil markets, especially looking at from an oil security point of view and looking at affordability for oil importers, including Japan, Korea and other Asian importers."
While the G20 agenda focused on energy innovation, ocean litter and other issues, the specter of tanker attacks caused the group to add a section on energy security to the meeting's final communique.
'GRAVE CONCERNS' FOR ENERGY SECURITY The ministers stressed the importance of "reliable energy infrastructure to prevent energy supply disruptions" and "diversification of energy sources, suppliers and routes, facilitation of open, flexible, transparent, competitive, stable and reliable markets."
Japanese Minister of Economy, Trade and Industry Hiroshige Seko said the attacks exposed "grave concerns" for global energy security.
In a bilateral meeting with Seko, Saudi oil minister Falih said his country was committed to ensuring that global markets remain stable.
"We do it by monitoring those markets on a constant basis, and we work on ensuring that supply and demand are well balanced," he said.
Falih said Saudi Arabia is meeting all of the energy requests it receives from Japanese consumers, as well as other customers in Asia and elsewhere in the world.
"We've seen demand from some of these big consumers increase, and we have met all requests," he said. "There has not been a single barrel requested of Saudi Aramco from Japanese consumers that we haven't been able to meet." Saudi Arabia is the largest crude supplier to Japan, accounting for close to 40% of total imports.
Asked if oil importers will seek alternative supplies from outside the region to avoid the Strait of Hormuz, IEA's Birol said: "I think this will be a situation observed by oil importers, especially in this part of the world." But Birol said he does not expect a major shift in oil flows anytime soon.
IEA requires member countries to hold emergency oil stockpiles equivalent to at least 90 days of net oil imports. The reserves can be held by private companies, governments or agencies.
About 18.5 million b/d of seaborne oil exports passed through the Strait of Hormuz in 2016, mainly to customers in Asia, according to the US Energy Information Administration. Japan, China, India and South Korea are the biggest buyers of the heavier sourer crudes that Middle East producers tend to supply.
The strait is also crucial for LNG shipments from Qatar, which exported about 6.6 million mt in April, equivalent to about 23.5% of global LNG supply, according to S&P Global Platts Analytics.
--Takeo Kumagai and Meghan Gordon
--Edited by Alisdair Bowles, firstname.lastname@example.org