Thursday, May 20, 2010

Energy: Concern about energy security risks

By Jutta Wolf
Republished courtesy of
IDN-InDepth NewsAnalysis

BERLIN (IDN) – A new study has expressed concern about the long-term energy security of the Middle East oil producing and exporting countries and classified these as “high risk” nations.

“A sustained growth in demand for energy has led to serious concerns over the long-term availability of reliable and affordable oil and gas supplies. Whilst the Middle East OPEC countries have large reserves, without a long-term investment in alternative energy sources, a move away from total dependency on fossil fuels and a reduction in consumption rates, they are subject to long-term risks,” says Dr Anna Moss, an analyst at Maplecroft.

The Energy Security Risk Index developed by Maplecroft, a firm specialising in corporate risk intelligence, pinpoints risks to supply chains, operations and investments in 212 countries. The index is split into short-term and long-term assessments of energy security and has been designed to enable businesses and investors to isolate current and future risks.

Due to a lack of hydrocarbon resources and reserves and little, if any, diversification away from fossil fuel dependency, it is the small island nations which are most at risk in the long-term Energy Security Risk Index, the analyst firm says in a statement.

Of the 39 countries rated “extreme risk,” 33 are small island nations, with Singapore, Nauru, American Samoa, Guam and Netherlands Antilles considered most vulnerable. However, the Middle East members of OPEC – UAE, Qatar, Saudi Arabia, Kuwait, Libya, Iraq, Algeria and Iran – have all been classified as “high risk” nations.

The other members of OPEC, Angola, Ecuador, Nigeria and Venezuela, have been rated “medium risk” due to a greater diversity in energy sources and less intensity of fossil fuels within the economy.

Maplecroft calculates long-term energy security using eight different indicators across four key areas:

Aavailability – the amount of each country’s domestic oil, gas and coal supplies;

Dependency and diversity – the dependence of each country on fossil fuels among other energy sources;

Intensity – the fossil fuel requirements of each country and the oil and gas intensity of its economy; and

Future growth – the predicted change to each country’s energy demands over the next 20 years.

In contrast, the OPEC nations dominate the low risk category of the short-term Energy Security Risk Index, which measures the amount, diversity and dependency on fossil fuel imports, plus electricity imports, and the security of imports in relation to the vulnerability to conflict, regime stability and the business environment of the source country.

All OPEC members are net exporters of energy and do not currently depend on imports.

Nine countries are rated by Maplecroft as “extreme risk” for short term vulnerability to energy security risks including: Belarus, Italy, Rwanda, Cambodia, Moldova, Sierra Leone, Lithuania, Sao Tome and Principe and Jordan. The U.S., Japan, India, Germany, France and Spain are all considered high risk.

Belarus and Italy are particularly susceptible to energy insecurity in the short term. Italy imports 85% of its energy from sources considered unreliable, including Libya 27%, Russia 11%, Iraq 7% and Iran 7%, whilst Belarus imports 93% of its energy and is almost completely reliant on Russia, which has a history of cutting of energy supplies to neighbouring countries.

Energy security is a broad and evolving concept. As highlighted by the International Energy Agency, in the 1970s and 1980s the term meant reducing the level of oil imports and managing the risks associated with those imports still required.

This understanding was later broadened to include other sources of energy and additional risks, including accidents, terrorism, under-investment in infrastructure and imperfect markets. Recently, rapid growth in the emerging economies has added significant uncertainties to the energy supply-demand equation.

As a result, energy security can be currently understood as referring to the reliable supply of affordable energy.


Energy security has risen to the top of the agenda among policy makers, international organisations and businesses in view of a sustained growth in demand from China and other emerging economies.

A sustained growth in demand for energy has led to serious concerns over the long-term availability of reliable and affordable supplies.

Conflict and geopolitical tensions in some of the regions that are key sources of raw materials for energy production represent a short-term supply risk, as well as obstacles for much-needed investment in the sector.

Transportation bottlenecks and other constraints in energy infrastructure represent additional threats to a reliable and affordable supply of energy.

Market mechanisms channel many of the issues that impact on energy security. For example, energy supply-demand dynamics are reflected primarily in pricing.

This is exemplified in the case of the high oil prices of recent years, which have been fuelled mainly by a sustained growth in demand from China and other emerging economies.

Likewise, specific conflict situations or incidents have led on occasions to hikes in oil prices. However, other factors such as the energy mix or the degree of energy intensity of the economy impact more broadly on each country’s vulnerability.

Energy security is a global issue, although political and economic ties and infrastructure constraints often mean the emphasis is on regional frameworks.

Furthermore, both decision-making considerations and the localised impact of potential disruptions of energy supplies make energy security a domestic concern for policymakers as well as business and individuals.

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