The situation that any nation which is dependent on external source of energy wants to avoid is one in which it becomes reliant on one source for all of its energy needs. For reasons of national security, a nation has to have a range of energy feedstocks that can supply its needs and a range of international sources for the feedstocks. As a strategy to minimize resulting disruption to the smooth running of its economy through the management of its ‘source dependency’, a nation wants to reduce the risk of the impact, in case, for whatever reason or reasons, one source is discontinued or becomes no longer available.
Every nation of the world is subject to some type of energy dependence. Even if a nation is fortunate enough to be self sufficient for its energy needs, it is still ‘dependent’ on the reliability of its energy sources. The transit of energy feedstocks from source, to processing if necessary, and then onwards to the end user, involves a complex supply chain.
In July 2002 Jonathan Stern published a paper for the United Kingdom´s Royal Institute of International Affairs titled ‘Security of European Natural Gas Supplies – the impact of import dependence and liberalization’ in which he defined four categories of energy dependence. The paper focused on natural gas as it is such a vital energy feedstock for European nations but the types of dependencies described in the paper are equally applicable to other energy feedstocks.
As the title of the paper suggests, ‘import dependence’ is one of the four dependencies energy thirsty nations are subject to. The USA has to import 30% of its energy needs. The EU has to import approximately 50% of its energy needs with some individual nations having to import as much as 95%. Chinain 2008 imported 45 % of its energy needs and this is forecast to increase to 80% by 2030. Indiais even more import-dependent at 70%. Japantops the league of import dependence nations following the tsunami of March 2011 by currently having to import 84% of its energy needs. Japancurrently ranks third behind theUSAandChinaas one of the world’s largest net importers of crude oil.
By 2005, Britain had become a net importer of crude oil, natural gas and coal. This was as a result of the declining production in the North Sea and the availability of imported coal costing less than coal extracted domestically.
The import of energy involves the transit of feedstocks across national borders. As the number of borders crossed increases so does the complexity and risk involved in international transit increases as more businesses and governments become involved in managing the movement.
An example of when both governments and businesses across borders affected an energy supply chain happened in 2006. Leading up to January 2006 there had been a series of disputes between both Ukraine and Russia at a national and corporate level. The disputes were about pricing and unpaid bills. At least nations suffer the same problems that domestic consumers do. There were also accusations that Ukraine was diverting supplies away from parties that Gazprom had contracted with in Western Europe.
The disputes came to a head on New Year´s day 2006 when Russia cut off supplies to Ukraine. It took four days for the situation to be resolved and normal supplies were resumed. These circumstances were repeated in January 2009, once again, in the middle of winter when demand is at its peak, and 18 European nations were under the threat of short supplies. In both incidents the West believed that Russia was using Gazprom as a proxy of its foreign ministry in an effort to prevent Ukraine drifting towards the West and away from its sphere of influence. In both incidents other European nations suffered shortages through circumstances that were beyond their control highlighting the risks of transit dependence.
It is the transit modes for natural gas that make it more vulnerable to this type of dependence than crude oil. Crude oil has an open international market and its main mode of transport is by sea. Tanker loads of oil can be bought and sold as they are in transit and final destinations can be changed to meet new commercial circumstances. Natural gas is predominantly transported by pipeline and therefore is highly regionalized with prices set by agreement rather than the market pressures of supply and demand.
Any high profile, capital intensive and vital infrastructure such as nuclear plants, oil rigs, pumping stations, overland pipelines, tank farms and pier facilities are constantly subjected to the ongoing risk of partial or full destruction. This can happen as the result of a genuine accident or as a result of human failure.
A natural cause accident was the tsunami that hitJapanin March 2011. This destroyed a nuclear facility forcingJapanto reconfigure its energy sources from nuclear to natural gas and crude oil when the process of recovery began. The Deepwater Horizon oil rig disaster was an example of disruption caused by human intervention. The pipeline across theSinaiDesertfromEgypttoIsraelis subjected to regular terrorist explosions causing disruption; another type of human intervention.
The continuous flow of energy feedstocks relies on safe, reliable and secure infrastructure collectively referred to as ‘facility dependency’.
The situation that any nation which is dependent on external source of energy wants to avoid is one in which it becomes reliant on one source for all of its energy needs. For reasons of national security, a nation has to have a range of energy feedstocks that can supply its needs and a range of international sources for the feedstocks. As a strategy to minimize resulting disruption to the smooth running of its economy through the management of its ‘source dependency’, a nation wants to reduce the risk of the impact, in case one source is cancelled.
In 2000, Bulgaria, the Slovak Republic and Finland were 100% source-dependent on Russia for their supplies of natural gas. Looked at in isolation this situation would make these nations appear extremely vulnerable to any action taken by Russia to interrupt supplies for whatever reason. However, looking at the total energy balances for each of these nations, the degree of source dependence decreases. The Slovak Republic only uses natural gas for 30% of its total energy needs; Bulgaria only uses it for 13% and Finland for 4% of its total final consumption.
By 2010 these circumstances had not changed. Compare these nations with France who has developed a range of international sources for natural gas – importing from Russia, Algeria, Norway and The Netherlands. None of these sources for natural gas accounted for more than 25% of France’s total imports. To put this into perspective further, France’s energy needs are only 20% supplied by natural gas and France relies on natural gas supply imports for no more than 5% of its total energy needs.
Whatever the composition of the energy-dependency of any nation, a secure supply of energy feedstocks is of paramount importance for every economy. The US State Department declares it is working to ‘elevate and intensify our efforts on energy security’. The Foreign and Commonwealth Office recognizes ‘the challenge we face today on energy security and how a geopolitical perspective can help navigate government and business towards a stable supply of energy’. Where there is a dependency there is a risk and where there is a risk, every possible measure available must be taken to reduce it to an absolute minimum to ensure that we can fuel our economies.
The author, Alan Russell is a member of the Editorial Board of Read-Online.Org. He can be contacted by mail through Alan.Russell@read-online.org
Opinions expressed in this article are those of the author and do not necessarily reflect the editorial views of Read-Online.Org