Energy security: Can we remain complacent?

Dr B K Mukhopadhyay

(The author is a Professor of
Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

 It is a well-known fact now that energy security is mainly associated with oil supply. But while oil supply remains a key issue, the increasing complexity of energy systems calls for a systematic and rigorous understanding of a wider range of vulnerabilities, as disruptions can affect other fuel sources, infrastructure, or end-use sectors. Thus, analysis of oil supply security alone is no longer sufficient for understanding a country’s energy security situation as a whole.

The IEA defines energy security as “the uninterrupted availability of energy sources at an affordable price.” Energy security has many dimensions: While long-term energy security mainly deals with timely investments to supply energy in line with economic developments and sustainable environmental needs, short-term energy security focuses on the ability of the energy system to react promptly to sudden changes within the supply-demand balance. Lack of energy security is thus linked to the negative economic and social impacts of either the physical unavailability of energy or prices that are not competitive or are overly volatile.

Thus, this term refers to the availability of natural resources for energy consumption in a given period of time (short or long-term) in order to estimate future energy security. At this juncture, each country must think about its future energy security because this is one of the main prerequisites for future economic growth. Our economy is traditionally based on fossil fuels (oil, coal, and natural gas), and this fact leads to the conclusion that only an adequate supply of fossil fuels can guarantee future energy security. There is now a severe limitation. That is why the role of renewable energy in improving energy security is gaining concentrated attention because more renewable energy coming from domestic renewable energy sources means less need for fossil fuels and expensive foreign fuel imports. Going for more domestic energy resources instead of relying on expensive foreign fuel imports is a very positive thing for future energy security.

Energy independence and energy security are two closely connected terms. Basically, in most cases, improved energy security also means improved energy independence.

Threats are being posed to energy security. For instance, political turmoil in rich oil-producing countries, the rise of new economic giants (China, India, and South Korea, among others, that present heavy competition over energy sources), natural disasters and accidents, etc. Also, energy security doesn’t refer just to the amount of energy resources that are at the disposal of certain countries but also to the security of energy supply (an adequate distribution network). Recent trends indicate the ever-growing need to recognize the energy sector as one of the turners for an economy, big or small.

The Global View

If we look at the global picture, we can definitely see that no country is energy-independent. Even Saudi Arabia, the world’s largest oil exporter, imports refined petroleum products like gasoline. Gasoline is imported by the UAE, Norway, and Nigeria, whereas natural gas is still imported by Russia and the UAE, and electricity and coal by Russia and Norway. Thus, the regions with abundant raw resources also rely on the import of some form of energy. 

The Netherlands’ recent unearthing of fresh natural gas potential is one of the indicators of how the energy sector can continue to contribute to economic growth over time. It is pertinent to mention here that the Dutch energy industry is responsible for a good 6 percent of GDP, or 36 billion euros per year, employing 1,00,000 people per year. The Netherlands is among the largest importers and exporters of oil and oil products in the world and has a highly developed gas industry. A gradual transition to green energy enables Dutch energy companies and institutions to become a top economic sector.

In fact, not only in the Netherlands, Myanmar, the US, Canada, or Cambodia, but globally and nationally, the “architecture of energy systems” is undergoing significant change. Governments, industry, and other stakeholders are seeking new solutions to ensure that energy systems underpin 21st century requirements of economic growth, sustainability, and energy security. Many countries struggle to upgrade their energy systems to fully support current and future requirements of energy security and access, sustainability, and economic growth, looking into pathways to creating a more effective transition towards new energy architecture. It is a global challenge.

Thus, stable and reasonable energy prices are needed to reignite, sustain, and expand economic growth, as rightly opined by the World Economic Forum. 

The IEA is responding to this challenge by developing a comprehensive tool to measure energy security. The IEA Model of Short-term Energy Security (MOSES) examines both risks and resilience factors [resilience factors include the number of entry points for a country (e.g., ports and pipelines), the level of stocks, and the diversity of suppliers] associated with short-term physical disruptions of energy supply that can last for days or weeks. MOSES extends its ambit beyond oil to monitor and analyze several important energy sources, as well as the non-energy components (such as infrastructure), that comprise an energy system. An analysis of vulnerability for fossil fuel disruptions, for example, is based on risk factors such as net-import dependence and the political stability of suppliers. 

In fact, the time is ripe for turning tough on the energy security front, inasmuch as energy security is the reliable, stable, and sustainable supply of energy at affordable prices and social cost. It has been a fact that for many years governments have struggled to provide energy security through a mix of policies that have tempered demand and increased supply, but there is growing evidence that these policies are falling far short of the efforts needed. What is more, energy exporters and importers are interdependent and increasingly anxious about the reliability of energy supplies. Additionally, a number of interlinked issues and challenges have appeared in recent years. 

It is obvious enough that renewable energy should be a vital part of such a plan, but at the moment it is still relatively expensive, even in big economies like the Netherlands. The governments have to, therefore, pursue an innovative policy to drive down the cost of renewable energy and encourage large-scale application of renewable energy in the long term. The transition to a low-carbon economy depends largely on increases in the efficiency of energy use—in buildings, transport, and industry—and on the efficiency of energy generation.

The governments have to opt for a balanced, best value-for-money mix of green and grey energy from domestic and foreign sources. Risk-managed [Chernobyl, Fukushima] nuclear energy is, no doubt, a necessary part of the mix in as much as nuclear energy also reduces dependence on other (fossil) fuel sources and does not cause CO2 emissions. Side by side, a recent report by the European Environment Agency [EEA] found that benefits vary significantly depending on the source of crops. The current mix of crops used for energy is “not favourable to the environment,” accordingly. 

It is crystal clear that, in the absence of global cooperation, progress cannot be expected. Russia, China, Brazil, countries around the Arabian Gulf and the Caspian Sea, and the USA and Canada [more so after their strong emergence in the LNG market] are big players in the energy market. Intensification of energy relations is a must. Active energy cooperation could improve the security of supply while at the same time bolstering international trade—more access to foreign markets by the developed and developing zones.

Full-fledged cooperation is thus a must among the major energy consuming nations in the matter of developing and exploiting energy resources, especially in energy conservation, improvement of energy efficiency, development of alternative energy resources, environmental protection concerning energy utilization and finally contribution towards maintaining the stability and security of international energy supply. 

For that matter, no doubt, efforts must be made to promote the use of solar, wind, and tidal energy, as well as biomass and other renewable energy sources, especially keeping in mind the fact that the demand for petroleum products in the country has been growing at a rate of around 3 per annum. A comprehensive policy duly covering all of the vital areas, such as nuclear energy tapping, minimizing transmission loss, and emphasizing renewable energy sources, can help us inch forward towards self-reliance in energy. Close technical cooperation with the neighbouring economies emerges to be the crucial thing, which, in turn, will benefit all of the parties concerned.

Professor Dr. Mukhopadhyay, a noted Management Economist, an International Commentator on Business and Economic Affairs, can be reached at m.bibhas@gmail.com.