1. Energy security: definition and scope

Historically, the introduction of the energy security concept is attributed to Sir Winston Churchill, who, in his role as pre-WWI First Lord of the Admiralty for the British Navy, stated: “Safety and certainty in oil lie in variety and variety alone” (as variety Churchill meant variety of oil suppliers.)1

In fact, in converting the British Navy from coal-power to fuel oil in order to make the fleet faster than the German Navy, Churchill implicitly recognized that the sources diversification had to be pursued (and a new vulnerability had been created): coal was a domestic source of fuel but oil had to be imported.

Nowadays, the concept of energy security is indeed richer thanks to the inclusion and development of many new factors, of which daily interactions among nations and the increasingly global level of their relationship undoubtedly rank among the more significant ones.

Throughout the years, several descriptions of energy security have been provided.

To mention a few, in 2004, the following characterization was given by professors Barton, Redgwell, Ronne and Zillman: “a condition in which a nation and all, or most, of its citizens and businesses have access to sufficient energy resources at reasonable prices for the foreseeable future free form serious risk of major disruption of services”.2

In 2006, a similar definition was given by Daniel Yergin: “availability of sufficient supplies at affordable prices3.

A close construction to the above is maintained in the definitions adopted by some international organizations. The Energy International Agency defines the energy security as “the uninterrupted availability of energy sources at an affordable price4 , whilst according to the European Commission, the energy security is “the availability of energy at all times in various forms, in sufficient quantities and at reasonable and/or affordable prices5.

Lastly, according to the Congress of United States, the energy security is “the ability of U.S. households and businesses to accommodate disruptions of supply in energy markets6.

Notwithstanding as correctly stated by the Department of Energy and Climate Change of the UK Government about the imperfection of a definition of energy security7, from the above two main common elements emerge which may ideally provide for a catch-all concept (thus valid regardless of its geographical or sector-specific application), namely: a) the reliability in the supply of the energy raw materials, meaning its physical dispatch from the production site to the utilization site and b) their affordability, meaning their reasonably economic availability, as such disrupted to the least possible extent by unforeseeable and/or substantial price variations which may lead to the destabilization of the involved economies.

  1. Risks affecting the energy security

The above elements are dealt with by any single state depending on whether any such state is an energy producer or energy importer. In fact, both types of countries are equally affected whenever an imbalance occurs (both producers and importers are interdependent), although the risks they face are different.

In the producing countries, the power industry normally represents a high percentage of the GDP, as well as a large part of their export; proceeds from the energy export normally make up for a substantial part – often the entirety – of the state income and are practically the tool whereby the political regimes ensure their support from the populations. In such a context, keeping steady export outflows – along with regular money inflows – represents a fundamental condition for the economic and political stability of the producing countries.8

In the importing countries, governments are mainly concerned about guaranteeing reliable energy inflows at reasonable prices; therefore, substantial efforts are employed in keeping up a long-lasting, high level diplomacy activity with the producing countries as well as designing solutions aimed at reducing the dependence on external energy sources.

From the above it may therefore be easily inferred that both for the producing countries and the importing ones the power resources are so important that a reciprocal security is needed and pursued; the motto “commercium et pax” as guarantee of a peaceful and stable social and commercial growth is actively followed.  

Generally speaking, the energy security is threatened by two different kinds of risk: physical risks and economic risks.

The physical risks are related to the reliability of the resources, namely to the maintenance of a regular flow of resources; as a matter of fact, the transportation infrastructures may be damaged, be object of attacks or be blocked  - mainly the gas pipelines – by the countries where resources pass through. Such circumstances may equally harm both producing and importing countries.

The economic risks are related to the affordability of the resources, namely to their reasonably economic availability. By definition, the energy consumption is rigid with respect to price, mainly in case of price increase. Such rigidity has two main implications; in the short term, consumers do not vary their consumption in proportion to a price variation, whilst, in the long term, their response aim at structurally modifying the demand for energy, both by increasing the energy efficiency or diversifying the energy sources.

For the producing countries, both positive and negative price variations represent a risk, namely if they are unforeseen and excessive.

As a matter of fact, a price slump entails a payments-related issue and, as a consequence, may lead to the political destabilization of the regimes which base their consensus on the proceeds linked to the energy resources supply.  Likewise, a price increase poses a serious threat, since the increase of energy efficiency or the sources diversification in the importing country may represent a permanent shrinking of the demand, thus reducing the money inflows.10

  1. Essential elements of the European States’ energy security policy

Limiting this analysis to Europe (although the below elements may well be referred to a vast majority of worldwide states), as a response to the political, social and economic issues which have negatively affected or otherwise shaken the European energy security in the last 10 years (namely hydrocarbons price increase, gas crisis in the Eastern Europe, Chinese economic boom, increasing focus on the climate change, financial and real estate crisis), the following may be considered as the very essential elements of the European states’ energy security policy:

  1. Diversification of energy mix

In order to decreasingly depend from single energy sources, mainly fossil fuels (oil, gas and coal), States have started to diversify their national energy share through the development of alternative energy sources, such as the nuclear and the renewable energies (wind, hydro, photovoltaic and so on). The energy diversification has become a repeated mantra and as such renowned energy business personalities very often highlight its significance. In this sense, it is worth to mention Mr. Fulvio Conti11  who, in the 2008 International Energy Forum held in Rome, stressed that fostering the investments in diversification of energy mix as well as in new infrastructures for energy production is of paramount importance in order to guarantee an adequate, secure, sustainable and cheaper energy supply.12

The diversification will also serve for the purposes of ensuring the human development while preserving the environment; as a matter of fact, the use of alternative energy sources will help to reduce the current level of CO2, which is in line with the climate and energy package promoted by the European Union.

  1. Diversification of suppliers

Mainly in the gas sector, the collaboration among States has led to the launch of different projects (North Stream, South Stream, TAP), with the aim at reducing the dependence from the vagaries of the relationship between Russia and the countries where the Russian gas passes through. Such kind of diversification is undoubtedly positive; however, it should be coupled with other measures like, for instance, a greater transport capacity liberalization which may be achieved by amending the gas contracts through a reassessment of the final destination clauses, which in fact restrict the possibility of buyers to resell gas outside their respective territories.

  1. Decrease of internal consumption and increase of energy efficiency

Both elements are being tackled by the States under the collective approach at the level of the European Union.

As regards the internal consumption, one of the strategy targets for tackling climate change before 2020 is the energy cut by 20%. In this respect, the Performance of Buildings Directive (Directive 2010/31/EU) clearly indicates that, accounting buildings for 40 % of total energy consumption in the European Union, the reduction of energy consumption and the use of energy from renewable sources in the buildings sector constitute important measures needed to reduce the EU’s energy dependency and greenhouse gas emissions. 

On energy efficiency, the Directive on energy efficiency (Directive 2012/27/EU) specifically requires the Member States to implement a series of tasks with the aim at addressing the challenges resulting from the increased dependence on energy imports and scarce energy resources and the need to limit climate change and to overcome the economic crisis.

On energy efficiency it is also worth to highlight that a really efficient system cannot be achieved without a transparent and effective management of the cross-border power flows as well as the network congestions;  a sustainable, integrated power infrastructure network at the European level should therefore be promoted and implemented.

  1. A  slightly  different approach: The stance of the United Kingdom

According to a recent Energy Index (International Index of Energy Security Risk) compiled by the U.S. Chamber of Commerce Institute for 21st Century Energy, the United Kingdom ranks second (behind Mexico) in a list of 24 countries that make up the large energy user group13.

Since the 1980s, the United Kingdom has scored consistently in the top three most energy secure countries in the group of large energy users and it has been the most energy secure of the European countries. The United Kingdom is a large energy producer as well as a large energy consumer and it has significant quantities of oil, gas, and coal resources. It is the second largest producer of crude oil in Europe after Norway and was until recently Europe’s second largest producer of natural gas also after Norway—it is now third behind the Netherlands.

Being the United Kingdom a large energy producer, the analysis on whether such country has achieved the above elements must necessarily be put forward in conjunction with its position.

In fact, the diversification of energy mix is not considered such a primary and urgent goal as in other European countries; the country boasts and actively exploits oil and gas reserves currently existing in the North Sea, which, although shrinking, make it less dependent than other countries on external exports and ensure a significant contribution to the energy needs for many years to come.14 This is the reason why the current UK energy policy stands for a maximization of the economic production of the oil and gas reserves, rather than heavily focusing on the mix diversification.

The declining production in the North Sea is in any case prompting the UK energy diplomacy to provide help in improving the reliability of global energy markets and actively search for a sources diversification through bilateral relationships and multilateral initiatives as well as  by encouraging greater liberalization of the markets and strengthening trading links and infrastructure; in this sense, the United Kingdom government  continuously cooperates with the EU authorities and is increasingly becoming part of more interconnected networks both in the EU and beyond.

As regards the energy efficiency, such element represents a pillar of the UK Energy Security Strategy15. As such, initiatives such as smart meters and smart grids are in place in order to deliver a more sustainable and secure energy system, lower the exposure to domestic and international energy market risks and reduce the UK’s dependence on oil and gas.

1 Daniel Yergin, Ensuring Energy Security, in “Foreign Affairs”, 85, 2, 2006, p. 69
2 Barry Barton, Catherine Redgwell, Anita Ronne and Donald N. Zillman, Energy security: managing risk in a dynamic and regulatory environment, Oxford, Oxfor University Press, 2004, p. 5
3 Daniel Yergin, Ensuring Energy Security, in “Foreign Affairs”, 85, 2, 2006, pp. 70-71
4 http://www.iea.org/topics/energysecurity/
5 Cited in Robert Skinner and Robert Arnott, EUROGULF: an EU–GCC dialogue for energy stability and sustainability, http://ec.europa.eu/energy/green-paper-energy-supply/doc/studies/2005_04_eurogulf_kuwait_en.pdf
6 http://www.cbo.gov/sites/default/files/cbofiles/attachments/05-09-EnergySecurity.pdf
7 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/65643/7101-energy-security-strategy.pdf , pag. 5
8 Matteo Verda, Politica estera e sicurezza energetica - L’esperienza europea, il gas naturale e il ruolo della Russia, ed. Epoké, 2012, p. 38 ss.
9 Michael Novak, Does the free market corrode moral character?, John Templeton Foundation http://www.templeton.org/market/PDF/Novak.pdf
10 Matteo Verda, La sicurezza energetica ed i paesi produttori, Istituto per gli studi di politica internazionale  (ISPI), Policy Brief, no. 213 – December 2011
11 Chief Executive Officer and General Manager of Enel S.p.A.  Enel S.p.A. is the industrial holding of the Enel Group, a multinational group based in Italy, a leading integrated player in the power and gas markets of Europe and Latin America, operating in 40 countries across 4 continents.
12 http://www.enel.com/en-GB/media/press_releases/fulvio-conti-illustrates-the-terms-of-the-147-energy-equation-148-at-the-international-energy-forum-in-rome/r/1594930/
13 http://www.energyxxi.org/sites/default/files/InternationalIndex2012.pdf
14 https://www.gov.uk/government/publications/energy-security-strategy , pag. 20
15 The Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK, DECC 2012. http://www.decc.gov.uk/en/content/cms/tackling/saving_energy/what_doing/eedo/eedo.aspx

Author - Valerio Abbagnara valerio.abbagnara@enel.com