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International Index of Energy Security Risk: Assessing Risk in a Global Energy Market

Sunday, October 14, 2012 - 8:00pm

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Nearly three years ago, the Institute for 21st Century Energy’s (Energy Institute) unveiled its first-of-a-kind Index of U.S. Energy Security Risk (U.S. Index) to answer the simple question: Is our energy security getting better or worse?

The U.S. Index has proven to be enormously successful, having appeared at a time when energy security was once again occupying the attention of policymakers, who are increasingly viewing energy as a key driver of job growth at a time when the economy is facing severe headwinds.

The U.S. Index tells a cautionary tale. While energy security has been a perennial priority since around 1970, it is not really any better today than it was at the height of the Iran hostage crisis in 1980, and projections suggest only modest improvements in the foreseeable future.

As Energy Institute officials have traveled the country discussing energy security, one question kept popping up: In light of all the challenges we face, how does the energy security situation in the United States compare to that in other large developed and emerging energy consuming countries? This is the question that the new International Index of Energy Security Risk (International Index) is designed to address.

The International Index gives us the capability to chart energy security risks for virtually all countries since 1980, but our focus is on larger energy users. As one views the energy security landscape in these countries, it is evident that there are a number of shared concerns—oil certainly being the clearest example—but it is just as evident that many counties face unique circumstances. Policy approaches to energy also differ considerably from nation to nation.

For instance, European countries—many of which are resource poor—cite climate change as a main driver of energy policy. European governments also are concerned over their dependence on Russian natural gas. This fear is not misplaced, as Russia has shown it is not averse to using natural gas as a geopolitical weapon and has been toying with the idea of joining with Qatar and Iran, which among them hold between 55% and 60% of global reserves, to create a “big gas troika”—essentially an OPEC for natural gas—to coordinate pricing and supply. The policy emphasis on climate change, however, has narrowed the range of options countries have available to them to address the risks created by Russian gas (for example, by tapping shale gas or switching to coal).

Or consider the case of Japan, which while very efficient, has no energy resources to speak of. Rocked by an earthquake and tsunami that led to the accident at the Fukushima Daiichi nuclear plant, it faces a series of stark choices about its energy future. Japan may turn away from nuclear power and turn to fossil fuels for electric power production, a decision that will ripple through Asian energy markets and beyond. Indeed, as a result of Fukushima, Germany reconsidered it stance on nuclear power and decided to abandon the technology entirely.

Or consider the large emerging economies of China, India, Brazil, and South Africa, which are among the large emerging economies featured in the new International Index. There is no getting away from the fact that greater supplies of energy will be needed in these countries to power economic growth and lift people from poverty, and much of it will likely be supplied by fossil fuels. Many analysts expect energy demand to be 50% higher in 20 years time with the majority of this growth coming from the large emerging economies. Some of these nations have large energy resources, others do not. All, however, are acting strategically—especially China—through a variety of means to secure adequate supplies of energy, and some are becoming significant energy producers in their own right.

International Index of <strong>Energy Security Risk</strong>