Problem to combat

For hundreds of thousands of people in south-east Europe, the true meaning of energy security was brought home at the beginning of the year, during Russia’s dispute over gas prices with Ukraine.

When Gazprom, the Russian gas export monopoly, turned off the tap on supplies to Ukraine, which is the transit country for much of south-east Europe’s gas imports, customers across the region found that they were also cut off in the depths of the Balkan winter.

Countries in north and west Europe were less affected, but they watched their gas reserves falling, and nervously contemplated the prospect that they would be hit the same way as the worst affected consumers in Bulgaria, Croatia and Serbia.

Keeping the lights and the heating on is one of the most basic responsibilities of any government, and an administration that fails in that task cannot expect to be forgiven by voters.

The Russia/Ukraine crisis prompted another round of initiatives in the European Union, designed to bolster the region’s energy security. The moves echo similar plans around the world, from the US support for ethanol and other alternatives to oil, to attempts by China and India to tie up oil and gas reserves.

Yet for all the talk about energy security, progress so far has been slow. Consuming countries’ vulnerability has increased in recent years, and is set to grow further. Policies to reinforce energy security are available, and by good fortune they are often the same as the measures needed to cut their greenhouse gas emissions, but it will require bold political leadership to put them into effect.

Last month, the International Energy Agency, the rich countries’ think-tank, spelt out the prospect of rising energy insecurity over the next 20 years in its flagship World Energy Outlook.

Imported energy does not necessarily mean insecure energy, but as the freezing Bulgarians know only too well, it is often more vulnerable to disruption, and on present trends, the proportion of imports in most countries’ energy consumption is set to grow.

The IEA calculates that, if the world’s energy policies remain unchanged, net inter-regional trade in oil – from the Middle East to the Americas or to China, for example – will rise by a third over the next two decades, from 38m barrels a day in 2008 to 51m b/d in 2030. Similarly, inter-regional gas trade is expected to rise 58 per cent, from 677bn cubic metres in 2008 to about 1,070bn cubic metres in 2030.

Even on those unchanged policies, oil demand in the rich countries that are members of the Organisation for Economic Co-operation and Development has peaked, and will decline steadily, but demand in the emerging economies, especially China and India, is set to rise rapidly. If policies do not change radically, gas demand will keep rising even in the OECD countries, and even faster in emerging countries. At the same time, oil production in the US, Europe and China, and gas production in Europe, are in decline.

As members of the Organisation of Petroleum Exporting Countries, and the Middle Eastern countries in particular, become more important as a proportion of global oil supplies, the vulnerability of the choke points in international supply routes will grow. The Strait of Hormuz in the Persian Gulf and the Malacca Strait between Malaysia and Indonesia are particular concerns. Since 1970, there have been 17 interruptions to international oil supply that have cut off 500,000 b/d or more – a level that would have a significant impact on prices – and it would be rash to assume that those disruptions will become any less frequent in the future.

The position for gas is somewhat different, because the spectacular success of US “unconventional” gas production, from shale rocks that have not previously been economically viable reserves, means that even on “business-as-usual” policies, America’s need for gas imports will fall rather than rise. However, the EU and China are on course to import more gas, as production fails to keep up with demand.

By 2025, the Russians have suggested, the only significant gas exporters in the world will be themselves, Iran and Qatar, which source gas from what is effectively the same enormous field in the Persian Gulf. That claim has an element of braggadocio, but the prospect is troubling enough to encourage both Europe and China to look for alternatives.

The key points of a strategy for greater energy security are not hard to sketch out: a diverse mix, both geographically, in terms of sourcing exports from as wide a range of countries as possible, and in terms of fuel type; building up domestic energy production such as nuclear power, renewables and coal, which is found in many of the biggest consuming countries including the US, China and India; shifting away from oil and gas, which are the most vulnerable to disruption, towards electricity; and above all cutting energy demand.

The problem is that almost invariably, the effective measures involve additional cost. A nuclear power station could cost $6,000 per kilowatt of capacity to build, for example, while a gas-fired plant costs less than $1,000 per KW.

Improvements in energy efficiency are the shining exception – they will generally save money quickly – but they are often the most difficult changes to effect.

Political leaders have to convince their populations that the costs of increased energy security, which one way or another will come out of consumers’ pockets, are a price worth paying to prepare for the times when the resilience of the system will be tested.

Thanks to Russia and Ukraine, in the EU that argument is not too hard to make, and it is no coincidence that the EU’s plans to raise energy efficiency by 20 per cent and increase the proportion of energy sourced from renewables to 20 per cent by 2020 are among the most ambitious in the world.

Elsewhere, moves to reinforce energy security have generally progressed only when they are backed by a powerful vested interest, as in the US support for ethanol made from corn, or when the vested interest that would oppose them is at a low ebb, as in the US move towards tougher vehicle fuel economy standards, effected when the car manufacturers were dependent on a government bail-out.

The climate change agenda does not advance all energy security policies; burning coal for power generation is often a more secure option than burning gas, but is about twice as polluting in terms of carbon dioxide emissions.

Nevertheless, if leading economies emerge from Copenhagen making determined efforts to base their economies on renewables, nuclear power, “clean coal” power stations that capture and store carbon dioxide emissions, and greater energy efficiency, they will be making huge strides towards securing their future energy supplies as well as fighting the threat of catastrophic global warming.