Measuring Energy Security RYAN OPSAL Energy Security What is it? - - PowerPoint PPT Presentation

Measuring Energy Security

RYAN OPSAL

Energy Security

What is it? Familiar trap in the social sciences: too strict a definition and too much is excluded to be useful whereas too broad a definition weakens explanatory power given events Even Daniel Yergin writes: “Energy security may seem like an abstract concern – certainly important, yet vague, a little hard to pin down.“ “Reliable and affordable supply of oil” (many open questions: how, why, and/or what is reliable and affordable) Energy independence? (oil transport in U.S. during Hurricane Katrina in 2005) Non-traditional threats? (cyber attacks at Saudi Aramco and RasGas in Qatar aimed at halting production) Time dimension? (forward looking, oil weapon effective short term, not long term)

Cont.

Alliance commitments? More active control over supply chain? (China) Coordination of oil stocks as with the International Energy Agency? (appropriate to focus solely

• n multilateral efforts)

Michael Klare (2009): “affordable energy to meet a state’s vital requirements” (vital connotes the minimum amount to run an economy, which is problematic in today’s world) (vital requirements also mean vastly different things to different countries, think great powers versus smaller countries) Kalicki and Goldwyn (2005): “access [to] the energy resources required for the continued development of national power”

Michael Levi and Blake Clayton (2012):

“Indeed scholars and policymakers are sharply split on the fundamental question of whether the precise patterns of the oil trade matter. One camp, dominated by economists, asserts that the answer is a resounding no. There is

• ne world price for oil, and all consumers pay it regardless of who their suppliers
• are. The other camp, dominated by security strategists, is equally confident that

the answer is yes. They see countries as wise if they carefully choose their oil trading partners in order to strengthen their own position in the world.”

So who is correct?

Political Climate United States China Normal Political Conditions Market Market/bilateral deals Politically Adverse Conditions Market Bilateral deals Open Warfare Military/Market Military/Bilateral deals

It is the position of this research that the view of economists dominate under normal market and political conditions, however, the view of the strategist will ultimately prevail under times of political turmoil. Energy security is the continued reliable and affordable supply of energy to a state now and in the future in order to maintain national power and security. Energy is itself a vital security interest to the state, potentially compelling it respond kinetically if threatened. My approach is specific to oil security in this research This includes crude oil only and not oil products unless otherwise noted This approach can be broadened, and expanded to encompass more energy sources It does not include environmental issues since this is, from a political perspective, not a core, vital security interest to a state

Measurement?

Measuring an abstract concept presents many difficulties Depending on the countries analyzed, data availability is crucial Some have begun work on creating latent indicators, not only for energy security but more other abstract ideas as well (e.g., development) Perhaps one of the most underdeveloped areas of indicator inclusion is military power – none of the studies pursuing this technique come close to anything like this, however it is extremely

• important. It’s not about current warfare, but the potential for future warfare and how energy

supply will be altered as a result, whether a state is a directly involved in the conflict or not

Composite measure for energy security

Given its complexity, a composite measure for energy security seems appropriate Creation of latent indicators – credit profiles, political risk Major concern regarding the subjectivity involved in the model, in particular to the respective weights given to each indicator or category (we use quantitative techniques partly to remove the human element and create more objectivity) General issues with predecessors modeling energy security Many indicators are flawed (overuse of broad economic measures, lack inclusion of security background, plot distance between capitals) USAID, generic and development centric, Chang and Chen (National Taipei Univ) focus mainly on diversification, as do many with modified HHI and SWI (political risk, dependency, gini coefficient), Wu et al (2009) are innovative attempting to track pirate attacks but ultimately do not provide enough to encompass energy security and data availability is problematic,

Of particular interest to the European Union: In 2010, the European Commission Joint Research Center produced a wonderful document outlining many of these approaches from a range of individual and composite indicators many directed towards informing policy outcomes For instance, understanding the impact on gas supply interruptions in Ukraine and informing the European Energy Program for Recovery, Baltic Energy Market Interconnection Plan New trend to utilize principal components analysis to build composite indicators – many interdisciplinary uses as well Gnansounou (2008) utilizes a PCA but is far too broad with the indicators Gupta (2008) rely heavily on this work and Nagar and Basu (2002) for infrastructre PCA: multivariate technique, sometimes used in econometrics, for highly correlated variables, new variable generation, dimension reduction, used in facial recognition software

Ratings

The Oil Security Rating: Data is normalized and rescaled on a 0 to 1 scale All indicators are also altered to reflect higher numeric scores as positive

𝑃𝑇𝑆 = 𝛾1𝑙𝑦1𝑙 + ⋯ + 𝛾10𝑙𝑦10𝑙 + 𝜁 𝑦𝑗𝑜𝑞𝑣𝑢 = 𝑦 − 𝑦𝑛𝑗𝑜 𝑦𝑛𝑏𝑦 − 𝑦𝑛𝑗𝑜

Indicators

Oil Intensity Production to Proved Reserves Import Dependency Oil in Total Primary Energy Consumption (TPEC) Herfindahl-Hirschman Index (HHI) Consumption to Proved Reserves Massachusetts Institute of Technology Economic Complexity Rating (flexibility and innovation) Oil Imports to Gross Domestic Product (GDP) State Power *(Oil Volatility)

Oil Intensity Production to Reserves Import Dependence (u Oil in TPEC HHI Consumption to MIT ECI Imports to GDP Power Austria 0.956 0.113 0.636 0.84 0.827 0.984 0.097 Belgium 0.808 0.003 0.508 0.2 0.654 0.942 0.128 Bulgaria 0.652 0.03 0.768 0.03 0.199 0.911 0.014 Croatia 0.817 0.257 0.627 0.41 0.378 0.967 0.016 Cyprus 0.643 0.094 0.212 1 0.006 Czech Republic 0.963 0.027 0.745 0.51 0.859 0.972 0.052 Denmark 0.955 0.067 1 0.561 0.51 15.858 0.577 0.991 0.091 Estonia 0.778 0.399 0.347 0.359 1 0.006 Finland 0.902 0.665 0.26 0.84 0.964 0.073 France 0.947 0.008 0.656 0.91 0.705 0.982 0.95 Germany 0.958 0.088 0.019 0.633 0.82 0.344 1 0.978 1.001 Greece 0.884 0.478 0.83 0.933 0.088 Hungary 0.969 0.153 0.716 0.673 0.965 0.031 Ireland 0.958 0.042 0.515 0.77 0.609 0.989 0.048 Italy 0.954 0.074 0.077 0.607 0.88 1 0.59 0.973 0.636 Latvia 0.784 0.59 0.5 0.25 1 0.005 Lithuania 0.778 0.012 0.631 0.288 0.826 0.008 Luxembourg 0.813

• 0.005

0.349 0.42 0.654 1 0.01 Malta

• 0.168

0.48 0.269 1 Netherlands 0.857 0.216 0.019 0.494 0.87 0.813 0.519 0.936 0.229 Poland 0.876 0.224 0.026 0.728 0.08 1.025 0.462 0.961 0.159 Portugal 0.895 0.52 0.89 0.224 0.956 0.069 Romania 0.816 0.107 0.434 0.732 0.46 8.647 0.276 0.976 0.047 Slovak Republi 0.954 0.007 0.791 0.615 0.955 0.023 Slovenia 0.859 0.63 1 0.782 0.949 0.011 Spain 0.911 1 0.007 0.545 0.9 0.421 0.359 0.965 0.349 Sweden 0.983 0.007 0.725 0.73 0.917 0.969 0.145 United Kingdo 1 0.047 0.633 0.64 0.71 5.022 0.853 0.982 0.929

Closer Look at Sweden

Oil Intensity 0.983 High score Production to Reserves 0.000 Low score Heavy Weight Import Dependence 0.007 Low score Oil in TPEC 0.725 High Score HHI 0.73 High Score Consumption to Reserves 0.000 Low Score Heavy Weight MIT ECI 0.917 High Score Imports to GDP 0.969 High Score Power 0.145 Low Score Main weakness: lack

• f

domestic reserves. This is also a broad issue throughout Europe Both reserve categories were weighted higher by the PCA

Four eigenvalues scored above 1 Resultant weightings:

PC1 PC2 PC3 PC4 PC5 PC6 PC7 PC8 PC9 Oil.Intensity

• 0.5063213 0.18540871 -0.2398954
• 0.017446 0.25041479 -0.2279256 -0.3298877 0.61338406 -0.2273424

Production.to.-0.1038698 0.05305128 0.22178864

• 0.775576 0.46095689 0.28163017 0.19948908 0.01008277 0.06319792

Import.Depend

• 0.2576745 -0.6200142 -0.1684226 -0.0285225 -0.0929236 0.07183848 -0.0050551 0.22063887 0.67639038

Oil.in.TPEC

• 0.4039455 0.25020184 -0.4748495 -0.0538588 0.11882567
• 0.080124 -0.1489446 -0.6803513 0.20060509

HHI

• 0.3016481 0.11115707 0.48724681 -0.1900097 -0.3131452 -0.6823243 0.17448265 -0.0720225 0.15453698

Consumption.t

• 0.2522521 -0.6051117 -0.1643477 -0.1605325 -0.1311655 -0.0719269

0.2065894 -0.1948259 -0.6437498 MIT.ECI

• 0.4228342 0.16311699 0.09819638 0.46372218 0.16229423 0.25355214 0.68977604 0.05746181 0.01422406

Imports.to.GD-0.0980025 -0.3169084 0.49663796 0.34126401 0.56758381 -0.0822051 -0.3672642 -0.2499451 -0.0242807 Power

• 0.400332 0.10117568

0.3445291 -0.0330073 -0.4881616 0.56157592 -0.3812753 -0.0563927

• 0.086532

Oil Intensity 0.087 Production to Reserves 0.166 Import Dependence 0.120 Oil in TPEC 0.114 HHI 0.094 Consumption to Reserves 0.121 MIT ECI 0.108 Imports to GDP 0.118 Power 0.073

Final Results

1 Denmark 2.43 15 Finland 0.39 2 Romania 1.46 16 Hungary 0.37 3 United Kingdom 1.19 17 Croatia 0.37 4 Spain 0.62 18 Portugal 0.36 5 Italy 0.60 19 Slovak Republic 0.35 6 Germany 0.59 20 Luxembourg 0.34 7 Netherlands 0.53 21 Belgium 0.34 8 Poland 0.51 22 Latvia 0.33 9 France 0.50 23 Greece 0.33 10 Sweden 0.46 24 Estonia 0.31 11 Austria 0.46 25 Bulgaria 0.28 12 Slovenia 0.44 26 Lithuania 0.27 13 Czech Republic 0.43 27 Cyprus 0.21 14 Ireland 0.41 28 Malta 0.17