On July 17, 1913, almost exactly 100 years ago, the First Lord of the Admiralty, Winston Churchill, took the floor of the British House of Commons. British warships, he proclaimed, would no longer be powered by coal, but by oil instead in order to become faster and more cost-efficient than the German fleet. This, however, also meant that the Royal Navy had to substitute domestic coal with Persian oil. Countering the critics in the opposition, he insisted that London should never become dependent on a single country, route, energy source or (oil) field: "Safety and certainty in oil lie in variety, and variety alone." – Churchill had thereby outlined the central theme for all future debates on energy security: the diversification of energy supplies.
Sixty years later, in October 1973, OPEC’s oil embargo shocked the West. Neglecting Churchill’s warning, the industrialized world had, for some time already, fallen into dependence on oil-producing countries, particularly from the Middle East. Now oil prices quadrupled, the economy slowed down and overnight it became clear that the world’s power balance had shifted: the producers in the global “South” had become a political power. For the first time, the “North” appeared vulnerable to the “oil weapon”.
In the wake of the Oil Crisis, energy security became the core concern for the industrialized Western nations. At the 1974 Washington Energy Conference, they agreed on a concerted reaction in the event of future disruptions of energy supplies. This is how ,among other things, the so-called strategic oil reserves came about, as well as the International Energy Agency (IEA), which was set up as an institutional counterweight to the OPEC-empire (Daniel Yergin). The IEA, based in Paris, lived up to its founders’ expectations. Its analyses and forecasts of developments in energy policy today form a common base for science, business and politics alike. It also put forth the now widely accepted definition of energy security as “an uninterrupted availability of energy sources at an affordable price.”
The importance of energy has only continued to increase in a globalized and digitalized world. Today, hardly anything is conceivable anymore without energy, be it drinking water, television, computers, or phones. In the absence of the global network of transportation, cooling systems and stores, our supply chains providing people with food and essential goods would fail. Therefore, the uninterrupted supply of energy has become all the more important. Energy security is a matter of life or death for every modern society. The advent of renewable forms of energy in the last decade – they can at least cover about two percent of the global energy demand (excluding hydropower) – has barely done anything to diminish the dominance of fossil fuels. Even by 2035, around eighty percent of the energy demand will be satisfied by oil, natural gas and coal (in almost equal shares, by the way) (IEA World Energy Outlook 2012).
Energy security in the international context will therefore continue to depend on uninterrupted supplies of fossil fuels for the foreseeable future.
Supply security at an affordable price is an extremely complex and fragile matter, and hence continuously at risk. In this context, we can distinguish seven central risk factors:
Seven risk factors for energy security:
1. Wars, crises and conflict in energy-producing countries can lead to disruptions of production and supply of energy that affect the global economy. The Iranian Revolution of 1979, the First Gulf War of 1990/91 or the complete halt of the Libyan oil production as a consequence of the war of liberation of 2011, for example, all had drastic effects on supply chains, energy prices and, as a consequence, the economic situation in importing countries. Similarly, the general strike in Hugo Chavez’ Venezuela of 2002 or the Iraq War of 2003 had serious effects and contributed – alongside other factors that will be discussed later – to a continued surge of the oil price, which eventually hit140 US-Dollars per barrel, exacerbating the global economic crisis.
2. Political extortion as a consequence of a one-sided dependence on an energy producer is another risk factor for an uninterrupted supply of energy at an affordable price. The dominance of Russian gas supplies to parts of Europe, in particular the Central and Eastern European countries, meant that gas prices were no longer determined via supply and demand mechanisms, but decided politically, depending on good conduct by the respective government. The disruptions of Russian gas supplies to the Ukraine of 2005/06 and 2009 caused a supply crisis in several Central European countries, even though its actual effect was outmatched by the fears of a massive demonstration of power by Russia. The two gas crises, which Moscow should not be blamed for one-sidedly, sparked an intensification of European discussions over energy security and gave new impetus to plans for more diversification of the gas sector through alternative supplies from the Caspian region via the “Southern Corridor”. In addition to that, they led to the inception of a genuine European energy policy and the appointment of a proper EU-Commissioner for energy (Günther Oettinger).
3. An impending re-nationalization – and even energy imperialism – today are real threats for a global supply system based primarily on the interplay of supply and demand. More than eighty percent of conventional reserves of oil and natural gas are produced by state- or semi-state-owned energy companies, i.e., they are directly or indirectly dependent on the political leaders of that respective country, who are well aware of the political relevance of the resources they control. Increasing scarcity of natural resources against the backdrop of a dramatic growth of the world’s population and its thirst for energy – global demand will increase by one third by 2035 –will make it all the more tempting to use one’s riches for nationalist, or even imperialist, ends. China’s determination in securing access to sources of energy and raw materials across the entire globe ranks among the most significant phenomena of the early twenty-first century.
4. Terrorist attacks against energy infrastructure, i.e., on the routes of oil and LNG tankers as well as on pipelines and oilrigs, can also pose a threat to supply security at an affordable cost. In 2006, terrorists in the Niger-Delta (in Nigeria) caused a dramatic reduction in oil production. The Arish-Ashkelon pipeline between Egypt and Israel was attacked 13 times in the year following the fall of Mubarak, with dramatic consequences for Israel’s energy security. Forty percent of Israel’s supplies depend on Egypt; for neighboring Jordan that figure is eighty percent. As recent as January 2013, Islamist terrorists attacked BP’s oil production in the Algerian desert and kidnapped employees of that company. Anywhere around straits – from the Strait of Malacca to the Strait of Hormuz and the Bab-el-Mandeb between Yemen and Somalia – terrorists and pirates lurk, often in collaboration.
5. Cyber terrorism against critical energy infrastructure represents a growing and often underestimated danger to energy security. Frank Umbach recently pointed out that, although the US-military is forced to make cuts in their budget, the Pentagon’s Cyber Command was increased from 900 to 4 900 personnel. President Barack Obama recently warned that enemies of the United States could attempt to sabotage its energy infrastructure, particularly its power grids. The head of the US national intelligence service, James Clapper, added that such attacks constituted “the most immediate threat.” What if a cyber attack succeeded in disabling the cooling systems of nuclear power plants? In 2012, Austrian author Marc Elsberg wrote a political thriller on the dangers of cyber terrorism for Europe’s electricity supply that he recently presented at the Forum FAZ/Munich Security Conference.
6. Natural disasters are a real threat to supply security, as the two storms Katrina and Rita demonstrated in 2005. These storms destroyed about 170 offshore oil platforms in the Gulf of Mexico. Almost a third of the American oil production and its refining capacity was lost – with far-reaching and long-lasting consequences for supplies across the entire country. Even worse were the consequences of the earthquake and the ensuing tsunami on March 11, 2011 in Japan: they led to the death of thousands of people and a “beyond design-basis accident” at the Fukushima Daiichi nuclear power plant, with dramatic consequences for Japan’s society and economy. Beyond disasters of such magnitude, reinsurance companies report that the number of devastating floods and storms is on the rise – not least as a consequence of climate change. And natural disasters like these are usually accompanied by short- or long-term disruptions of energy supplies. These threats will increase along with the progression of climate change: monster storm Sandy of October 2012, which took six lives in New York alone, forced the evacuation of 375 000 people, and left 8 million people without electricity for several days, was only a foretaste. Only a few years ago, it was inconceivable that storms of this magnitude would appear as far north. Climate change also brings new dangers to other parts of the world, both, for people and energy supplies: What, for example, will it mean for Russia when the permafrost regions of Siberia get perpetually warmer? What consequences will there be for supplies to Chinese cities when Himalayan glaciers continue to melt and the big hydropower plants do not produce enough electricity any longer?
7. Technical failure, often related to human error, is and continues to be a threat to energy security. Technology will never be perfect; a residual risk always remains. The tragic disaster of Chernobyl in 1986 is a prime example, but even comparatively lesser accidents like the Exxon Valdez oil spill of 1989 in Alaska can, besides damage to humans and ecosystems, also affect regional energy supplies. Greater threats for energy security result, for example, out of the hitherto unresolved final storage question of nuclear fuel elements, but also the theoretical possibility that chemicals used in “fracking” – the technology involved in the production of fossil energy in shale formations – come in contact with groundwater. Even just the hypothetical scenario of accidents like these, caused by the interaction of humans and technology, can lead to a reduction in public acceptance of such forms of energy production.
So how should we deal with these threats? The key is to build resilient energy supply systems. In 2012, the National Academy of Science and Engineering (Acatech) ,I nclose collaboration with the Federal Government of Germany, formed the working group “Resilien-Tech.” Headed by the director of the EMI at Freiburg (Fraunhofer Institute), Prof. Klaus Thoma, the working group focuses on the integration of security aspects – “resilience by design” – with an eye on the state, society and the economy. This includes the issue of resilient energy supplies.
Seven measures to build resilient energy systems
A resilient energy system is defined by its ability to withstand interruptions or to prevent failure through protective measures, respectively. Churchill’s century-old demand for variety, i.e., diversification, takes center stage in this endeavor.
1. Diversification and energy independence
Churchill had defined the most important task over 100 years ago: diversification. Only a variety of energy sources, producing countries and supply routes can bring security. The effort to overcome dependence in the wake of the OPEC oil embargo led to Richard Nixon’s “Project Independence” of November 1974, in which he demanded American energy independence from foreign countries. This goal, confirmed by practically all US presidents since Nixon, might finally be realized half a century later: by the mid-20s of this century, the United States might become independent of oil and gas imports as a result of the shale revolution!
Another possibility to protect complex energy systems, especially to help prevent major disruptions or to limit their effects, respectively, lies in the introduction of complementary, decentralized supply systems. Renewable forms of energy in particular are well suited for this purpose: wind, PV, solar thermal, biomass, geothermal and, last but not least, hydropower. Many households, but also small and medium-sized businesses are now trying to become largely independent of the main grid through such decentralized energy sources. As renewable forms of energy are subject to high output fluctuations, they currently still rely on conventional energy sources for “back-up” – at least as long as storage technologies remain inadequate.
3. Highest security, efficiency and environmental standards
Security and environmental standards may be expensive. But in the end, they serve everybody because of their preeminent importance for public acceptance of the respective energy source. While the hurricanes Rita and Katrina cost the lives of many and caused widespread destruction, particularly in the city of New Orleans, it is due to highest-level standards that no oil was spilled into the Gulf of Mexico despite many drilling rigs being destroyed. BP, on the other hand, incurred high financial and image costs in 2010 as a result of insufficient security and environmental standards in the context of the sinking of its Deepwater Horizon offshore drilling rig. The auto and petroleum industry, in turn, owe their continued acceptance in Europe to the dramatic progress they achieved in efficiency and environmental standards.
4. Dialogue between producers and consumers of energy
Maintaining an intensive and trustful dialogue between importers and exporters of energy is of central importance when it comes to the prevention of disruptions in the global energy system. It is particularly relevant to understand the interests of the other side, because the meaning of energy security is very different for producing countries than for consumers: to the former, energy security does not mean supply security, but “security of demand”. The big petroleum exporters, such as Russia, Saudi Arabia, Libya, Angola or Venezuela, depend on regular sales of their resources at an acceptable price from their point of view. Just as higher oil or gas prices affect the economies in Western countries, lower energy prices reduce those states’ income, which can easily affect political stability at home. The IEA plays a particularly important role in this regard, but all bilateral and multilateral encounters – from state visits to academic conferences – contribute to maintaining a dialogue and fostering mutual understanding. Likewise, the work of political foundations and chambers of commerce, and especially the cooperation between managers, engineers and workers in joint projects, help build mutual understanding of interests and cultural differences, and create transparency through the comparison of data and analyses– which in turn helps build trust. A particularly important task in this regard today is the integration of China and India into the various forums of the international energy dialogue.
5. Integrating the youth: jobs
The rapid population growth in many exporting nations, especially in the Middle East, Africa, and Latin America, means that, even if their economies grow, these countries cannot create nearly enough jobs for their younger generations. Around half the population in Algeria, Libya and Saudi Arabia, and over sixty percent of Iraqis, are under the age of 25.The production of oil and gas is capital-, but not labor-intensive, i.e., those industries create few jobs directly. Unemployment and poverty experienced by millions of young people provide fertile ground for political radicalization on which Islamist extremists can sow the seeds of their violent ideas. Therefore, it is in Western countries’ own interest to do everything they can to help petroleum states diversify their economies and provide job-training opportunities for their youth. The work of development agencies, from the GIZ to the political foundations, is particularly relevant when it comes to improving the prospects of many young people.
6. Preventive measures by police and military
It was US President Jimmy Carter who formulated the 1979-doctrine according to which any attempt of foreign forces at gaining control over the Persian Gulf would be regarded as “an assault on the vital interests of the United States of America” that would be countered by any means necessary, including military action. Ever since, the United States has continuously considered it a top priority to secure the energy lifelines, i.e., the uninterrupted flow of Middle Eastern oil and gas. To be fair, there may be good reasons to be critical of specific political and military measures undertaken by Washington in this context. Nonetheless, it is a fact that Europeans have benefitted in equal measure from the United States’ commitment to securing the energy routes. Free movement by tankers through straits, protection from pirates and terrorists, the collection of intelligence on terrorist groups and the fight against them domestically – all these tasks call for continued protective action by police and military forces. The Europeans will likely have to increase their contribution in this domain, given that the United States’ readiness to act militarily overseas will probably decline as a result of the “shale revolution” in North America.
7. Disaster control
Finally, resilient energy supply systems need adequate and readily deployable emergency measures in the event of a catastrophic supply crisis in the wake of a terrorist or cyber attack, as well as in case of an accident or natural disaster. In countless calamities ranging from Chernobyl and Fukushima to storms such as Katrina or Sandy, but also Deepwater Horizon, we had to learn that few emergency plans and guidelines were in place, e.g., for evacuations, medical care, emergency shelters, etc.; in particular, there were no clear rules allocating responsibilities. But reestablishing supply security quickly crucially depends on swift action in case of an emergency.
Prof. Dr. Friedbert Pflüger, retd. State Secretary, is the director of the European Centre for Energy and Resource Security (EUCERS) at King’s College London and a fellow at the Atlantic Council. At Acatech, he is responsible for energy issues within the project group Resilien-Tech; he also chairs the working group Natural Resources at the Atlantik-Brücke e.V.