Energy Security for the UK and Europe

The current events in the Ukraine have once again raised the important issue of energy security for the UK and Europe.  Most attention is paid to Russian gas but most UK gas comes from Norway and Qatar (as LNG) and the real hidden issue for the UK is coal.  In Q3 2013 Russia provided c.50% of steam coal consumption – the coal that in provides about 39% of our electricity.  Energy security is often cited as a driver for energy policy, and specifically energy efficiency policy, but it is a term that is not often unpacked or thought about too deeply.  What do we really mean by energy security? In my mind energy security is a measure of the vulnerability of maintaining the flow of fuel and electricity into, and within, a country or region. Energy security should, of course, be a major concern for politicians, whose jobs would become very insecure very rapidly if the industrial scale flows of energy we have become dependent on were to be interrupted. It should also be a concern for business leaders and community leaders, as well as ordinary citizens, because even the perceived threat to energy supplies can lead to business and social disruption and ultimately social breakdown.

In March 2012, the perceived threat of a disruption to UK fuel supplies due to threatened strike action by tanker drivers caused widespread panic. Francis Maude, a government Minister, suggested people should keep a jerry can of petrol in their garage, which exacerbated the situation and led to long lines for fuel and petrol stations running out of supplies. In this case and surprisingly the politician kept his job and a strike was averted but it does illustrate the sensitive nature of keeping energy supplies flowing.

Energy security is most often highlighted at the macro level and, in particular, in relation to oil supplies. Twenty per cent of the world’s oil output – and 35 per cent of tankered oil – is shipped through the Straits of Hormuz. Any disruption of oil traffic through the Straits of Hormuz, either by a country or a terrorist group, would disrupt oil supplies to many countries and have a major impact on the oil price in the short term. Although in the US and Europe oil demand is relatively flat or declining, these countries, along with the rest of the world, remain almost entirely dependent on oil for transportation of all kinds, road, rail, air and maritime.

The threat of supply disruption by energy supplying nations is always going to be a risk for energy-importing nations. In 2011, in response to an EU embargo on Iranian oil imposed as part of the international effort to limit their nuclear programme, Iran threatened to disrupt oil supplies through the Straits of Hormuz. The threat helped drive oil prices higher. This was not the first time the threat had been made and despite some diplomatic progress Iran remains a significant risk.  The significant US and international navy presence in the area, however necessary, makes the risk of a deliberate or accidental clash quite high. The events and aftermath of the Arab Spring could still threaten the security of oil and gas production in several countries and could of course still spread to other oil exporting nations.

Russia provides about one quarter of the gas consumed in the European Union, and about 80 per cent of this flows through Ukraine. Due to a dispute over gas sales, Russia cut gas supplies to the Ukraine completely in January 2006. After four cold days the dispute was settled. Supplies were also reduced in 2008 and 2009, directly affecting gas supplies in some EU countries and leading to price spikes.  Action on energy supplies remains an obvious option for Russia in trying to force its will on the current events in Ukraine.

Despite success against terrorist movements such as Al Qaeda in some parts of the world, all countries remain vulnerable to terrorist attacks on energy supplies. Choke points such as the Straits of Hormuz or major gas and electricity transmission and distribution centres make enticing targets. Destroying, disrupting or damaging them would lead to high levels of disruption, economic damage – and global publicity. The tragic events in Algeria in January 2013 when terrorists targeted the Amenas gas production facility and killed more than 35 hostages highlighted this vulnerability once again.

Saudi Arabia holds 25 per cent of the world’s proven oil reserves, produces 12.5 per cent of the world’s oil production, exports 16 per cent of the world’s total oil exports, and has the largest surplus oil production – approximately 1.1 to 1.8 million barrels a day, so the security of Saudi oil facilities should be a particular concern to everyone. In 2004, an attack on oil facilities in Yanbu was thwarted by the authorities with no damage, and in February 2006 terrorists attacked the Saudi Aramco Abqaiq facility. This plant includes one of the largest oil fields in the world, with reserves greater than those of Mexico or Canada, and a processing facility with a capacity of seven million barrels a day – about 70 per cent of Saudi oil production – which stabilizes oil for shipment by controlling dissolved gas, natural gas liquids and hydrogen sulphide contents. The attack led to oil prices rising by $2/barrel to around $62/barrel. In 2007 the Saudi authorities arrested 700 alleged terrorists suspected of plotting to attack oil installations. As well as oil fields, processing facilities and export terminals, Saudi Arabia has about 11,000 miles of pipelines which are vulnerable to attack.

The total budget for security of oil facilities in Saudi Arabia was estimated at $1.5 billion in 2005 (Al-Rodhan 2006). This does not include the cost to the US and other countries of securing the Straits of Hormuz, which for the US has been estimated by Stern (2010) at $6.8 trillion between 1976 and 2007, an average of $227 billion per annum. This is roughly $83/barrel of Saudi exports, of which only about 20 per cent go to the US, raising serious questions over the real value of this expenditure to the US and what may happen in future when the US becomes less dependent on imported energy due to the unconventional oil and gas boom.  Sheikh Yamani, the Saudi Arabian Oil Minister famously said in 1988 “… America will be forced to rely on the Persian Gulf, which is a part of the world, I assure you, that you do not want to allow yourselves to rely upon.”  With shale gas and unconventional oil the end of that reliance on the Persian Gulf may be in sight for the USA but certainly is not for Europe and much of the rest of the world.

With continued terrorist activity, particularly in nearby Yemen, and political and religious turmoil throughout the Middle East, the threat of oil disruption in Saudi Arabia remains a major concern. But it is by no means the only area for concern. In Nigeria, rebel groups have repeatedly attacked oil installations and kidnapped oil workers. These attacks led to oil production being reduced by 40 per cent in 2009 and, despite an amnesty, production in 2012 was still one million barrels a day (26 per cent) below capacity.

Nowadays it is not only the threat of damage from explosives and other physical weapons that security professionals have to worry about – cyber warfare is a very real danger. The Stuxnet virus was targeted at the controllers of the uranium enrichment centrifuges in Iran’s nuclear programme and sent the centrifuges into an unstable condition that destroyed them. In October 2012 it was reported that in August cyber terrorists attacked the computers of Saudi Aramco with a virus that wiped the memories of 30,000 computers (Perlroth 2012). The IT network, which in this case was not linked to the production control systems, was disabled for some time and fortunately the attack did not directly impact on operations. Two weeks after this attack a similar attack was made on RasGas, the Qatari natural gas company.

As well as these obvious energy security risks other risks exist including industrial action by key energy workers including power station employees or fuel tanker drivers.  In 2000 a series of protests against high fuel prices led to a petrol supply crisis and a contributory factor that was not anticipated by the authorities, was that tanker drivers were intimidated into not driving through the protests, partly because of the risk of having their photos taken by camera phones and used on web sites, a threat that did not exist before the advent of camera phones and the web.

Energy security is an issue that has both short-term and long-term time horizons. In the short term even a small, short-lived disruption on any day can cause major economic and social disruption. In the longer term, given the projected increase in global population to about 9 billion by 2050 and the likely entry of 2.5 to 3 billion into the middle class by 2030, energy demand is set to increase dramatically – particularly in rapidly developing economies such as China, India, Brazil and SE Asia. In the future, these countries will compete to buy energy resources and act to ensure the supply of energy to their own economies, putting upward pressure on prices.

The issue of energy security is usually talked about in terms of national energy security but it is – and should be – increasingly viewed as a regional or local issue.  Even within a country there may be technological or social issues that constrain the flow of energy, for example the design of and ageing electrical grid may no longer be appropriate for the spatial distribution of growth. In cities such as London and New York physical constraints such as the space available for underground cables may constrain maximum loads in new buildings whereas in rapidly growing economies such as the Middle East or India new developments may outstrip the availability of reliable power supplies.  Improving energy efficiency can improve energy security by reducing the need to import energy sources at a regional, national or local level.

The bottom line is that importing energy remains a high-risk strategy for any country and puts a country in a position of weakness compared to the supplier country.  In colonial days major powers such as the UK were able to secure oil fields by occupation and military power – but this is not a moral or even practical option in the modern world.  The right choice is to reduce import dependence through a range of policies, not least of which is aggressive action to improve energy efficiency across all sectors.

References

Al-Rodhan, K.R. 2006. The Impact of the Abqaiq Attack on Saudi Energy Security. [Online]. Available at: http://csis.org/files/media/csis/pubs/060227_abqaiqattack.pdf [accessed 1 March 2014].

Stern, R.J. 2010. ‘United States Cost of Military Force Protection in the Persian Gulf, 1976–2007. Energy Policy, 2010. [Online]. Available at: http://timemilitary.files.wordpress.com/2011/04/us-miiltary-cost-of-persian-gulf-force-projection.pdf [accessed 1 March 2014].

Perlroth, N. 2012. ‘In Cyberattack on Saudi Firm, U.S. Sees Iran Firing Back’. The New York Times, 23 October 2012. [Online]. Available at: http://www.nytimes.com/2012/10/24/business/global/cyberattack-on-saudi-oil-firm-disquiets-us.html?pagewanted=all&_r=0 [accessed 1 March 2014].