EI-FACT SHEET 2013 - 01

SECURITY OF ENERGY SUPPLY

- General Conceptual Framework -

Security of supply is a concept that is used frequently with regard

to energy provision in energy-intensive economies.1 However, the
concept is often used in different and narrow ways, supporting
different goals as reflected in slogans like the lights will go out, or
dependency on Russian gas is bad.

Why energy security matters

An economy nowadays relies on the availability of end energy
for electric power drives, mechanical power drives, or heating
to consumers who use this end energy to create goods and
services with added value.

Such slogans limit the definition of security to a single dimension

or aspect e.g., associating energy with electricity or identifying
security with energy self sufficiency. Security of energy supply
actually has many dimensions and the respective challenges along
the energy supply chain can partly be addressed with general,
but often predominantly with specific tailor-made measures.

End energy depends on primary fuels (e.g., crude oil, uranium,

natural gas, coal, wind, solar irradiation) and end-energy carriers
(e.g., electricity, gasoline, natural gas). Because of the impact of
energy on welfare, a secure provision of end energy serves both
public and private interests.

What are we talking about?

Before dealing with security along the supply chain, some
preliminar y concepts and definitions should be clarified.
Energy security deals with actual and timely deliver y of a
power flow, expressed in watt [W], to the consumer, who
really is interested in energy services, such as comfor table
space temperatures, cool spaces for food preser vation, the
ability to drive kms with a vehicle etc. 2 These ser vices are
provided through end-energy technologies like furnaces/
boilers, refrigerators, cars, etc, which in turn need a convenient
form of end energy delivered at the right time at the right
place. Note that timely end-power deliver y is different
from energy as a quantity the latter being expressed in
joule [J] or kilowatt hour [kWh], being the time integral of
power. 3
A second distinction is necessary between instantaneous delivery
of power and installed capacity, which is the power that potentially
can be delivered under optimal conditions. A wind-power turbine
can have a nominal or rated power output of 2500 kW (i.e., its
installed capacity), but if there is no wind, the instantaneous power
produced will be zero.
The delivered end energy manifests itself in the form of an energy
carrier. The latter represents different appearances of energy.
Some energy carriers can be used directly to provide end energy,
whereas other carriers have to be transformed or converted into
end energy.

A separate factsheet exists that has the special focus of security of electric
power supply, concentrating on Europe and Belgium.
2
Power here refers to the physical concept of energy per unit of time, not
necessarily electric power.
3
Often average power is used to mean an energy amount considered
during a long period, e.g., on an annual basis; this is then expressed in J/a
or kWh/a.
1

KU Leuven Energy Institute

Electricity is an energy carrier that is bound to a physical grid

and is not easily storable and thus needs to be consumed
instantly. Furthermore, it has to be converted from another
energy carrier like natural gas, coal, uranium, wind or solar
irradiation.
Natural gas is storable and travels at a limited speed through a
pipeline network.4 It can be used directly for heating purposes
or it can be converted into electricity.The same applies to coal.
Coal, however, is not pipeline bound.
Crude oil is an important energy carrier, but serves mainly as
input for refined petroleum products like gasoline, diesel, jet
fuel or heating oil.

Moreover, some of these energy carriers are not distributed

evenly over the world, making some countries dependent on
import of primary energy resources.5 If functioning markets are
present, energy independence is not necessary to have energy
security. However, free trade is not always guaranteed, prompting
countries to strive for a degree of self sufficiency with regard to
primary energy.
Any discussion of security of energy supply requires reflection
on time and spatial dimensions. Primary energy carriers are
produced in one location, transported through and transformed
in another location before conversion into consumable end
energy in again another location. Moreover, the street or district level
is different from the country or regional level or even the world
level. On the shortest term, security comes down to providing
the power at this moment with the existing energy system;
whereas on the longer term, security deals with the investments
that are required to have an energy supply chain in place for
extracting primary energy and delivery of end energy when
needed.

Or it can be shipped as liquid natural gas (LNG) in tankers.

Primary energy is an energy carrier in its natural form: e.g., crude oil,
natural gas, coal, uranium, but also wind or solar irradiation.

4
5

EI Fact sheet Security of Electric Energy Supply

EI-FACT SHEET 2013 - 01

Finally, energy security cannot be isolated from affordability: is

extremely expensive energy still secure? Market prices for primary
energy are sensitive to market (supply and demand) and nonmarket evolutions (e.g., policy decisions, geopolitics). Physical
interruption then actually represents a situation in which the
willingness to pay for end energy is below the cost of delivering
that power. 6

Self-sufficiency projections
The U.S. is projected to become almost energy self sufficient
by 2035, whereas the European Union (EU), but also China
and India, are becoming more energy dependent.

Security of energy supply along the supply

chain
The reflections made above, lead to a structured, threefold
approach to defining energy security along the supply chain:
1. Strategic security
2. Adequacy of the energy system7
3. Operational reliability
These levels of security will be consecutively discussed and
illustrated below.
1. Strategic security for primary energy
This level of energy security deals with the continued provision of
primary fuels assuming that all means of transport, transformation
and conversion exist to get the energy flux in whatever form
from the producer to the consumer. Hence, this level focuses on
producer countries.

Sufficient reserves of primary energy resources have to

be available in mines and wells. Investments are needed to
prospect and develop new extraction sites in time.
Replenishment of reserves is projected to come predominantly
from unconventional oil and gas in the future.
Wind and solar can be considered primary energy carriers,
but they are captured instantaneously, are variable in nature
and cannot be stored in their primary form.
Producer countries have to timely invest in production
capacity to extract resources from the ground as to making
them available to the economy. The development of Russias
Yamal gas fields, e.g., started in the 1990s, but climatic challenges
have postponed the launch of commercial production to 2012.
Even if resources are available and can be extracted, geopolitics
can prevent the primary energy from reaching the end-energy
consumer. The presence of scarce energy resources gives
certain regions geopolitical power. However, the presence of
unconventional oil and gas is changing this balance of power
as the U.S. is likely to become self sufficient with regard to
natural gas and less dependent on Middle Eastern oil (see
energy self-sufficiency projections in Figure 1).

This cost encompasses energy and infrastructure costs along the supply
chain. One could argue that the cost of absolute security would become
infinitely large.
7
Sometimes a distinction is made between system adequacy, market &
regulatory adequacy, and fuel adequacy (the last one being the ability to
conclude guaranteed fuel contracts).
6

KU Leuven Energy Institute

Figure 1: Self-sufficiency rates (indigenous energy production including

nuclear power divided by total primary energy demand) for 2010
and 2035 (projections), Ref: IEA World Energy Outlook 2012
2. Adequacy of the energy system8
Most frequently, end energy is not consumed where primary energy
is produced and often not in its primary form.9 Hence, an adequate
supply-chain system needs to be present in consumer and transit
countries. Note that adequacy takes a longer term perspective
on energy security: can the system provide energy delivery when
desired even under adverse conditions (e.g., a severe cold snap).

The transformation of an energy carrier into a more refined

one, or the conversion of a primary energy carrier into
electricity requires capital goods such as refineries,
U-enrichment plants, LNG-regasification terminals and
electric-power plants. Iran, e.g., has plenty of oil (primary
energy), but lacks sufficient refineries for derived petroleum
products.
The mix of centralized and decentralized, and dispatchable
and non-dispatchable electricity-generation units affects
adequacy and robustness of the electricity system.
Indeed, nominal or rated capacity is not always the same as
the effective capacity in case of non-dispatchable technology:
e.g., wind-power turbines cannot be fully counted towards the
adequacy of the energy system because their capacity is not
firm.

Adequacy of the electricity system is elaborated on more concretely in

the fact sheet Security of Electric Power Supply.
9
Even in the case of domestic production of primary energy, actual
consumption of end energy is usually not at the site of production.
Thermal solar power is an example of a primary energy carrier that is
often used on the site as end energy.

EI Fact sheet Security of Electric Energy Supply

EI-FACT SHEET 2013 - 01

To move the input and output of these facilities, adequate

transport and distribution capacity is a must. These
investments include high-voltage and low-voltage lines and
cables, electric switchyards, high- and low-pressure gas
pipelines, compressors and pressure reduction stations, oil
pipelines, ports, oil and LNG tankers, or road and rail networks.
Besides the domestic infrastructure, sufficient attention
must be given to cross- border interconnections and
parallel paths. Japan, e.g., has a well-built domestic energy
system, but as an island lacking primary energy, it is
dependent on its harbors and LNG terminals to achieve an
adequate energy system.
Adequacy also entails functioning markets for primary and
refined energy carriers to match demand and supply and to
re-allocate scarce resources between competitive consumers
of energy.
Adequacy of the supply-chain infrastructure depends also
on factors such as planned outages for maintenance or the
presence of interruptible contracts or firm import.

Investment in said infrastructure is capital intensive and requires
long-term commitment. Therefore, the investment climate should
limit uncertainty as much as possible. Several factors can hamper
investments, though.

Competitive markets are inherently uncertain and thus

investors demand a higher internal rate of return than in
regulated markets that carry less risk. Market prices should
be determined by actual supply-demand dynamics to
provide correct signals to market participants. Government
intervention, e.g., price caps, distorts the functioning of the
market.
Regulatory frameworks for energy bring extra uncertainty
as environmental rules can change Kyoto and post-Kyoto,
and market regulations depend on government actions like
nuclear phase-out laws or support mechanisms for renewable
energy sources.
Permitting processes can last years without a guaranteed
favorable outcome. A wind turbine or a power line in a
residential area suffers from nimby (not in my backyard)
reactions. Past incidents change the social acceptance of
certain technologies: e.g., nuclear power after Fukushima and
gas pipelines after Ghislenghien.
Circumstantial influences like the reigning business cycle,
energy-policy expectations and political uncertainty also
effect investment decisions of private investors.

Back-up installations and redundancy (e.g., N-1 contingency

for electricity and natural gas) enable energy provision to
continue in case of a (technical) failure of some elements in
the system.
Local reserves and buffers can help mitigate a disruption of
supply upstream in the chain. E.g., a strike in a coal-mining
facility can be covered by storage of coals along the supply
chain. Strategic storages (oil stocks) can be used to mitigate
supply disruptions (but should otherwise be kept off the
market).
Maintenance strategies (preventive, predictive and corrective
interventions) help avoid and mitigate accidents.
Control strategies (e.g., switches and valves, dispatch of
flexible electricity generation) are required to handle
variable and unpredictable flows like wind power or heating
demand. The ability to redirect gas flows in a bidirectional
gas pipeline could have helped mitigate the effects of the
gas dispute between Russia and the Ukraine in Central and
East Europe.
Demand response: load-shifting and voluntary load-shedding
services can be activated through interruptible contracts with
flexible energy consumers.

Security of demand
Security of supply has a counterpart in producer countries
who have to worry about security of demand.
Indeed, producers of primary energy face the risk of not being
able to sell sufficient energy over a sufficiently long time interval
to recover the capital intensive investments in production
facilities. Moreover, government budgets in these energyexporting countries (e.g., Russia, Qatar) depend to a great
extent on the energy trade.
Hence, producer countries prefer to build stable relationships
with their customers in order to be viewed as a reliable longterm partner.

3. Operational reliability on the short term

The third level of security deals with the short-term delivery of
end energy given that the supply chain is adequate and (primary)
energy resources are available in producer countries.
Operational reliability thus concerns the ability to secure delivery of
power even in case of unexpected events like incidents or accidents.
It requires:

KU Leuven Energy Institute

EI Fact sheet Security of Electric Energy Supply

EI-FACT SHEET 2013 - 01

What can consumer countries do to achieve an acceptable level of security of energy supply?
Measures to enhance security of supply at all levels of the supply chain are to be taken, at global, national as well as regional level.
General principles to enhance security of energy supply:
1. Functioning markets for primary and secondary energy carriers make energy available to those willing to pay for it;
2. Diversification decreases supply risks, at all levels of security of supply along the supply chain
Primary fuels: oil, natural gas, coal, uranium, RES;
Sources: contract with several producers per energy carrier, even when domestic production is present;
Routes: multiple pathways between producer countries and consumer countries: e.g., Nord Stream, South Stream and Nabucco
for bringing natural gas from Russia/Caspian Sea to Central and West Europe;
Technologies: pipelines and LNG tankers; appropriate mix of coal-fired plants, gas-fired plants, nuclear plants and renewable
facilities; fast-responding flexible technology and base-load technology;
Emergency/contingency plans: enforced load shedding (e.g., controlled electric-power or gas-flow cuts), solidarity across borders,
action plans for mitigation/repairs.
In addition, the following measures can further enhance security of supply at the different levels.
1. Strategic security
Bilateral/multilateral agreements (energy charter treaty, non-proliferation treaty) and organizations (IEA, IAEA, WTO) help
frame cooperation between interdependent countries.
2. Adequacy of the energy system
Suitable indicators help assess and compare energy security (N-1 ratio for natural gas and electricity, number of interconnections,
buffer-capacity ratio).
A stable legislative and regulatory investment climate helps to limit uncertainty to the inherent investment/market risk, permitting/
licensing processes should be clear and swift.
3. Operational reliability
Energy management is to be pursued: activate demand response load shifting and voluntary load shedding by providing proper
economic incentives through, e.g., interruptible contracts.
Operational coordination mechanisms are to be developed: invest in balancing tools (line-pack gas, spinning reserves), facilitate
dissemination of information throughout the supply chain;

The cost of (non-)security?

Evidently, many of these actions have costs that are like insurance fees: you pay them, hoping you might not actually have to rely on
them.The level of insurance a country contracts has to be balanced with the costs of having an incident without insurance. Furthermore,
security of energy supply is dynamic: once conditions change, the security level has to be revised.

Glossary; Elements to remember

For security of energy supply, it is important to distinguish between:
Instant physical power (reliability) that serves as end energy for provision of energy services;
Primary energy that is converted/transformed into end energy along the supply chain;
Producer countries (strategic security), transit countries and consumer countries (adequacy of the system);
Time (seconds, hours, one year, 20 years) and spatial dimensions (street level, regional, national and supranational
infrastructure).

KU LEUVEN ENERGY INSTITUTE

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B3001 Heverlee
www.kuleuven.be/ei

KU Leuven Energy Institute

EI Fact sheet Security of Electric Energy Supply