A measure of a Nation’s Physical Energy Supply Risk

Abstract

Along with the oil price, concerns about the security of energy supply have soared once again in recent years. Yet, some 40 years after the OPEC oil embargo in 1973, there is no widely accepted statistical measure that captures the notion of energy security. Most likely, this deficit is the result of the great variety of resource economic aspects that are of potential relevance. This paper develops a statistical risk indicator that aims at characterizing the physical energy supply vulnerability of nations that are heavily dependent on energy imports. Our risk indicator condenses the empirical information on the imports of the whole range of fossil fuels, originating from a multitude of export countries, as well as data on their indigenous contribution to domestic energy supply, into a single figure. Applying the proposed concept to empirical energy data on Germany and the U.S. (1980-2007), we find that there is a large gap in the supply risks between both countries, with Germany suffering much more from a tight energy supply situation today than the U.S.