Concerns over securing supplies for import-dependent countries, as well as stable outlets for exporting countries investing heavily in the extraction and export of energy, are not novel. In fact, it has been a political preoccupation ever since coal, oil and gas became drivers for industrialization and preconditions for modern society.

Over the past decades the issue of energy security became particularly clear during the oil crisis in 1973-74 for countries in the West, when Arab members of the Organization of Petroleum Exporting Countries (OPEC) used oil as a political weapon against those having supported Israel in the 1973 Arab-Israeli War. As a direct result from this crisis the International Energy Agency (IEA) was created on the Western side. More recently, in 2006-07, the Ukrainian government claimed that Gazprom’s decision to limit gas exports to Ukraine was part of a Russian strategy to interfere in Ukrainian politics. Regardless of how one consider the political motivations of the respective oil and gas crises, the actions of the exporting countries were instrumental to increasing the price of energy, and thus the revenues from energy exports.

As a critical and fast growing source of energy since the 1970s the substantial European gas trade has created interdependence between gas exporting and gas importing countries. Expensive pipelines link buyers, transmitters and sellers in different countries tight together on a long-term basis, making European gas trade relevant also for bi- and multilateral European and international affairs. Both sides can become sensitive and vulnerable to changes in their respective prices, supply and market access.

The European gas market is relatively far from being a perfect competitive market. The more imperfect markets are, the more important the behavior of the participants is, being political, regulative or commercial. Social first-best solutions as defined in economics may not be attainable in such markets, and policy choices must be found among several alternative second- or third-best alternatives. In markets for non-renewable resources this could be said to be a new form of energy geopolitics. The long-term bindings in the European natural gas markets, caused by the huge sunk costs in pipeline infrastructure, represent an additional challenge compared to supply and demand security problems in the oil market, where parties can change constellations more rapidly.

The problems and risks of security-of-supply for natural gas importers and security-of-demand for exporters are linked to degree and type of dependency on the other. The IEA has set out two broad categories for gas security risks for natural gas importing countries: 1) Long term risk that new supplies cannot be brought on stream to meet growing demand for either economic or political reasons; and 2) Risk of disruptions to existing supplies such as political disruptions, accidents or extreme weather conditions.

The operational dimension is to handle variations in demand, commercial storage etc. The political, or strategic, dimension is linked to the possibility of major breakdowns in production or infrastructure being political or non-political. As gas is a non-renewable resource, long-term supply risk is concerned with investments in new field developments at least to replace decline in old fields, but rather to increase production and infrastructure sufficiently to meet expected demand growth. On the other side of the table, producers are similarly concerned with security-of-demand for their gas in terms of market access and price disruptions (a dramatic price drop in their case), transit issues and the functioning of up- and downstream infrastructural facilities.

The potential risk faced by both importers and exporters results from the interdependence created by increasingly more international trade. This interdependence, however, is not always problematic. Dependency on exporting and importing goods and services to and from other countries is the normal state of affairs in a modern society, and a consequence of increased economic integration.

The political concern arises when the dependency causes short or long-term problems when prices, supply or market access changes significantly. The dependence between sellers and buyers is reciprocal but not necessarily symmetrical, and the balance may change over time. The Nabucco line will for example diversify supplies and improve security-of-natural-gas-supply for the Balkans and the EU. The South Stream project represents on her side an alternative transportation route for Russian gas and hence improves her security-of-demand, given her dependency on transit through Ukraine. Both solutions will change the character of the interdependence between the EU and Russia in the area.

Hence, energy security should not be considered a political issue only, but also an economic challenge. The non-renewable nature of a petroleum resource implies that the more you take out of the reserves, the less is left for future production. Even if politics were disregarded totally, the long term security-of-supply question remains whether or not enough supply can be provided to meet an ever expanding demand.

There are substantial disagreements about when oil and gas production eventually will peak. However, at some point in time other sources of energy must be phased strongly into the European and individual nation states’ energy demand portfolio, and energy efficiency measures become paramount to balance the inability to provide for sufficient non-renewable petroleum resources. Energy security discussions will for consuming countries therefore increasingly be linked to finding the over time optimal mix between non-renewable (oil, coal and) natural gas and a wide range of renewable energy sources.