World Energy Outlook 2007

and human development. Yet no energy system can be entirely secure in the
short term, because disruptions or shortages can arise unexpectedly, whether
through sabotage, political intervention, strikes, technical failures, accidents or
natural disasters. In the longer term, under-investment in crude oil
production, refining or transportation capacity, or other market failures can
lead to shortages and consequently unacceptably high prices. So energy
security, in practice, is best seen as a problem of risk management, that is
reducing to an acceptable level the risks and consequences of disruptions and
adverse long-term market trends. Secure energy supply is a public good, as the
benefit derived from it by one consumer does not reduce the benefit to
everyone else. Markets alone do not reflect the cost to society of a supply failure
because it is beyond the power of an individual supplier or consumer to
guarantee security. Put another way, all market players benefit from action to
safeguard energy security, whether or not they have contributed to it. For these
reasons, governments must take ultimate responsibility for ensuring an
adequate degree of security within the framework of open, competitive
markets. This applies to producers, as well as to consumers: they benefit from
more secure energy supplies if the demand for their resources is not reduced by
the adverse macroeconomic effects of higher prices or logistical supply
problems that might result from a supply disruption.
Short-term threats to security concern unexpected disruptions, whether of a
political, technical, accidental or malevolent nature. Long-term threats relate to
a lack of deliverability caused by deliberate or unintentional under-investment
in capacity. Both short-term disruptions and under-investment result in higher
prices, causing hardship to consumers and harming economic prospects. The
two are linked: under-investment also renders the energy system more
vulnerable to sudden supply disruptions, accentuating their impact on prices,
while experience of short-term disruptions shakes market confidence in supply,
increasing the risk of under-investment in production.
Concerns about energy security have evolved over time with changes in the
global energy system and perceptions about the risks and potential costs of
supply disruptions. In the 1970s and 1980s, the focus was on oil and the dangers
associated with over-dependence on oil imports. Today, worries about energy
security extend to natural gas, which is increasingly traded internationally, and
the reliability of electricity supply. Increasing attention is being given to the
adequacy of investment in all types of energy infrastructure. There are growing
concerns about whether competitive markets for electricity and gas, as they
currently operate, provide sufficient incentive for building capacity.
Most governments have developed policies to protect against failures in the
energy supply system that arise from weakness in market mechanisms or that
cannot be handled by the market alone. Long-term policies aim to encourage:
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Chapter 4 - The World’s Energy Security 161