This article appeared in a journal published by Elsevier. The attached copy is furnished to the author for internal non-commercial research and

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2 Energy Polcy 39 (2011) Contents lsts avalable at ScenceDrect Energy Polcy journal homepage: Measurng energy securty: Trends n the dversfcaton of ol and natural gas supples $ Gal Cohen a, Frederck Joutz b, Prakash Loungan c,n a U.S. Congress, Washngton, DC 20510, USA b Department of Economcs, George Washngton Unversty, Monroe Hall, Washngton, DC 20052, USA c Research Department, Internatonal Monetary Fund, th Street, NW, Washngton, DC 20431, USA artcle nfo Artcle hstory: Receved 25 March 2011 Accepted 15 June 2011 Avalable onlne 7 July 2011 Keywords: Energy securty Energy ndependence OECD energy use abstract We present evdence on one facet of energy securty n OECD economes the extent of dversfcaton n sources of ol and natural gas supples. Vewed from the perspectve of the energy-mportng countres as a whole, there has not been much change n dversfcaton n ol supples over the last decade, but dversfcaton n sources of natural gas supples has ncreased steadly. We document the consderable cross-country heterogenety n the extent of dversfcaton. We also show how the extent of dversfcaton changes f account s taken of the poltcal rsk attached to supplers; the sze of the mportng country; and transportaton rsk. & 2011 Elsever Ltd. All rghts reserved. 1. Introducton The pursut of energy securty ganed world-wde mpetus after the trplng of the nternatonal prce of crude ol n October One of the consequences of ths shock was to put energy securty and, more specfcally, securty of ol supply at the heart of the energy polcy agenda of most ndustralzed natons (LaCasse and Plourde, 1995). The run-up n ol prces over agan rased the profle of energy securty polces. Over 180 blls wth the term energy securty n the text of the bll were ntroduced nto the U.S. Congress durng the 111th Congress ( ) and over 200 blls were ntroduced durng the Congress that preceded t. In other countres around the globe as well, energy securty s a key polcy concern see the specal ssue of Energy Polcy on the topc (Loschel et al., 2010a summarze the papers). Polcymakers often equate the attanment of energy securty wth energy ndependence. 1 Rsng mports as a share of total $ The vews expressed n ths paper are those of the authors and should not be attrbuted to the nsttutons wth whch they are afflated. We receved valuable comments from Andre Plourde, Stephen Brown and partcpants at the 2009 AEA meetngs and the 2010 IAEE Internatonal conference. We are grateful to: Jar Rodrguez for yeoman s work n assemblng the large data set and carryng out the computatons; Htes Ahr, Warren Carnow and Marna Rousset for excellent research assstance at crtcal junctures; Chloe Le Coq, Elena Paltseva, Eshta Gupta and Lars-Hendrk Roller for makng avalable ther data sets to enable us to cross-check some of the computatons; and Thomas Helblng and Nese Erbl for references to the lterature. n Correspondng author. Tel.: þ ; fax: þ E-mal address: ploungan@mf.org (P. Loungan). 1 There has been an exploson of popular books n the US dealng wth the elusve quest for energy ndependence, such as Bryce (2008), Hakes (2008) and consumpton s thus taken to mply lower energy securty, wthout an analyss of a country s vulnerablty to supply dsruptons or energy prce ncreases. Equatng securty wth ndependence also leads polcymakers to focus prmarly on promotng expandng domestc supples for example through subsdes or quotas on domestc producton rather than on effcent methods to manage rsk by dversfyng supplers or enhancng substtuton among fuel types. A mult-faceted measure of energy securty would help make better polcy decsons, and also provde a way to track how polcy decsons rase or lower energy securty. Luckly, there s a growng lterature on the measurement of energy securty. Many papers seek to quantfy the securty of energy supples for mportng countres, usng n addton to the degree of mport dependence measures such as the extent of dversfcaton n sources of supply and the dstance between the source of the supples and the pont of consumpton (Blyth and Lefevre, 2004; Le Coq and Paltseva, 2008, 2009; Gupta, 2008). One major study conducted for the European Unon focused on the nteracton between clmate change polces and energy securty (Lefevre et al., 2009). Ths paper contrbutes to ths lterature on the measurement of the short-run securty of energy supples. Our specfc contrbutons are the followng: Frst, we provde evdence of the varaton over tme from 1990 to the present n energy supply securty for a broad set of (footnote contnued) Sandalow (2008) see Loungan (2009) for a revew of these books. Concerns about energy securty are also prevalent among European polcymakers. See, e.g., European Commsson (2000, 2006) and Van der Lnde et al. (2004) /$ - see front matter & 2011 Elsever Ltd. All rghts reserved. do: /j.enpol

3 G. Cohen et al. / Energy Polcy 39 (2011) countres, vz., the ol 2 mporters among the OECD (2004) countres. 3 Other studes have tended to provde evdence for a sngle year (e.g. Le Coq and Paltseva provde evdence for 2006 and Gupta for 2004). Second, whle many prevous studes have focused on ol, we also provde evdence on securty for natural gas, another major energy source. Ths s mportant gven the growng mportance of natural gas n world energy consumpton (see Fg. 1). The globalzaton of energy markets s only lkely to grow as natural gas grows n mportance. Tradtonally, natural gas has been traded n regonal, ntra-contnental, markets. 4 But as the costs of transportng natural gas have fallen, trade n natural gas has ncreased dramatcally; the IEA estmates that nternatonal spot trade of gas has grown by a factor of 10 over the last decade (Rosendahl and Sagen, 2009). In addton, major mprovements to shale gas exploraton and producton technologes have led to large ncreases n proved reserves of natural gas both wthn and outsde the Unted States Dversfcaton n sources of energy supply Casual emprcsm suggests that dversfcaton n sources of energy supply has been ncreasng. Much of that dversty s comng from natural gas supplers. In 1992, the US and Russa produced more than half of the world s natural gas supply. In 2009, these two countres are stll the two largest supplers of natural gas, but together produce only 38 percent of the world s supply. There has been a correspondng ncrease n the dversty of ol supplers as well over tme as well, as dscussed below. Fgs. 2 and 3 show the dstrbuton of major producers and net exporters of ol and gas n the last year of our sample perod compared wth that n The man source of data s the Internatonal Energy Agency. The top panel of Fg. 2 shows that the major change among producers of ol has been the declne n the share produced by the Unted States. Among net exporters (shown n the bottom panel), the major changes over tme have been the declne n the shares of Saud Araba, Iran, UAE, Indonesa and Mexco and a correspondng ncrease n the shares of Russa and Angola. Among gas producers, the bggest changes, as shown n the top panel of Fg. 3, have been the declnes n the shares of Russa and the US. Among net exporters (bottom panel), the man developments have been the growng mportance of 2 The word ol n the text refers to crude ol and ts equvalents. Ideally, mports of refned ol products should also enter the dversfcaton measurement. However, ncludng refned products would dstort the dversfcaton measure because the underlyng vulnerablty comes from the country that supples the crude ol. 3 In prncple, one could also study the energy vulnerablty of the major ol exporters. Bryce (2008) notes that n 2005 the Sauds mported 83,000 barrels of gasolne and other refned ol products per day and Iran mports 40 percent of ts gasolne needs. 4 Due to the lack of suffcent LNG termnals, long-dstance ppelnes and local dstrbuton systems, the structure of natural gas markets n most Asan countres s more complcated than n North Amercan or European markets. 5 Accordng to the U.S. Energy Informaton Admnstraton (2011a, 2011b), natural gas proved reserves ncreased by 11 percent n 2009 due to major mprovements n shale gas exploraton and producton technologes. Natural gas prces are expected to reman low due to the contnued exploraton and development of shale gas resources, wth shale gas estmated to ncrease from 16 percent of total US gas producton n 2009 to nearly half by The recent development of shale gas as a vable resource has occurred both wthn the Unted States as well as n 31 other countres. Along wth the development of shale gas, the Canadan ol sands have also become an mportant part of the global energy pcture and may change the outlook for ol supples n the future. Accordng to Yergn (2009), Canada s estmated recoverable reserve of petroleum s second only to Saud Araba s. Canada s the largest foregn suppler of ol to the US market and ts placd poltcal envronment could make t a relable source of future energy supply. Base Year Year Ol Natural Gas Source: BP Statstcal Annual Fg. 1. Normalzed global consumpton of ol and natural gas. Norway and the emergence of several new producers such as Qatar, Ngera, Egypt and Australa. Dversfcaton ndces can provde a summary statstc of these changes over tme. The basc dea of a dversfcaton ndex s borrowed from portfolo theory n fnance: holdng other thngs constant, the overall rsk to energy supples s smaller f there s a dversfed portfolo of supplers. Dversfcaton n sources of supply can reduce vulnerablty to supply dsruptons from a partcular source. Moreover, even n the absence of supply dsruptons, dversfcaton reduces the market power of any one suppler, lowerng the rsks of hgher prces and/or nferor products and servces (Blyth and Lefevre, 2004). Ths dea can be quantfed n a number of dfferent ways. Much of the lterature (Blyth and Lefevre, 2004; Le Coq and Paltseva, 2008, 2009; Gupta, 2008; Loschel et al., 2010b) uses the Herfndahl Hrschmann ndex (HHI) to measure dversfcaton. Ths ndex s equal to the sum of the squares of each suppler s market share. Thus the more concentrated the market, the hgher s the value of the ndex; the maxmum value of the ndex s acheved when there s only one suppler. We construct a global dversfcaton ndex usng each producng country s share of total producton 6 : DI ðglobalþ¼ X X X where X /X s country s share n ether world producton or world net exports. Separate ndces are constructed for ol and natural gas. These ndces are shown n the left hand panels of Fgs. 4 and 5, respectvely, for ol and natural gas. The DI (global) measure assumes that the rsk of dsrupton s the same across energy supplers. Ths of course need not be the case. Whle there s no easy way of quantfyng rsks assocated wth a partcular suppler (or of measurng the correlaton of rsks among supplers), a common practce n the lterature s to proxy t by a broader measure of country rsks. The most wdely used measure, and the one used n ths paper, s a country s poltcal rsk ratng as computed by the Poltcal Rsk Servces Group and reported n the Internatonal Country Rsk Gude (ICRG). The poltcal rsk ratng provdes a means of assessng the poltcal stablty of the countres covered by ICRG on a comparable bass. DI pol ðglobalþ¼ X " # X 2 POL X A dversfcaton ndex based on each country s share of net exports yelds smlar results (see the workng paper verson of ths paper, Cohen et al., 2011).

4 4862 G. Cohen et al. / Energy Polcy 39 (2011) Share of Ol Producton n Total Producton (3,040,7091 toe), 1992 Share of Ol Producton n Total Producton (3,561,558 toe), % Lbya 2.3% Canada 2.3% Ngera 3.1% Norway 3.5% Unted Arab Emrates 3.6% Venezuela 4.2% 33.1% Canada 2.9% Norway 3.0% Unted Arab Emrates 3.1% Iraq 3.3% Kuwat 3.4% Venezuela 3.4% Mexco 3.9% Chna 4.8% Mexco 4.9% Iran 5.5% Saud Araba 14.1% Iran 5.7% Chna 5.6% Russa 13.0% Unted States 11.9% Russa 13.6% Saud Araba 11.7% Unted States 7.5% Share of Net Exporters n Total Net Exports of Ol (1,410,611 toe), 1992 Share of Net Exporters n Total Net Exports of Ol (1,882,949 toe), 2008 Saud Araba 24.0% Indonesa 2.1% Oman 2.5% Kuwat 2.7% Lbya 4.1% Venezuela 4.9% Saud Araba 19.1% Lbya 3.7% Venezuela 4.2% Mexco 4.3% Iraq 4.8% Mexco 5.4% Kuwat 4.8% 16.2% Ngera 5.9% Norway 6.6% 19.1% Norway 4.9% Angola 5.0% Russa 9.4% Iran 9.1% Unted Arab Emrates 7.1% Russa 12.8% Source: Internatonal Energy Agency. Note: The unts toe refer to metrc tons of ol equvalent ( ggajoules). Iran 6.2% Ngera 5.2% Unted Arab Emrates 5.8% Fg. 2. Ol producton and net exports by major countres. Note: The unts toe refer to metrc tons of ol equvalent ( ggajoules).) where POL s computed as POL ¼½100 ICRG=100Š Snce ICRG s on a (0, 100) scale where hgh values ndcate low poltcal rsk, the transformaton above s made to ensure that DI pol (global) moves n the same drecton as DI (global). Fg. 4 shows the dversfcaton over tme n the sources of ol producton (left hand panel). As shown, there was an ncrease n dversfcaton n ol supples between 1992 and around 2000, but t has essentally leveled off snce then. The adjustment for poltcal rsk, shown n the rght hand panel of Fg. 4, does not make a bg dfference, suggestng that though there have been many changes n the sources of producton and net exports over ths tme, the rsk factors of the countres whose shares have ncreased has roughly balanced out the rsk factors of those whose shares have fallen. Fg. 5 shows that the pcture for natural gas s qute dfferent from that for ol. There has been a steady declne n the values of the ndex, ndcatng ncreased dversfcaton n sources of producton and net exports. Adjustment for poltcal rsk does not alter ths trend. To summarze, the global perspectve shows lttle change n dversfcaton n ol supples over the last decade but a steady ncrease n dversfcaton n natural gas supples, leadng to an ncrease n overall energy securty. Of course, the pcture from the perspectve of an ndvdual energy-mportng country could look qute dfferent, dependng on ts relatve use of ol and natural gas, ts dependence on mports relatve to domestc producton, the partcular countres from whch t mports, and the poltcal rsk attached to the sources of those mports. The next secton presents our country-level results on dversfcaton. In addton to adjustments to poltcal rsk, we also adjust the dversfcaton

5 G. Cohen et al. / Energy Polcy 39 (2011) Share of Natural Gas Producton n Total Producton, (1,729,233 toe) 1992 Share of Natural Gas Producton n Total Producton (2,560,171 toe), 2009 Russa 29.9% Algera 2.5% Unted Kngdom 2.7% Indonesa 2.9% Netherlands 3.6% Canada 5.9% 37.4% Indonesa 2.6% Algera 2.9% Chna 3.0% Qatar 3.1% Norway 3.5% Iran 4.8% Canada 5.1% Unted States 24.2% Russa 18.6% 28.3% Unted States 19.1% Share of Net Exporters n Total Net Exports of Natural Gas (373,304 toe), 1992 Share of Net Exporters n Total Net Exports of Natural Gas (657,675 toe), 2008 Malaysa 2.0% world 5.4% Norway 6.0% Russa 23.0% Australa 2.1% Egypt 2.2% Ngera 2.6% Malaysa 2.8% Netherlands 3.8% Indonesa 7.4% Indonesa 4.9% Russa 40.7% Netherlands 7.7% 12.9% Turkmenstan 6.6% Algera 7.8% Algera 8.2% Qatar 7.8% Canada 12.3% Turkmenstan 10.3% Norway 12.5% Source: Internatonal Energy Agency. Note: The unts toe refer to metrc tons of ol equvalent ( ggajoules). Canada 10.9% Fg. 3. Gas producton and net exports by major countres. ndces for the sze of the mportng country and the dstance between the mportng country and the source of ts mports (as a proxy for transportaton rsks). 3. Cross-country varaton n dversfcaton 3.1. Measurng dversfcaton We agan follow the lterature n usng dversfcaton ndces to measure the rsk of dsrupton to an ndvdual country s energy supples. Le Coq and Paltseva (2008, 2009) use the actual market share of each suppler to the specfc country beng assessed. Blyth and Lefevre (2004) argue that what matters are the potental exports of each suppler, takng account of the potental for mporters to swtch supplers. There are pros and cons of each approach. Le Coq and Paltseva (2009) argue that usng potental exports may not reflect the short-term threats n the actual energy market faced by the country n queston. Whle they agree that the Blyth and Lefevre approach could be better suted for reflectng the possblty of swtchng to a dfferent suppler n the case of a dsrupton, they vew ther approach as preferable f the nterest s n descrbng a country s ablty to carry out a short-run adjustment to shocks n whch case a change n suppler s hghly relevant. 7 7 Alternatvely, Neumann (2004, 2007) uses a Shannon Wener concentraton ndex, whch s calculated by summng market shares for each partcpant multpled by logged values of each partcpant s market share (rather than summng squared market shares as n an HHI). Ths ndex gves greater weght to the mpact of the smaller partcpants, whereas an HHI gves greater weght to

6 4864 G. Cohen et al. / Energy Polcy 39 (2011) Ol Supply DI 6.5 Ol Supply DI Weghted by Poltcal Rsk Source: Internatonal Energy Agency. Fg. 4. Ol Dversfcaton Index (DI), Natural Gas Supply DI 15 Natural Gas Supply DI Weghted by Poltcal Rsk Source: Internatonal Energy Agency Fg. 5. Natural gas dversfcaton ndex (DI), Whle each measure thus hghlghts a dfferent facet of dversfcaton, our work n ths paper s based on the HHI as defned by Le Coq and Paltseva (2008, 2009). Specfcally, we (footnote contnued) the larger supplers. The argument for the former ndex s that t s the smaller supplers that are more lkely to be able to provde optons for swtchng between energy sources n the event of a dsrupton to another supply source. Le Coq and Paltseva (2008) argue that an HHI, wth ts emphass on the larger supplers s better suted to capture the rsks assocated wth the non-dversfed energy portfolos. compute a country-specfc dversfcaton ndex for supplers as CDI ¼ X NPI C where C s country j s total consumpton of the fuel. NPI, the net postve mports from country to country j, are defned as NPI ¼ maxf0,m j X j g M j s mports of energy from country to j and X j s exports of energy from country j to. As noted earler, smaller values of CDI

7 G. Cohen et al. / Energy Polcy 39 (2011) ndcate more dversfcaton and hence lower rsk; n the case of only one suppler, CDI takes on ts maxmum value of 100. It s mportant to note that, other thngs equal, CDI wll be lower n countres where net mports form a smaller part of consumpton. Hence CDI s lkely to be correlated wth the measures of mport dependence that are commonly used Adjustng for poltcal rsk and country sze As wth the global measure, we use the Internatonal Country Rsk Gude (ICRG) rsk ratng to adjust for poltcal rsk: CDI pol ¼ X " # NPI 2 POL C 100 where, as before, POL s computed as POL ¼½100 ICRG =100Š Snce ICRG s on a scale where hgh values ndcate low poltcal rsk, the transformaton above s made to ensure that CDI pol moves n the same drecton as CDI. CDI pol takes values n the range (0, 100). Thus far, the ndces do not take nto account dfferences n country sze, and therefore n the sze of ther consumpton (or mports) relatve to world consumpton (or mports). Blyth and Lefevre suggest that ths can be an mportant factor n determnng the potental vulnerablty of an mportng country. Other thngs constant, the smaller s the mportng country s draw on the market, the easer t s for the country to swtch supplers n the event of a dsrupton from one source. Constrants to swtchng supplers rase the vulnerablty to energy shocks and lower a country s energy securty. We proxy ths country sze effect by constructng a varable, SIZE, whch s the rato of a county s consumpton of a fuel dvded by total world consumpton of that fuel source expressed n percent terms 8 : CDI sze ¼ X " # NPI 2 e SIZE 100 C Followng Blyth and Lefevre, the sze of a country s consumpton and mports relatve to world consumpton has a multplcatve effect on a country s energy securty. Thus, SIZE s ncluded n the overall ndex n an exponental functon. Countres wth a relatvely small share of world consumpton (.e. SIZE close to zero) wll not have ther rsk assessment altered very much. Countres whose draw on avalable world supply s sgnfcant, and thus wll have more dffculty n replacng supply n the event of a dsrupton, wll have ther securty rsk scaled up qute a bt. The last adjustment, followng Le Coq and Paltseva (2009), sto construct a measure of the dstance between the suppler and the consumng country as a proxy for the potental rsks of energy transportaton. They argue that the safety of delvery to the consumng country declnes wth the dstance to the energy source. In practce, they use the dstance between the captals of the consumng and supplyng countres to construct an adjusted CDI: CDI dst ¼ X " # NPI 2 D C 100 where D ¼1 f the dstance between the captal of the mportng country and the supplyng country s less than 1500 km; D ¼2fthe dstance s between 1500 and 4000 km; and D ¼3 f the dstance exceeds 4000 km. Gven the scalng of the D varable, CDI dst takes on values n the range (0, 300). For each of the dversfcaton ndces descrbed above, we provde the rankng of countres for the last sample year, whch Table 1 Country-specfc dversfcaton ndex (CDI) for ol. Source: Internatonal Energy Agency. Country Rankng Australa Austra Belgum Canada Czech Republc Denmark Fnland France Germany Greece Hungary Ireland Italy Japan Korea Netherlands New Zealand Poland Portugal Slovak Republc Span Sweden Swtzerland Turkey Unted Kngdom Unted States classfes ther measured vulnerablty from lowest to hghest. To gve a sense of the overall mpact of the three adjustments, we look at the mean of the ranks adjusted for poltcal rsk, sze and dstance Dversfcaton n sources of supply: results The results are presented n Tables 1 8; the frst four are for ol and the next four for natural gas. In each table, results are presented for the years 1990, 1995, 2000 and the most recent year avalable, whch s 2008 n the case of ol and 2007 n the case of gas. The number of countres s 26 for ol and 20 for gas. Of the sx fewer countres for natural gas, four countres, Australa, Canada, Denmark and New Zealand, are net exporters of natural gas. The other two countres, Korea and Turkey are excluded because of mssng data. The man sources of the data are Eurostat for the European members of the OECD and the Internatonal Energy Agency (IEA) for the other countres. 9 Table 1 contans basc CDI ndces. Lookng frst at the varaton over tme, t s the case that, for many countres, the value of the ndex has ncreased over tme, that s, n the drecton of lower securty. Ths reflects the fact that, for most countres, mports have become a more mportant part of ther overall consumpton. Recall that the way our ndex s computed, ths translates nto a hgher value for the ndex. A second noteworthy feature of Table 1 s the large cross-country varaton n values of the ndex. In 2008, for nstance, ths varaton spanned the range of CDI values from approxmately fve n the case of the US to 100 n the case of the Slovak Republc. The last column, 2008 Rankng, orders the countres from lowest (US) to hghest (Slovak Republc) n terms of vulnerablty. The rankng column wll facltate comparsons across adjustments. Table 2 shows that the adjustment for poltcal rsk alters the percepton of cross-country dfferences n vulnerablty. For many 8 Usng the rato of world mports of a fuel source to the country s mports gave us smlar results. 9 At the tme ths paper was wrtten, IEA dd not have a complete set of data so Eurostat was used to supplement the data.

8 4866 G. Cohen et al. / Energy Polcy 39 (2011) Table 2 Country-specfc dversfcaton ndex (CDI) for ol, adjusted for poltcal rsk. Source: Internatonal Energy Agency. Country Rankng Australa Austra Belgum Canada Czech Republc Denmark Fnland France Germany Greece Hungary Ireland Italy Japan Korea Netherlands New Zealand Poland Portugal Slovak Republc Span Sweden Swtzerland Turkey Unted Kngdom Unted States Table 4 Country-specfc dversfcaton ndex (CDI) for ol, adjusted for dstance. Source: Internatonal Energy Agency. Country Rankng Australa Austra Belgum Canada Czech Republc Denmark Fnland France Germany Greece Hungary Ireland Italy Japan Korea Netherlands New Zealand Poland Portugal Slovak Republc Span Sweden Swtzerland Turkey Unted Kngdom Unted States Table 3 Country-specfc dversfcaton ndex (CDI) for ol, adjusted for country sze. Source: Internatonal Energy Agency. Country Rankng Australa Austra Belgum Canada Czech Republc Denmark Fnland France Germany Greece Hungary Ireland Italy Japan Korea Netherlands New Zealand Poland Portugal Slovak Republc Span Sweden Swtzerland Turkey Unted Kngdom Unted States countres, ths adjustment takes nto account the move towards mports from countres such as Norway and Mexco, whch have lower poltcal rsk ratngs than many countres n the Mddle East. Denmark, for example, moves from beng ranked 5 (unadjusted) to 1 and the UK moves from 13 (unadjusted) to 5. Both Denmark and the UK purchase the bulk of ther crude ol from Norway. For other countres, such as Austra and the US, the adjustment for poltcal rsk lowers the rankng of the country. Table 5 Country-specfc dversfcaton ndex (CDI) for natural gas. Sources: Internatonal Energy Agency and Eurostat. Country Rankng Austra Belgum Czech Republc Fnland France Germany Greece Hungary Ireland Italy Japan Netherlands Poland Portugal Slovak Republc Span Sweden Swtzerland Unted Kngdom Unted States Austra moves from ranked 9 (unadjusted) to 15. Smlarly, the US moves from 1 (unadjusted) to 3. In contrast to adjustment for poltcal rsk, the effect of the adjustment for sze has a mnmal mpact on the relatve vulnerablty rankngs of most countres. One exceptontothssnthedversfcaton measures for the Unted States. As expected, the sze correcton sgnfcantly rases the measure of US vulnerablty. In 2008, the sze correctonmovestherankngoftheusfrom1(unadjusted)to3. Table 4 presents the results takng nto account dstance from supplers. Comparng these numbers wth those n Table 1, the man mpact s that the values for countres n the Asa-Pacfc regon (Japan, Korea and New Zealand) ncrease substantally, as seen n the declne n those countres relatve rankngs n 2008

9 G. Cohen et al. / Energy Polcy 39 (2011) Table 6 Country-specfc dversfcaton ndex (CDI) for natural gas, adjusted for poltcal rsk. Sources: Internatonal Energy Agency and Eurostat. Country Rankng Austra Belgum Czech Republc Fnland France Germany Greece Hungary Ireland Italy Japan Netherlands Poland Portugal Slovak Republc Span Sweden Swtzerland Unted Kngdom Unted States Table 8 Country-specfc dversfcaton ndex (CDI) for natural gas, adjusted for dstance. Sources: Internatonal Energy Agency and Eurostat. Country Rankng Austra Belgum Czech Republc Fnland France Germany Greece Hungary Ireland Italy Japan Netherlands Poland Portugal Slovak Republc Span Sweden Swtzerland Unted Kngdom Unted States Table 7 Country-specfc dversfcaton ndex (CDI) for natural gas, adjusted for country sze. Sources: Internatonal Energy Agency and Eurostat. Country Rankng Austra Belgum Czech Republc Fnland France Germany Greece Hungary Ireland Italy Japan Netherlands Poland Portugal Slovak Republc Span Sweden Swtzerland Unted Kngdom Unted States (Japan drops from 15 to 20; Korea from 15 to 19; New Zealand from 7 to 14). On the other hand, the dstance measure reduces the measured vulnerablty of the UK from 13 (unadjusted) to 5, reflectng Brtan s mports from Norway. Tables 5 8 present the CDI ndces for natural gas. Snce these tables are organzed smlarly to the ones just presented for ol, our dscusson can be bref. As dscussed above, there are sx fewer countres n these tables than n the ol tables. The man features of these tables are as follows. Frst, as wth ol, the crosscountry varaton s much more sgnfcant than the changes for a partcular country over tme. Two countres, Sweden and Fnland, purchase all of ther natural gas from one country (Sweden s suppler s Denmark and Fnland s suppler s Russa). Thus, these countres show the hghest possble value for the unadjusted CDI (CDI equal to 100). For a few countres, Japan n partcular, the tme seres varaton s qute sgnfcant as well. The Netherlands moves from beng an ol mporter n the 1990s and early 2000s to beng an ol exporter by 2007, so ts CDI value drops to 0 n Second, comparng Tables 6 and 7, the adjustment for poltcal rsk agan makes a bg dfference. Lookng at the values for 2007, Japan s rankng slps from 7 (unadjusted) down to 17 when adjustng for poltcal rsk. Poltcal rsk decreases the measured vulnerablty for some European countres. Ths s evdent when lookng at the change n rankngs for Belgum (8 unadjusted to 4), the Czech Republc (15 unadjusted to 12) and Germany (9 unadjusted to 7). Thrd, the sze varable does not have a major mpact on any of the countres. Fnally, the dstance adjustment rases the vulnerablty measure for Japan and a number of European countres such as Austra, Greece and Hungary Combnng the ol and gas dversfcaton ndces We characterze the present vulnerablty for 19 countres based on the extent of ther dversfcaton n the sources of ol and natural gas, adjustng for poltcal rsk, sze and dstance, n Table 9. Snce Australa, Canada, Denmark and New Zealand are net exporters of natural gas, they are not ncluded n Table 9. The two countres wth mssng data, Korea and Turkey, are also not ncluded n Table 9. Addtonally, snce the Netherlands was a natural gas exporter n the last year of the sample, we do not nclude t n Table 9. In order to take all three adjustments nto account, we rank countres based on ther average ranks for the three adjustments to obtan an ol rankng between 1 and 26 and natural gas rankng from 1 to We then characterze the top 8 ranked countres for ol as low vulnerablty ; the bottom 8 ranked countres (rankngs 19 26) as hgh vulnerablty ; and the other countres (ranked 9 18) as medum vulnerablty, sorted by rows n Table 9. Snce there are 19 countres wth natural gas data, we characterze those countres ranked between 1 and 6 to low vulnerablty ; ranked 7 13 to be medum vulnerablty ; and ranked as hgh vulnerablty wth respect to natural gas, sorted by columns n Table We also used the medan of the three rankngs to construct our overall rankng wth smlar results. The bggest mpact of usng the medan rather than the average was for the UK, whose ol rankng rose much hgher usng the medan of the three rankngs snce the adjustments for poltcal rsk and dstance move the UK s rankng much hgher.

10 4868 G. Cohen et al. / Energy Polcy 39 (2011) Table 9 Energy dversfcaton based on all CDI adjustments, Sources: Internatonal Energy Agency and Eurostat. Natural gas Rankng Vulnerablty Low Medum Hgh Crude ol Low France, US, UK Span, Portugal 1 8 Medum Italy Austra, Germany, Japan, Ireland Sweden 9 18 Hgh Belgum, Poland Swtzerland, Hungary Czech Republc, Fnland, Greece, Slovak Republc Three countres, France, the US and the UK, appear to have a low vulnerablty n terms of dversfcaton for both fuels. At the other end of the spectrum the Czech Republc, Fnland, Greece and the Slovak Republc are hghly vulnerable to supply shocks snce they are not well dversfed for ether fuel. Only two countres are found to have low vulnerablty for one fuel and hgh vulnerablty for another fuel. Those countres are Poland and Belgum, both of whch show measures of hgh vulnerablty for ol and low vulnerablty for natural gas. Sweden s sole sourcng of natural gas from Denmark classfes t as hghly vulnerable n terms of natural gas whle ts dversty n ol supplers classfes t as medum vulnerablty n terms of ol. Four countres, Austra Germany, Japan and Ireland, are classfed as medum vulnerablty n terms of both fuels. Two countres, Swtzerland and Hungary have medum vulnerablty n terms of natural gas and hgh vulnerablty n terms of ol. Fnally, Italy s classfed as medum vulnerablty for ol and low vulnerablty for natural gas. 4. Conclusons Ths paper has presented evdence on the measurement and attanment of energy securty n OECD economes, wth a focus on two major energy sources ol and natural gas. Followng the lterature, we take dversfcaton n sources of supply to be an mportant aspect of ths securty. Our man results are as follows: Whle there s great heterogenety at the ndvdual country level, dversfcaton n sources of ol supples has not ncreased for most countres snce 1990 (Table 1), n contrast to the ncrease n dversfcaton of natural gas supples (Table 5). Ths ncrease n dversfcaton among natural gas supplers, combned wth the ncreased mportance of natural gas n world energy use, suggests an ncrease n overall energy securty. An adjustment for the poltcal rsk assocated wth each suppler shows that countres dversfcaton has ndeed ncreased over tme (Tables 2 and 6), consstent wth the popular percepton. The large mpact of ths adjustment ponts to the mportance of usng alternate measures of rsk; t would also be mportant to look at whether an energy exporter s poltcal rsk ratng s nformatve about the rsk that t wll be the source of an energy supply dsrupton. An adjustment for the country sze of the mportng country (followng Blyth and Lefevre) lowered measured energy securty for the Unted States but dd not mpact other countres very much (Tables 3 and 7). An adjustment for the dstance between energy-consumng and energy-producng countres, ntended as a proxy for transportaton rsk, lowered energy securty for countres n the Asa and Pacfc regons (Tables 4 and 8). An overall table combnng the dversfcaton ndces for ol and natural gas shows low vulnerablty for France, the US and the UK (Table 9), suggestng greater energy securty compared wth smaller European countres such as the Czech Republc, Fnland, Greece and the Slovak Republc. However, an overall ndex whch ncludes coal and s weghted by energy consumpton shares may yeld lower measures of vulnerablty for countres that are less dependent on ol, such as Poland. Many authors, such as LaCasse and Plourde, have provded a broader dscusson of the mportance of the dversfcaton of energy supples relatve to other factors n the attanment of energy securty. The most promnent of these other factors are demand-sde developments, ether through ncreasng effcency of energy use or conservaton polces. LaCasse and Plourde argue that reductons n the extent to whch ol s used an nput mght be as mportant to energy securty as changes n the composton of energy demand (.e. away from mports towards domestc energy sources) or the securty of physcal supples of energy. However, for energy-producng countres, securty of demand s an ntegral part of energy securty. Uncertanty about future ol demand such as that created when ol-consumng countres set energy ndependence as ther goal makes producers unwllng to nvest n producton capacty ncreases to meet potental future rses n demand (see Press Trust of Inda, 2010). Competng goals of energy securty for producers and consumers may end up havng the opposte effect of what s ntended by exacerbatng a msmatch between supply and demand. LaCasse and Plourde also argue convncngly that energy securty depends on the lkelhood of energy prce shocks or energy supply dsruptons and on the macroeconomc mpacts of these shocks. The macroeconomc mpact depends partly on factors such as energy effcency but can also depend on factors such as the central bank response to energy shocks and on labor market rgdtes whch can govern the response of the economy to shocks (energy shocks as well as others). Ths requres steppng outsde the narrow framework of the computaton of dversfcaton ndces and lookng more broadly at (1) the lkelhood of energy prce shocks; (2) the evolvng macroeconomc response to energy shocks; and (3) trends n energy effcency. We plan to do ths n future work. References Blyth, W., Lefevre, N., Energy Securty and Clmate Change: An Assessment Framework. 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