Energy Vulnerability and EU-Russia Energy Relations

The concept of energy vulnerability is reviewed and discussed with a focus on Russia's foreign energy relations, in particular those with European countries. A definition and a conceptual framework for quantifying energy vulnerability are proposed in the context of a review of recent research on energy vulnerability indices. In particular it is suggested that source country diversification should be reflected using the expected shortfall measure used in financial economics, rather than the Herfindahl-Hirschman or Shannon-Wiener indices, and that the former should then enter a calibrated function in order to yield expected economic loss. The issues of asymmetric failure probabilities and accidental versus intentional supply disruptions are then discussed with examples of recent Russian actions. Energy vulnerability measurement and modelling should ultimately inform policy. In particular, member states should legislate that no energy infrastructure project by one or more member states may increase the energy vulnerability of another member state. Additionally, European environmental policies, notably the EU ETS, should be amended so as to account for induced changes in energy vulnerability. Finally, member states should increase the level of transparency and disclosure with respect to gas import statistics and gas supply contracts.