Energy Security and Energy Vulnerability of Small Countries: Case of the Baltic States
In mutually dependent energy relations, countries are facing difficult choices if one of the parties of the relationship feels impunity and the market is having trouble with regulating dramatic price fluctuations or supply shortages.
Evaluation of the threats and risks of energy sector should give direct information to national policy makers. The definition of energy security that includes these threats and risks raises obstacles because, due to the ambiguity of the term, very many risks have to be taken into account, and most of them are already managed in the daily functioning of energy sector.
The impossibility of measuring energy security does not contribute to the discussion on formulating better policy. The energy policy debate is restricted to mere political rhetoric or at best to drawing attention to the problem, but will not provide solutions.
For the sake of clarity and effectiveness, we will replace energy security with energy vulnerability and use financial-economic instruments to measure the latter. In other words, we calculate the economic damage caused by power outages resulting from external adverse events and compare it with the costs of alternative solutions.
The Baltic States depend partly on imports of electrical energy and almost entirely on imports of fossil fuels. The energy vulnerability of Estonia, Latvia and Lithuania does not include oil and its products, where we are in the same situation as other countries in the region. Thanks to grid connections, energy vulnerability is relatively small also in electrical energy. The energy vulnerability of the Baltic States is caused by their continued high dependence on the natural gas imported from Russia and its large share in the production of heat and also electrical energy.