Risk Assessment in Global Energy
M. I. Kudusova
Chechen State University, Grozny, Russia
Keywords: International energy security, energy, risk, global risk, risk map, commodity risks, investment risks, nuclear
energy technologies.
Abstract: The article is devoted to the problems of risk assessment in the global energy sector in the world and in Russia.
A register of risks in this energy sector has been compiled, which shows internal and external risks. A risk
map is provided.
1 INTRODUCTION
The new financial chronicle showed that, despite the
importance of the energy market, for the world
economy, it is quite receptive to a single set of
interrelated factors, the range of which is quite
extensive - from scientific and technical to
geopolitical.
As a result, the problem of energy security (ES) is
becoming more and more acute, providing a
successful distribution of completed energy resources
among consumers.
Undoubtedly, the result of the global ES is
impossible without considering the functioning, as
well as possible dangers that hinder the establishment
of a balance in the energy market.
This, in turn, means identifying internal and
external aspects of influence, modernizing scenarios
for the future development of incidents, assessing the
randomness of the occurrence of incidents and
potential damage.
As a result of the above analysis, the main
postulates of risk minimization tactics and their
impact on the global energy market will be outlined.
Thus, the understanding of possible dangers and the
formation of a proper risk management system can be
considered as one of the significant elements of the
supply of international energy security (Egorova,
2013).
2 MATERIALS AND METHODS
International energy security has usually been viewed
primarily from the point of view of buyers, the
leading energy importing countries, from the
standpoint of providing them with energy resources
on a stable concept and at fairly reasonable prices.
At the same time, net exporting countries
(producers) were required to maintain a significant
the level of reserve capacities, which, among other
things, would allow them to compensate for the time
from time to time emerging in the market shortage of
energy resources.
Meanwhile, the energy industry itself, like other
industries of the economy, is subject to a list of risks
arising in the process of manufacturing and exporting
products. In addition, energy production has a number
of typical features.
First of all, this is the use of the final product
(energy) by all segments of the national economy,
which emphasizes the importance of the energy
industry in the formation of a general trend of
economic development.
The risks of the primary energy markets create
uncertainty in the pricing of final products. And
finally, the basic type of raw material for energy
today is non-renewable hydrocarbon resources, of
course, over time, the risk of their depletion and the
emergence of an energy shortage increases. Some of
the risks can be mitigated by redistributing
investment flows in certain areas of development of
the energy industry (Ralph, 2011; Egorova, 2015).
However, at present, in the context of high
uncertainty in the prospects for economic
development and the situation in energy markets, the
Kudusova, M.
Risk Assessment in Global Energy.
DOI: 10.5220/0011572100003524
In Proceedings of the 1st International Conference on Methods, Models, Technologies for Sustainable Development (MMTGE 2022) - Agroclimatic Projects and Carbon Neutrality, pages
369-373
ISBN: 978-989-758-608-8
Copyright
c
2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)
369
risks associated with investing in long-term energy
projects are also on the rise. And the transition to new
technologies is complicated uncertainty of possible
outcomes of innovations.
In addition to economic risks, the importance of
political risks is increasing, including transit. In the
absence of an alternative replacement for
hydrocarbons, the risks of conflicts over the
possession of raw materials will only increase with
growing shortage of traditional types of energy
resources.
Thus, even a brief overview of potential threats in
the energy market shows that risks are of a different
nature: from negative trends in the global economy to
technological accidents in individual industries.
A more detailed analysis of the main risk groups
in the energy market allows us to assess the degree of
influence of one or another unfavorable scenario and
identify ways to reduce the negative consequences in
as a result of potential threats. Below is the
classification risk matrix (see Table 1) and ranking of
the main risk groups according to the degree of their
influence to the energy market (see Figure 2).
The rise in oil prices revived investment processes
in the global energy sector. The rise in hydrocarbon
prices reflects the interests not only of oil and raw
material producers, but also of the global financial
community, which was hardly interested in
maintaining the situation, which threatened, among
other things, with large expenses to stop the
consequences of bankruptcies of shale companies.
This is a fundamental difference between the
current situation and the 1980s: at that time, the world
capitalist system was strong enough to withstand two
decades of low oil prices and, accordingly, a meager
flow of petrodollars.
Figure 1: Map of global risks.
MMTGE 2022 - I International Conference "Methods, models, technologies for sustainable development: agroclimatic projects and carbon
neutrality", Kadyrov Chechen State University Chechen Republic, Grozny, st. Sher
370
The modern global financial system, despite the
huge difference in the formal volumes of financial
resources, began to experience difficulties after 2
years, when the first talk began about the return of
prices to the “average global profitability horizon”.
3 RESULTS AND DISCUSSION
The modern economy has become clearly more
capital-dependent while maintaining the same
sources of rent (Ivonin, 2009).
Expert assessments made on the eve of the World
Economic Forum in Davos testify to the preparation
Table 1: Classification matrix of energy market risks.
Figure 2. The degree of impact of the main risk groups on the energy market.
Risk Assessment in Global Energy
371
of the investment community for a new cycle of
investing petrodollars in global energy.
None of the major world players in the modern
world economy is interested in the implementation of
reindustrialization projects announced in oil-
producing countries (in Saudi Arabia, Iran, and partly
in Russia), which can at least make it difficult to
collect traditional raw material rent. The surplus of
petrodollars formed as a result of rising prices should
either be “eaten away” (within the framework of
“social programs”, for example) or spent on various
large investment projects, some of them fictitious. At
the same time, it is impossible to allow the
strengthening of the influence of new players in the
global "digital economy", where a difficult
competitive situation is already developing.
It is fundamentally important for Russia to ensure,
at the present stage of development of the world
economy, if not dominant, then at least a leading
position precisely in the energy sector. And for this it
would be extremely expedient to lead, at least at the
level of conceptual understanding and
comprehension of the problem, a new investment
cycle in the global energy sector, avoiding both the
“eating up” of additional funds received, and their
“dispersed”, “portfolio” investment (Polyakova,
2011).
If we consider potential investment "vectors" in
the global energy sector, the picture for Russia is not
very favorable:
The topic of biofuels, which was the most
important investment vector at the beginning of the
2000s, can be considered almost completely “burnt
out”. It is unlikely that investment interest in it will
resume in the near future, although "laboratory"
research will continue.
Renewable energy sources and in general, i.e.
"alternative energy" as an object of investment are
contradictory: these technologies have already been
practically tested and "promoted". But this type of
energy has turned out to be economically discredited
to the greatest extent.
Nuclear energy technologies remain investment
attractive. But it is premature to talk about the
existence of any fundamentally new technological
platform for the development of nuclear energy.
However, the development of investment processes in
this area may also have the character of competitive
pressure on Russia in the promising nuclear energy
markets.
Energy-saving technologies will remain a
significant investment vector. But it carries
significant risks for Russia associated with a decrease
in energy consumption in developed countries.
Serious contradictions of a social nature are also
emerging within Russia, where energy consumers are
interested in reducing consumption, and energy
companies in increasing sales.
Risky projects in the field of classical
hydrocarbons. As a principle direction of investment
in the energy sector, they are acceptable for Russia,
although earlier investments have largely depreciated
due to falling hydrocarbon prices. And most
importantly, their volume cannot be restored, even in
a minimal form, given the current and prospective
level of oil prices in the coming years.
Thus, none of the conditional vectors in the world
energy industry that existed before the collapse of oil
prices can now be the basis for an economically
meaningful investment cycle. For Russia, in the
current investment cycle in the energy sector, if it
really becomes a reality, there are practically no risk-
free vectors.
It is possible that we will face the next edition of
the "green revolution", i.e. with some kind of
propaganda campaign, within the framework of
which investment will be carried out in too wide a
range of energy technologies, moreover, on the basis
of some “ideological” considerations in essence and
without a clearly defined prospect of further
monetization. There is a risk of "chaotization" of
investment processes in the energy sector and
manipulation of investment projects.
There is a danger of a global fictitious investment
process emerging in the world energy industry,
probably based on the topic of “alternative” energy
sources. It is important for Russia to avoid being
drawn into such fictitious investment processes both
at the state level and at the level of companies, while
at the same time increasing the level of “greening” of
the economy and reducing its energy intensity.
There is a need to form some kind of joint system
of expert evaluation and organization of investment
processes in the energy sector. Which should - to a
certain extent - guarantee Russia both at the level of
state interests and at the level of interests of corporate
structures from serious financial losses during the
current investment cycle in global energy.
Investments in the "new energy" cannot stand out
from the competition between the largest Russian fuel
companies. But the situation on the market dictates
the need for centralization of efforts.
It is important that such centralization is not used
for cartelization in the domestic market. But Russian
companies, not only hydrocarbons, but also energy
and investment companies, would do well to cartelize
on external energy markets, given the very likely
increase in competition.
MMTGE 2022 - I International Conference "Methods, models, technologies for sustainable development: agroclimatic projects and carbon
neutrality", Kadyrov Chechen State University Chechen Republic, Grozny, st. Sher
372
We can name the following areas in which it is
already necessary to strengthen interaction between
Russian companies and the state:
Research and forecasting of processes,
identification of fake (in fact, misinformation)
investment areas in the energy sector.
Examination of new foreign energy investment
projects on a cooperative basis and on the basis of a
unified methodology and risk assessment system.
Organization of "investment pools" for energy
projects, including research projects (R&D),
formation of mechanisms for managing such
"portfolio" investments (Porfiriev, 2010). For
example, the problem of organizing portfolio
investment in the development of nuclear energy and
nuclear energy technologies needs serious study.
Despite all attempts to advance in this direction,
which is natural for a modern market economy,
fundamental "model" solutions have not yet been
developed.
Organization of joint research and investment
projects in the field of energy saving, small and non-
traditional energy.
Organization of a Russian investment fund for
investments in the "new energy" within the country
on the basis of a "competition of regions" for the most
attractive conditions.
Creation of an "insurance" pool in the field of new
investments in the energy sector for at least partial
hedging of investment risks, including risks of joint
and several environmental liability (Nikoláeva,
2018).
In fact, without reducing the “competition field”
for Russian companies in traditional energy sectors,
as well as maintaining the level of antimonopoly
competition within the country, such measures make
it possible to be more systematically prepared for a
new investment cycle on a global scale
4 CONCLUSIONS
The designation of tasks and mechanisms for
achieving global energy security is largely
determined by monitoring existing and hypothetical
risks in the energy market.
In this regard, it is important to come to a common
understanding of threats in the energy field, which
can be achieved through the detection of probable
adverse events and the assessment of their
consequences.
Systematization of risks according to their
importance for the energy market makes it possible to
form a sane and effective program of actions aimed at
reducing these risks.
In addition, an analysis of the mechanisms of the
impact of negative events on the energy market and,
as a result, on the economy as a whole, gives the
prospect of interpreting the final indicators of the
realization of risks under certain scenarios for the
development of the world energy market.
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