Quantification of Political Risk in Energy Foresight - A Method Overview

Uncertainty is almost ubiquitous in energy related decision making. It has many sources, multiple facets and numerous implications. From the uncertainties surrounding Global Warming over the incertitude of future technological progress to the volatility of fuel and other energy prices, the uncertainties account for an important part of the current energy strategy puzzle. One key element of this puzzle is however political risk. Especially when it comes to the supply of oil and gas, where around 70 % of the worldwide resources are concentrated in what is sometimes labeled the “strategic ellipse” (cf. e.g. Rempel et al. 2006), encompassing the region from the Arabian peninsula over the surroundings of the Caspian Sea up to the most important Siberian hydrocarbon reservoirs. How should political risk be taken into account when aiming at solving the energy strategy puzzle? This is the key issue addressed in this paper, however with a clear focus on the first step of strategic decision making, namely the environment analysis. Thereby environment does not mean only the natural environment but the entire surrounding world which is relevant for the decision making. Consequently the first point to be discussed in the following is energy related decision making in general and the role of risk herein in particular (cf. Section 2). Then a typology of risks and especially political risks is sketched in Section 3 before approaches to the modeling and quantification of political risk are reviewed in Section 4