THE FUTURE
273
and minivans usually decline during a period of increasing gasoline prices.
The prospect of a peak in oil production presents problems of
global proportion whose consequences will depend critically on
our preparedness. The consequences would be most dire if a peak
occurred soon, without warning, and were followed by a sharp
decline in oil production because alternative energy sources, particularly for transportation, are not yet available in large quantities.
Such a peak would require sharp reductions in oil consumption,
and the competition for increasingly scarce energy would drive
up prices, possibly to unprecedented levels, causing severe economic damage. While these consequences would be felt globally,
the United States, being the largest consumer of oil and one of the
nation's most heavily dependent on oil for transportation, is especially vulnerable.
The subject of energy security has been for many years an important concern among energy policy makers. The devastating short
and long term effects of the oil crisis of 1973 in the global economy
made clear since then that the need to guarantee the availability of
energy resource supply in a sustainable and timely manner with
the energy price being at a level that will not adversely affect the
economic performance the European continent is of utmost importance (Asia Pacific Research Centre 2007). The continuous destabilization of the Middle East, growing fears about further military
intervention in this fragile geopolitical area, environmental catastrophes, the advent of organized terrorist operations across the
globe, political risks and legal reforms have profoundly increased
the possibility of potential energy disruptions that will have detrimental effects, considering the dependence of Europe to external
energy suppliers.
The popularity of the energy risk-premium concept has led to the
formulation of a vast pool of knowledge encompassing an abundance of derivatives models. Traders have the ability to hedge
against various risks and create risk neutral portfolios using a
diversified mix of energy derivative securities. However, up to now
the risk-premium concept has not been used in the energy domain
to quantify an energy security indicator. The main reason for this is
that current techniques used in the energy domain do not incorporate the necessary probabilistic models that reflect on risk parameters associated with rare catastrophic events that cause adverse
movements on the sport price of the underlying instrument.
273
and minivans usually decline during a period of increasing gasoline prices.
The prospect of a peak in oil production presents problems of
global proportion whose consequences will depend critically on
our preparedness. The consequences would be most dire if a peak
occurred soon, without warning, and were followed by a sharp
decline in oil production because alternative energy sources, particularly for transportation, are not yet available in large quantities.
Such a peak would require sharp reductions in oil consumption,
and the competition for increasingly scarce energy would drive
up prices, possibly to unprecedented levels, causing severe economic damage. While these consequences would be felt globally,
the United States, being the largest consumer of oil and one of the
nation's most heavily dependent on oil for transportation, is especially vulnerable.
The subject of energy security has been for many years an important concern among energy policy makers. The devastating short
and long term effects of the oil crisis of 1973 in the global economy
made clear since then that the need to guarantee the availability of
energy resource supply in a sustainable and timely manner with
the energy price being at a level that will not adversely affect the
economic performance the European continent is of utmost importance (Asia Pacific Research Centre 2007). The continuous destabilization of the Middle East, growing fears about further military
intervention in this fragile geopolitical area, environmental catastrophes, the advent of organized terrorist operations across the
globe, political risks and legal reforms have profoundly increased
the possibility of potential energy disruptions that will have detrimental effects, considering the dependence of Europe to external
energy suppliers.
The popularity of the energy risk-premium concept has led to the
formulation of a vast pool of knowledge encompassing an abundance of derivatives models. Traders have the ability to hedge
against various risks and create risk neutral portfolios using a
diversified mix of energy derivative securities. However, up to now
the risk-premium concept has not been used in the energy domain
to quantify an energy security indicator. The main reason for this is
that current techniques used in the energy domain do not incorporate the necessary probabilistic models that reflect on risk parameters associated with rare catastrophic events that cause adverse
movements on the sport price of the underlying instrument.