The Resilience of Energy supply chains
Tom James
RandRaRTICLESCM-09-2012-0307_1_.pdf
Supply Chain Management: An International Journal The resilience of energy supply chains: a multiple case study approach on oil and gas supply chains to Europe Luca Urciuoli, Sangeeta Mohanty, Juha Hintsa, Else Gerine Boekesteijn,
Article information: To cite this document: Luca Urciuoli, Sangeeta Mohanty, Juha Hintsa, Else Gerine Boekesteijn, (2014) "The resilience of energy supply chains: a multiple case study approach on oil and gas supply chains to Europe", Supply Chain Management: An International Journal, Vol. 19 Issue: 1, pp.46-63, https:// doi.org/10.1108/SCM-09-2012-0307 Permanent link to this document: https://doi.org/10.1108/SCM-09-2012-0307
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The resilience of energy supply chains: a multiple case study approach on oil and gas
supply chains to Europe Luca Urciuoli
Cross-border Research Association, Lausanne, Switzerland and Department of Industrial Engineering, University of Borås, Borås, Sweden
Sangeeta Mohanty Cross-border Research Association, Lausanne, Switzerland
Juha Hintsa Cross-border Research Association, Lausanne, Switzerland and Department of Operations, HEC Université de Lausanne, Lausanne,
Switzerland, and
Else Gerine Boekesteijn Vrije Universiteit Brussel, Brussels, Belgium
Abstract Purpose – The purpose of this paper is to enhance the understanding about how energy supply chains work to build resilience against exogenous security threats and thereafter what support mechanisms should be introduced or improved by the European Union. Design/methodology/approach – Five case studies and data collection from multiple sources is used to understand what exogenous security threats could lead to the disruption of oil and gas flows to Europe, how energy companies, from a supply chain perspective, are working to manage these threats and finally, how the EU may coordinate the security of the energy sector in collaboration with supply chain companies. Findings – Results show that today, oil and gas supply chains have in place a good combination of disruption strategies, including portfolio diversification, flexible contracts, transport capacity planning and safety stocks. The most relevant security threats the companies fear, include hijacking of vessels (sea piracy), but also terrorism, and wars. Finally, the study highlights that the European Union has built a comprehensive portfolio of strategies to deal with scarcity of oil and gas resources. However, these approaches are not often synchronized with supply chain strategies. Practical implications – The paper provides guidance for supply chain managers dealing with critical suppliers located in conflict environments. The paper recommends that supply chain managers fine tune their strategies in coordination with governmental actions in foreign politics, dependence reduction and crisis management. This may be achieved by closer communication with governments and potentially through the creation of a pan- European sector alliance. Originality/value – Previous research discusses the topic of supply chain resilience and supply chain risk management. However, none of these studies report on exogenous security threats and disruption strategies of oil and gas supply chains. At the same time, previous research lacks detailed studies describing the interaction between governments and energy supply chains.
Keywords Supply chain risk management, Supply chain resilience, Supply chain security, Critical supplies, Energy security, Supply chain strategies
1. Introduction
Energy supply chains are critical assets for our societies. A
disruption could have major economic impacts on companies
dealing with the production and distribution of energy
products. Similarly, the impacts on society as well as on other
sectors of our economy could be tremendous (Halldórsson
and Svanberg, 2013). Households and industries consume
energy, for example for heating and cooling purposes.
Healthcare facilities, healthcare services, telecom services
like telephones, mobile phones, internet and other data
networks require electricity to run properly (Ikebe et al.,
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-8546.htm
Supply Chain Management: An International Journal
19/1 (2014) 46–63
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/SCM-09-2012-0307]
The research leading to these results has received funding from the European Union Seventh Framework Programme (FP7/2007-2013), FOCUS-project (www.focusproject.eu), under grant agreement no. 261633. This publication reflects only the author’s views and the Union is not liable for any use that may be made of the information contained therein.
Received 24 September 2012 Revised 7 January 2013 13 May 2013 30 August 2013 23 September 2013 Accepted 24 September 2013
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2007). Likewise, all supply chains rely on the access to energy
in the form of electricity or fuel to ensure the performance
and reliability of manufacturing and transport processes. Lack
of access to energy could either interrupt and/or increase the
costs of manufacturing and transportation processes, causing
negative consequences to other economic sectors and a decay
of our quality of life (Halldórsson and Svanberg, 2013). In this context, supply chain risk management, disruption
strategies and resilience are relevant topics that have been
addressed by previous literature. Supply chain risk
management is a systematic approach to identify and
address diverse types of risks, including natural
catastrophes, equipment failure, demand risks etc.
(Asbjørnslett, 2008; Finch, 2004; Franck, 2007; Jüttner
et al., 2003; Manuj and Mentzer, 2008; Norrman and Jansson, 2004; Zsidisin et al., 2000). To mitigate these risks, managers face the difficult challenge to choose among sets of
disruption strategies by carefully evaluating their costs and
benefits (Colicchia et al., 2011; Deane et al., 2009; Holland and Lockett, 1997; Khan et al., 2012; Krishnan and Ulrich, 2001; Melacini et al., 2011; Tang, 2006). Finally, some researchers confirm that in some occasions disruptions cannot
be avoided, and therefore they suggest that supply chain
management should concentrate on the enhancement of
resilience capabilities, i.e. to withstand disruptions while
trying to avoid them (Christopher and Peck, 2004; Rice et al., 2003; Sheffi, 2001, 2005).
This study focuses on exogenous security risks relevant to
energy supply chains, in particular antagonistic attacks against
a supply chain. Security risks are an emerging topic in the
context of supply chain risk management, calling for
heightened attention from supply chain and security
managers of energy companies (Manuj and Mentzer, 2008;
Sheffi, 2001; Urciuoli, 2011). However, to our knowledge,
very little research has focused on studying how resilience and
disruptions linked to exogenous security threats are managed
in energy supply chains. In addition, previous research points
out the importance of governmental intervention to ensure
the resilience of critical supply chains, to which energy supply
chains commonly belong to (Brown, 2004; Tang, 2006;
Tummala and Schoenherr, 2011). Despite this, we found that
the topic concerning how governments could support the
management of supply chain disruptions is underexplored.
Hence the research questions for this study are the following:
RQ1. How are energy supply chains ensuring resilience to manage supply disruptions caused by exogenous
security threats? RQ2. How can governments effectively support energy
supply chains to ensure uninterrupted flows?
The purpose of this investigation is to determine what exogenous security threats are relevant for energy supply
chains and in relation to those, what strategies are being
adopted to manage disruptions. Security threats that this
paper will consider are those taking place in non-EU countries
as well as during transportation to Europe, i.e. exogenous
security threats. In addition, this paper examines what the
European Union is doing to support energy supply chains. The remainder of this paper is divided into four sections:
after the introduction we expound the literature review by
going through relevant topics like supply chain exogenous
security threats, management of disruptions in supply chains
and EU roles to protect energy supply chains. Thereafter, we
explain the methodological approach of the study and present the results from five case companies. Next, we discuss the results and finally wrap up with conclusions and implications for managers and researchers.
2. Literature review
The literature that we have reviewed was identified with the Systematic Literature Review Approach. The screening of the data helped our team in pinpointing the theoretical frameworks that were used in the data collection and analysis (Stock, 1995). Scientific databases that were used for the searches are Emerald, Elsevier and Springer; while the main keywords used are the following: . Supply chain and disruption management strategies. . Supply chain and resilience. . Supply chain and risk management or supply chain risk
management. . Supply chain and security.
The keywords mentioned previously have been combined with “oil and gas” as well as “governmental roles” keywords. The keywords were chosen in strict relation to the research questions established in this study (Jesson et al., 2011; Tranfield et al., 2003). In addition, the list of articles shown in the searches was screened in a systematic manner, i.e. our team screened the title first and then the abstract. If the article was believed to be relevant to the research questions addressed in this paper, then it was selected for deeper review and eventually included in the theoretical framework (Jesson et al., 2011).
2.1 Exogenous supply chain security threats
Although disruptions in energy supply chains have a decades- long history, the fear of a disruption in energy supply chains has increased since the 9/11, 2001 terrorist attacks. As a consequence, supply chain security has emerged from a supporting activity to a fundamental requirement in an organisation to be coordinated with supply chain management (Sheffi, 2001; Hameri and Hintsa, 2009; Urciuoli, 2010). In particular, due to the presence of extensive networks of suppliers abroad, where there is limited political stability, energy supply chains could be disrupted by exogenous security threats any time, including wars, illicit and/or violent strikes, sea piracy, sabotage, vandalism or riots (Luft and Korin, 2003; Vakhshouri, 2011). Likewise, past events testify that these hypotheses are not far from reality. In 2002, terrorists attacked the Limburg, a French oil tanker carrying 400,000 barrels of crude oil (Hurst, 2008). More recently, in January 2013 the Tiguentourine gas plant was attacked by a group of North African Al-Qaeda terrorists causing the death of 37 foreign workers and a long-term halt of operations. Energy supply chains are clearly in jeopardy.
Supply chain security threats include attacks against cargo moved in supply chains. In this paper the term “exogenous” refers to threats perpetrated outside the European Union. Some papers refer to these acts as antagonistic attacks, others as illicit activities that could be perpetrated within or against a supply chain (Ekwall, 2009; Hintsa, 2010; Urciuoli, 2010). Relevant theoretical frameworks explaining the behaviour of perpetrators can be found originally in criminology, having already been applied in supply chain contexts: the rational choice theory and the influence of environmental factors. The
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rational choice theory concerns making the decision whether
to attack the supply chains by weighing diverse factors such as
effort, potential payoff, risk of apprehension and punishment
and individual needs (Ekwall, 2007). Similarly, the routine
activity theory identifies three elements that characterise cargo
theft: a motivated offender, a suitable target and the lack of
capable guardians (Cohen and Felson, 1979). Antagonistic
attacks to supply chains may include theft, smuggling of
prohibited items, hijacking, counterfeiting etc. (Chen et al.,
2005; Thibault et al., 2006). Hintsa (2010) provides a
comprehensive taxonomy of possible crimes that may be
perpetrated in a supply chain. In particular, it is highlighted
that security should include illicit activities related to customs
and trading. To give some examples, theft consists of stealing
cargo from facilities or transport vessels; and smuggling
includes hiding prohibited items such as drugs, weapons, and
counterfeit goods, e.g. in a maritime container. In the context
of oil and gas supply chains, many of the security threats
identified by previous literature are relevant. Attacks could be
perpetrated while oil and gas are transported by sea (e.g. sea
piracy, hijacking), in pipelines (e.g. theft, sabotage and
vandalism) or while it is being extracted from platforms or
stored in facilities. For instance, the Straits of Malacca, the
Bab-el-Mandeb, the entire offshore area of Yemen and
Somalia extending to Oman and Kenya have been frequently
associated with endemic piracy. Attacks on ships increased by
10 per cent in 2010, mostly by Somali based pirates (Luciani,
2011). Stationary energy facilities could also be easily
hijacked for requesting ransoms. These facilities are
particularly vulnerable because it is not considered feasible
to construct perimeter barriers, reducing the capability to
control access or to defeat a water-borne attack (Averill,
2010). The growing menace of oil theft by poking holes in
pipelines also requires immediate attention. It is done with the
sole intent of stealing crude oil and related products and is
becoming rampant in Nigeria, where the poor security of the
pipelines makes them easy targets for vandalism and theft
arising from organised crime (Udofia and Joel, 2012). In a manner that might explain the causes determining
crime against business, or, business victimisation,
criminologists emphasise the importance of specific
environmental factors that could influence crime in
ethnically diverse communities (Taylor, 2006). Business
victimisation concerns the perceptions of victims about how
the business should be operated in crime-free conditions and,
in particular, how the interaction with the surrounding
environment results in security incidents (Tulyakov, 2004).
For instance, by means of 337 face-to-face surveys, Taylor
(2006) studied patterns of victimisation and demonstrated
that businesses in foreign countries (English speaking
businesses) are at a greater risk of robbery, verbal abuse and
even physical assault. Some of the factors identified by
researchers include the type of business, the location, the
degree of opportunity as well as surrounding environmental
features (Hopkins and Ingram, 2001; Hopkins, 2002). In
particular, the location factor is emphasised in the crime
displacement theory suggesting that criminals may change
their habits by attacking new locations where protection is
lower. A concept that has already been linked to supply chain
security, i.e. insufficient protection in one of the links of a
supply chain may determine a weak point and a consequent
attack (Ekwall, 2009).
The influence of the environmental factors on the security
of oil and gas supply chains is easily observable in reality;
countries where liquid natural gas (LNG) or crude oil
commonly originate from are politically unstable and foreign
companies are at constant risk of terror attacks, and wars,
e.g. in Qatar, Nigeria, Algeria, and Egypt. (Fernandes et al.,
2010; Vakhshouri, 2011). Moreover, in these countries
infrastructure stakeholders commonly operate under vastly
under-regulated conditions or sub-standard security systems
(Hurst, 2008). Smuggling nuclear weapons into a ship could
easily happen by infiltrating or by bribing security officers in
foreign countries (Medalia, 2004). Potential target could be
an EU port handling a large volume of oil and other goods,
situated close to densely populated areas (several ports all
over the world meet these criteria) (Medalia, 2004).
2.2 Management of disruptions in supply chains
Managing disruptions is a highly relevant topic for supply
chain practitioners and researchers alike. It has been
commonly noticed that supply chains do not often operate
as planned and disruptions may occur leading to negative
consequences. Production machinery might break down,
workers might go on strike, products might get stolen,
explosions may occur at sea ports and so forth. As a
consequence, research has pointed out that it is necessary to
choose and plan in advance cost-effective strategies to
optimally handle disruptions (Deane et al., 2009; Krishnan
and Ulrich, 2001). Such strategies have proven to enhance the
resilience capabilities of companies, to facilitate quick
responses to unplanned events and thereby, to improve
competitive advantage (Khan et al., 2012). Some of the most
relevant approaches found in existing research may be
grouped as follows: risk management and resilience;
management strategies; and information sharing. Risk management and resilience. The overall process to
identify threats and related strategies and proper
countermeasures to manage disruptions is part of supply
chain risk management activities (Manuj and Mentzer, 2008;
Norrman and Jansson, 2004; Finch, 2004; Franck, 2007;
Serrano et al., 2007). Risk management is also an important tool to deal with security threats (Williams et al., 2008). At the
same time, it is well known that some challenges may appear:
dealing with the uncertainty of low-probability high-
consequences risks or unforeseeable events, e.g. terror
attacks (“how is it possible to estimate the probability of an
incident that never happened?”), or the fact that a security
threat is not a random occurrence but is driven by a motivated
perpetrator that may adapt his modus operandi to the security
measures installed (Urciuoli, 2011). Hence, some researchers
promote the concept of supply chain resilience, which means
the capability of companies to anticipate, identify, react and
learn from incidents (Craighead et al., 2007; Rice et al., 2003;
Sheffi, 2005). The term supply chain resilience is directly
derived from material science and refers to “the tendency of a
material to return to its original shape after the removal of a
stress that has produced elastic strain” (Merriam-Webster,
2007). Hence, in supply chain management, resilience may be
interpreted as the capability of supply chains to bounce back
to stable conditions after a disruption (Christopher and Peck,
2004). In other words, a resilient supply chain has developed
the capability to respond to a disruption, no matter if this is
caused by a natural disaster or a terror attack. Supply chain
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resilience is a concept that has emerged in supply chain and
logistics management literature during recent years. Management strategies. Diverse strategies to manage
disruptions have been found in literature. Many authors point out the diversification of suppliers as a strategy to
handle disruptions. The access to a wider supply base enables firms to inject in supply chains additional production lines
and quickly shift volumes and production in case of a disruption (Sheffi, 2006; Tang, 2006; Tomlin, 2006;
Tørhaug, 2008). In particular, within the oil and gas sector, Christopher et al. (2011) suggest strategies like network re- engineering, i.e. supply base network design, and the creation
of a global sourcing risk management culture. These approaches need an extended usage of flexible contract
agreements, inspections to qualify suppliers and may be even combined with make and buy strategies to split production
across different factories (Finch, 2004; Sheffi, 2006; Zsidisin et al., 2000). Melacini et al. (2011) emphasise the importance of centralizing outsourcing contracts to improve delivery lead times and reliability of services. Finally, Colicchia et al. (2011) proposes a simulation-based framework to assess Supply Chain Risk Management strategies. In particular, to evaluate risk reduction strategies, the authors point out the importance
of quantifying the logistics costs related to the implementation of the strategies and trade them off with the improvements in
terms of effectiveness and efficiency (Colicchia et al., 2011). Another strategic approach to ensure uninterrupted
replenishment consists of calibrating inventories to ensure product availability and, ensuring access to transport capacity
and multiple routes. Redundant inventories build additional capacity in firms but imply costs as obsolescence and
inventory holdings (Sheffi, 2006; Tang, 2006; Tomlin, 2006; Tørhaug, 2008). To ensure quick recovery in case of a
disruption, it is fundamental to set up access to transportation in form of multiple transportation modes, multiple carriers or providers, and consequently multiple routes and distribution
channels (Tang, 2006; Tomlin, 2006). In some cases, companies may even opt to maintain a dedicated
transportation fleet to guarantee more control and lower re- planning costs (Sheffi, 2006).
Product design- centric strategies are increasingly attracting the attention of researchers, since these consist of strategies
allowing companies to align the design of the products with the supply chain efficiency targets (Pero et al., 2010; Lo and Power, 2010; Stavrulaki and Davis, 2010). For instance, companies could decide to combine product design with
postponement and modularity strategies, i.e. to aggregate customer demand and add customized design in the destination market (Tang, 2006). In particular, modularity
allows companies to design more efficient and responsive supply chains without compromising costs and quality
(Gunasekaran and Ngai, 2009; Lin and Shaw, 1998). This process cannot happen in isolation; instead it implies vertical
co-operation and early involvement of suppliers in product concept development and design (Khan et al., 2012; Zsidisin and Smith, 2005). Sheffi (2006) points out the importance to design products so that suppliers may be easily changed in
emergency situations. Marketing, demand management and economic incentives
are also widely used to mitigate consequences once a disruption occurs. If shipments are disrupted, companies may act by dynamically changing prices, offering special
deals, or even influence customers’ choices by means of
assortment planning and silent product rollover (Tang, 2006).
Demand management is also an approach to promote and sell products that are available on the shelves of retailers (Tomlin,
2006). Finally, economic incentives may be provided by buyers in supply chains to entice more suppliers to enter a
specific market. Information sharing. Information sharing is also widely
recognised to be an effective approach to manage supply chains under disruptions (Blos et al., 2009). It may as well improve flexibility of supply chains (Skipper and Hanna, 2009). The major benefits may be achieved if information is
provided in advance. Li et al. (2006) find out that by timely sharing of information at downstream, upstream disruptions
may be promptly avoided or their negative consequences
mitigated. Tomlin (2006) suggests that advance information could be used to deal with certain risks, as for instance labour
disputes: if a firm has advance information that a strike is imminent then mitigation inventory may be built in advance
(Tomlin, 2006).
2.3 European Union roles
In general terms, supply chain companies have in place
extensive sets of strategies to handle disruptions (Tang, 2006). However, given the societal implications it is very
common for governments to intervene in order to ensure continuous production and replenishment, in particular in the
context of critical supply chains (Tummala and Schoenherr, 2011). Hence, the need for resilient energy supply chains as
well as supply chain security, in terms of a coordinated public- private approach, is being increasingly recognised as a
necessity by countries, governments and organisations across the globe. For instance, in Europe, where demand
for oil and gas is soaring and external imports are rising (Saddodin and Samoudi, 2011), several initiatives and
mitigation strategies have been developed to establish a comprehensive European supply chain security program for
the EU energy sector (European Commission, 2012e). These include specific legislative frameworks, new infrastructure
projects, construction of pipelines (European Commission, 2012a; European Commission, 2012d; European
Commission, 2012e), oil and gas stocks and crises response mechanisms, where solidarity among Member States plays a
pivotal role (Council Directive, 2009). Yet, it is unknown how efficient these initiatives are, and most of all how well they fit
into the disruption management strategies implemented by energy supply chain operators. According to the literature
reviewed within this study EU interventions in form of initiatives and programmes may be summarised in the
following categories: protection of critical infrastructure, foreign politics, dependence reduction and crisis
management. Critical infrastructure protection. The critical infrastructure
relevant to the topic of the paper includes energy and transport. Since oil and gas transportation includes ocean
carriers, maritime and port security is highly important. In recent years, the EU has been working to ensure the
mandatory implementation of the ISPS (International Ship and Port Facility Security) Code through Regulation (EC) No
725/2004. This code aims at enhancing ship and port facility security through preventive measures against threats and
unlawful acts in international trade and port facilities. Directive 2005/65/EC (also known as the Port Security
Directive) complements the maritime security measures
A multiple case study approach on oil and gas supply chains to Europe
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introduced through Regulation (EC) No 725/2004, where EU
Member States can define the periphery covering all ports where security measures should be implemented. The
Directive also provides for a system for implementing these measures and evaluating their conformity (European
Commission, 2012d). Inspections of ships and port facilities are also indicated in the Directive; these are conducted to
verify the effectiveness of the national quality control systems, as well as of individual port facilities and other involved
companies. The European Maritime Safety Agency (EMSA) takes part in the inspections led by the Commission. EMSA also provides the latter with technical assistance for inspection
activities in respect to ships, relevant companies and Recognised Security Organisations (RSO) (European
Commission, 2012d). Another important activity is the European Programme for
Critical Infrastructure Protection (EPCIP). It is the primary responsibility of the Member States to identify Critical
Infrastructure and make arrangements for critical infrastructure protection within their national borders. The
Commission is committed to help Member States in developing a European procedure for the identification and designation of European Critical Infrastructures (ECIs) and
assessing the need for improvement in protection. The main objectives of the EPCIP include (Council Directive, 2008):
enable implementation of EPCIP through legal instruments; identify the European Critical Infrastructure (ECI); provide
support and recommendations to Member States; and foster networking and knowledge exchange among Member States
and with relevant international organisations (European Commission, 2012e).
In addition, the European Commission has established a network of critical energy infrastructure operators from
electricity, gas and oil sectors for exchange of ideas and experiences on security related issues. The TNCEIP (Thematic Network on Critical Energy Infrastructure
Protection) network fosters partnership to facilitate a common understanding and co-operation among the
operators with a high level objective of protecting large scale energy infrastructure and facilities. It focuses on external
threats and addresses topics like threat assessment, risk management and cyber security (European Commission,
2012e). Foreign politics. The Lisbon treaty has introduced
fundamental changes to facilitate the role of the EU in foreign and security policy, in particular, enabling it to speak
and act as one entity in international affairs. The main activities in security and defence include resolving conflicts, bringing about international understanding, supporting third
countries in combating terrorism within their territories, responding to disaster, fighting against sea piracy and so
forth. The EU has trade partners all over the globe, while spending generous sums in foreign aid. It is active in
strengthening relations with economic powers including the US, Japan, Canada, Russia, China and India. For instance, in
2000 an EU-Russia energy dialogue was launched aiming to: guarantee continued energy production, liberalize energy
markets, and facilitate more environmental friendly technologies and energy resources, among other objectives (European Commission, 2012b.).
Some examples of on-going co-operation initiatives with other countries include: the Black Sea Synergy, the Eastern
Partnership, the Union for Mediterranean, and the Central
Asian strategy. The main purpose of the Black Sea Synergy is
to support economic development and democratic reforms,
while encouraging political stability and development in the
countries surrounding the Black Sea. Partnerships in the field
of transport and energy are also making headway (EEAS,
2012a). By means of the Eastern Partnership, the EU is
strengthening ties with countries in Eastern Europe and
Southern Caucasus. The stability, security and development
of these regions offer good potential for diversifying European
energy supplies. The Commission has developed ideas on
facilitating co-operation with Armenia, Azerbaijan, Belarus,
Georgia, Moldova and Ukraine in the form of new free trade
agreements (EEAS, 2012b). Similarly, the EU27 Member
States have built a partnership to foster economic integration,
democratic reform and energy security through the Euro-
Mediterranean Partnership (EUROMED) (EEAS, 2012d).
The 27 EU Member States as well as 16 Southern
Mediterranean, African and Middle Eastern countries
(Albania, Algeria, Bosnia and Herzegovina, Croatia, Egypt,
Israel, Jordan, Lebanon, Mauritania, Monaco, Montenegro,
Morocco, the Palestinian Authority, Syria, Tunisia and
Turkey) are members of the Union for the Mediterranean
(UfM). Finally, by means of the Central Asian Strategy, the
EU has made progress in its relationship with Central Asian
countries like Kazakhstan, Kyrgyz Republic, Tajikistan,
Turkmenistan and Uzbekistan. Co-operation in areas like
human rights, education, trade and economic relations,
border management, transport, water, environment and
energy are being addressed (EEAS, 2012c). Dependence reduction. One of the main risks of European
supply chains is to become dependent on their suppliers,
which directly implies a loss of power, less advantageous
contracts and putting at stake continuous replenishment
(Lonsdale, 1999). To reduce dependence on a limited
number of energy sources, the EU is trying to open
communication channels with diverse countries to support
the portfolio diversification of energy companies. In addition,
the EU has started paying more attention to infrastructure
projects, alternative sources of energy and towards
strengthening the internal market. New pipelines. Negotiations are taking place for a treaty
binding the EU, Azerbaijan and Turkmenistan to build a
Trans Caspian Pipeline System. This is a major project which
will bring new gas sources to Europe where a submarine
pipeline will be constructed connecting Turkmenistan to
Azerbaijan and linking it to infrastructure that will bring gas
from Central Asia to the EU. This is the EU’s first initiative
for a treaty in support of an infrastructure project (European
Commission, 2012f). Moreover, the Trans-Anatolia Gas
Pipeline (TANAP) agreement is going to be implemented in
the near future. This will enable the EU to get gas directly
from Azerbaijan and other countries in the Caspian region.
TANAP will transport gas from East to West Turkey and will
link to the Southern Caucasus pipeline starting in Azerbaijan,
continuing in Georgia and to a network of proposed pipelines
in the EU. For the first time, there will be a direct connection
from the EU to the Caspian Sea. The EU is also evaluating
three additional gas infrastructure projects: Nabucco West
that is a pipeline project to bring gas from the Western
Turkish border to Baumgarten, Austria; SEEP (South-East
Europe Pipeline) that is a pipeline project to bring gas from
the Western Turkish border to Hungary; and TAP (Trans-
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Adriatic Pipeline), which aims to bring gas from Greece to
Italy (European Commission, 2012a). Access to renewable sources of energy. In order to reduce
dependence on imported energy and cut down on greenhouse
emissions, the EU is making substantial investments in
renewable sources of energy, like wind, solar, hydro-electric,
tidal power, geothermal energy and biomass (European
Commission, 2012c). Directive 2009/28/EC on renewable
energy sets targets for the EU to reach a 20 per cent share of
energy from renewable sources by 2020 and a 10 per cent
share of renewable energy specifically in the transport sector.
In addition, the Directive enhances the legal framework for
encouraging renewable electricity, requires Member States to
establish means for developing renewable energy sources and,
promotes co-operation and cost-effective mechanisms to help
achieve the stated objectives (European Commission, 2012c). Crisis management. The EU has been making efforts for a
stable, well-functioning energy market to guarantee the
availability of resources in crisis situations. Through
Regulation 715/2009 and Directive 2009/119/EC, the EU
imposes obligations on Member States to maintain minimum
stocks of crude oil and/or petroleum products (e.g. ethane,
LPG, motor gasoline, aviation gasoline, gasoline-type jet fuel,
kerosene-type jet fuel, other kerosene, gas/diesel oil, fuel oil,
lubricants, bitumen, paraffin waxes and petroleum coke).
More specifically, Member States must maintain a total level
of oil stocks amounting to at least 90 days of average daily net
imports or 61 days of average daily domestic consumption.
They are also responsible for ensuring the availability and
accessibility of these stocks as well as making arrangements
for the identification, accounting and control (Council
Directive, 2009). Hence, in case of a major supply
disruption, Member States are required to be able to release
all or part of their emergency stocks (Council Directive,
2009). Finally, regulation 994/2010 provides
recommendations for proper coordination and planning in
the event of emergencies at the regional, national and Union
levels. In particular, emergency plans are defined in
accordance with three crises levels (UNECE, 2012): level 1
is set in case the EU receives serious, reliable and concrete
information about an event likely to occur and result in
significant disruptions to supply; level 2 is set if a supply
disruption or unusual high demand is taking place but can be
handled by market intervention; and finally, level 3 requires
non-market intervention. The EU is also striving to stabilize the internal energy
market to enable companies to have access to safety stocks
locally in case of emergency situations. According to available
literature this could be realized for the gas sector by
liberalizing the market. The participation of a large number
of suppliers in a truly competitive, liberalized market will
enhance diversification of supplies to the EU, an increased
liquidity of natural gas, more competition and ultimately
consumer price decrement. This, in turn, will facilitate more
efficient allocations of gas supplies and transportation
capacity during emergency periods (Stern, 2002, cited in
United Nations Economic Commission, 2012, p. 27).
Likewise, it has been predicted that the increased
competition and market integration will inevitably stimulate
the spot gas trading that helps in satisfying gas demand
particularly during peak periods (United Nations Economic
Commission, 2012).
3. Methodology
The methodology followed in this study is based on case study
research, consisting of iterative process of constant
comparison of theory and data (Yin, 1994). This approach
was believed to be most convenient since it is known to
perform better in underexplored contexts (Eisenhardt, 1989;
Yin, 1994). Our team started with the review of literature by following
the Systematic Literature Review (SLR) approach. Hence,
keywords used in the searches were deducted in strict relation
to the research questions of this study (Jesson et al., 2011; Tranfield et al. 2003). These were made of a combination of supply chain, disruption management, resilience, risk
management, security, oil and gas and governmental roles.
Thereafter, companies to be used in the case studies were
chosen. The sample used in this study is composed of five
companies operating in the energy market, including oil and
gas, importing from outside the EU and selling electricity and
fuel to European households and industries. In particular, oil
and gas companies have been chosen since these represent the
first two major supplies to Europe to produce energy
(European Commission, 2010). In addition, the sample
companies are a combination of small, medium and large
enterprises and the respondents selected for the interviews
include senior level managers. Table I gives a concise
description of the case companies, energy sector, corporate
revenue and respondent position (identified with letters from
A to E to preserve anonymity). All the companies, except company B, import energy
resources from the Russian federation. Three of the
companies (B, C and D) focus merely on natural gas, while
company A on both oil and gas and company E only on oil
(see Figure 1). Company B has suppliers from the US,
Canada, Latin America, Africa, India and Australia but no
supplies from the Russian federation. Only Companies D and
E are more exposed to disruption in case of a dispute with the
Russian federation. The other companies importing from
Russia have established energy trading with other countries
and regions of the world: company A has access to the US,
Latin America, Middle East, Africa and Kazakhstan;
company C can import gas from Africa; Company E has
trading activities with Kazakhstan (see Figure 1). All the
companies are able to transport oil and gas by means of
pipelines and sea vessels. In particular, oil is moved by
pipeline from the extraction site to the refinery and finally by
sea vessel to Europe. Gas can be transported to Europe by
means of land and sea pipelines or in liquefied form (LNG)
with sea vessels. Qualitative and quantitative data were collected from
multiple sources, as recommended in logistics research
(Dunn et al., 1994; Voss et al., 2002). Interviews with managers and observations within the case companies were
performed by following a set of semi-structured questions.
The answers were recorded, transcripted, validated with the
respondents and consequently analysed. The units of analysis
used in this study are two: the supply chain function and its
interaction with governments. Hence, the research variables
in the data collection included the company descriptions, the
existing strategies put in place by the companies, the
perception of relevant security threats, and finally how
governments could support the energy companies (see
Appendix 2). Other data were collected from secondary
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sources such as company web sites, company documentation,
the European Commission web site, and practitioner journals
and magazines. Using several informants and different types
of data sources (data triangulation) increases the internal
consistency of data (Voss et al., 2002). Relevant dimensions to be used in the case study analysis
were selected as an output of the literature reviewed. More
specifically, after a first screening and analysis of the relevant
articles, our team outlined the overall debate in the area of
interest. Thereafter, we systematically defined the case study
dimensions that concurrently were: of interest in current
research and, believed to be most feasible to explicate and
structure the case analysis (Jesson et al., 2011). The
methodological instruments that were used in the empirical
research are shown in Tables II-IV. In accordance to the
literature review, the exogenous security threats were
classified in terms of existing criminology theories: namely
rational choice theory and environmental factors causing
crime against business. The related instrument is made of
table with these two categories in the rows and the identified
Table I Companies’ background and respondent position
Energy sector Corporate revenue Respondent position
Company A Oil and gas e299,649 million Head of European Government Affairs
Company B Natural gas e72,200 million Head of Regulations and Capacity management
Company C Natural gas e27,400 million Vice President
Company D Natural gas e5,007 million Senior manager
Company E Oil e65,050 million Manager
Figure 1 Energy sectors, markets, transport means and sourcing countries for the five case companies
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threats as column headings. In the cells we show which of the
case companies identified the particular threat (see Table II). The strategies collected from the companies are classified as
risk management and resilience, management strategies and
information sharing. Hence by using these categories we
matched the data from the companies by using the instrument
in Table III. In the table, the approaches found in previous
literature are given in the columns, while the rows are used to
specify the specific strategy used by the companies according
to the findings in the interviews. In the cells we specify which
companies are applying the strategy. Finally, the last methodological instrument is based on the
dimensions related to EU roles: protection of critical
infrastructure, foreign politics, dependence reduction, and
crisis management. In the rows we depict the exact strategies
suggested by the respondents. In the cells we indicate which
companies gave the answers (see Table IV). Cross case analysis was performed on type of security
threats, countermeasures and EU roles. The analysis was
performed by identifying explanation patterns and constructs
as recommended in Eisenhardt (1989) to build theory in case
study research. Our team started with the case study writing
and continued with data reduction; hence, themes and
patterns were recorded in a case template and analysed (Miles
and Hubermann, 1994). Finally, the cross-case comparison
allowed the identification of main differences and of similar
behaviour at the investigated companies (Yin, 1994).
4. Case study findings
A detailed description of the companies has been included in
Appendix 1 of this paper. Figure 2 summarises the findings
related to the security threats, countermeasures and
recommended EU roles that were suggested by the five
companies. The figure follows the structure of the
methodological instruments used in this study (see Tables II-
IV) and it is composed of two squares; one external
representing the exporting country (top of external square)
and the suppliers (bottom of external square) and one internal
representing the importing country (top of internal square)
and buyers (bottom of internal square). Transport happens in
the middle of the squares. The left part of the diagram
represents the exogenous security threats that according to
theory are distinguished by those driven by rational choice
and those caused by environmental factors. The upper-right
quadrant of the diagram includes the strategies applied by
governments domestically (importing country) and abroad
(exporting country). Finally, the bottom-right quadrant
includes disruption strategies applied by supply chain
companies at supplier level, during transport and finally at
buyer locations (see Figure 2). The findings show that major
exogenous security threats perceived by companies are:
political conflicts/instability and malicious attacks as
terrorism, wars, riots, theft and sabotage. It is important to
notice that political conflicts are seen as a catalyst of wars,
riots, strikes (also “normal strikes”, without violence or any
other “legal issues”), sea piracy and even terror attacks.
Activities driven by energy supply chains to manage
disruptions are placed at the bottom of the framework. The
strategies indicated by the companies include portfolio
diversification, flexible contracts, product switch, transport
capacity, re-routing and safety stocks. In addition, we may
observe the companies pointing that the EU should make
improvements in three main areas: foreign politics,
dependence reduction and crisis management, in order to
ensure the supply and production of energy (see Figure 2).
4.1 Cross-case by exogenous security threats
The findings from the case studies provide indication that the
majority of the attacks against oil and gas supply chains are
the result of a decision in which payoffs are evaluated.
Company E faces threats of sea piracy as the shipments
originate from Kuwait, which has a high incidence of such
occurrences. It is well known that revenues from ransoms may
be quite high, while risks for being prosecuted for crimes
committed in international waters may be quite low. In other
cases, linked to terrorism, the payoff of criminals could not be
monetary but evaluated in terms of media attention and
promotion of ideologies. Company B has indicated that a
carefully planned terror attack may simultaneously block
supplies from its main sourcing countries, Norway, Russia
and The Netherlands, resulting in a severe electricity
shortage. Company C has pointed out that the oil and gas
pipelines may be subject to terror attacks. For instance,
liquefaction plants, especially in Algeria and in the Niger
Delta are susceptible to violent attacks. In particular, the
indigenous tribes in Nigeria are fighting for a bigger share of
the wealth produced by the energy industry (see Table V).
We have had cases of supply interruptions to the liquefaction terminals in Algeria where certain extremists or local terrorists have damaged or bombed the supply lines towards the liquefaction plants [. . .] Also Nigeria is certainly problematic in that respect, because you have all these tribes in the Niger- delta, which is the area where all the oil and the gas is coming from and they try since years to get a bigger share of the wealth created by the industry there and they not always do that in a friendly way.
Findings from the case studies confirm that environmental
factors influence security threats against oil and gas supply
Table III Framework used for the cross-case analysis on management approaches
Risk
management
and resilience
Management
strategies
Information
sharing
Management
strategies
Table IV Framework for cross-case analysis on EU roles identified by the companies
Critical
infrastructure
protection
Foreign
politics
Dependency
reduction
Crisis
management
EU roles
Table II Instrument for cross case analysis on exogenous security threats
rational choice environmental factors
Identified threats
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chains. In particular, respondents put major emphasis on
political conflicts (see Table V). Company A states that “if
there is a war somewhere where companies have a contract,
they may end up not be supplied”. In particular, companies A
and C are concerned about Iran’s retaliatory threat of closing
down the Strait of Hormuz in response to the EU sanctions
against its oil exports. Hormuz is a strategically important
chokepoint and its closure would seriously endanger Europe’s
oil supply. As company A states:
“Europe is very dependent on oil import from the Middle East passing
through the Strait of Hormuz”. Hence, “the Strait of Hormuz is basically the
main point of weakness for Europe’s supply”.
Similarly company C, “about one third of the oil production
in the world goes through the Strait. And due to the nuclear
issues between the rest of the world and Iran, Iran has many
times threatened to stop all oil-traffic in the Strait of Hormuz.
And that practically means that one third of the oil
production/supply is threatened”. Company B points out the possibility of being cut off from
its gas supplies in case of political conflicts with its sourcing
countries, especially Russia.
There could be shortages of gas from Russia, but these risks are not technical, rather political in nature.
Company C expresses general concerns about Europe’s
dependence on for its gas supplies, in countries where
conflicts could appear, e.g. Iran, Qatar and Russia.
We have experienced this a couple of times, the last years, with the interruption of the gas flows coming from Russia and going through the Ukraine [. . .] Russia had decided to just stop the flow to Ukraine. Because they did not got paid in time or whatever, or just to put them under pressure to get certain things done.
Concerns about the dependence on the Middle East, Africa
and Russia are also expressed by Company D. “Gas and
energy can be threatened by political problems as it can be
used as a political instrument. These problems appear always,
especially at our sourcing countries in Middle East, Africa and
Russia”. Company E’s main supplier is Kuwait where political
unrest is a major risk that could determine supply
interruptions. Internal conflicts in a country may not only
imply wars and riots but also strikes. According to Company
A and C, strikes on platforms or in the oil and gas sector in
Norway are often a major cause of flows’ disruptions. As
Company C tells:
We have had from time to time strikes, which have threatened to disrupt the supplies and in some cases also actually have interrupted supplies.
4.2 Cross-case by disruption strategies
To mitigate disruptions, all the companies confirmed the
importance of diverse management strategies, e.g. portfolio
diversification combined with specific flexible short and long
terms contracts. In case a security incident causes a
Table V Cross case findings on exogenous security threats
Rational choice Environmental factors
Piracy E –
Terrorism B,C –
Political instability/conflicts – A,B,C,D,E
Figure 2 Summary of findings
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disruption, the companies have the possibility to deal with
different suppliers from different countries to retrieve gas and/
or crude oil (see Table VI). As company A stated:
“[. . .] we can just change the routes or the origin of the product if we cannot source it from there. As oil is a commodity, you can get it from many different sources and as long you pay the price, you will get it.” Likewise, “you may have a problem of supply of natural gas by pipeline, so you have to switch to replace that pipeline gas with something else, like LNG, or gas coming from another pipeline”.
According to all companies the portfolio of suppliers is
diversified with different criteria including distance to
destination (geographic diversification), type of countries
and regions, quality of the product supplied (e.g. quality of
crude oil, gas in liquefied, LNG, or gaseous form), transport
capacity available, and price. In particular, Company A
pointed out that in case of a disruption, it is necessary to
ensure that transport capacity is available, for instance, “by
promptly booking new transport vessels and storage slots in
harbours”. Company B confirms that they “have such big
portfolios and different strategic reserves that demand should
always be fulfilled”. The usage of contracts is emphasized by
Companies C, D and E, as a means to govern the buyer-seller
relationship. In particular, Company E states “our supply
strategy is partly secured by long term contracts and partly by
short term deals which will allow flexibility in supply”. As part of the strategies, companies A, C, and D mentioned
the importance of building safety stocks to ensure that
companies have enough time to react to disruptions, while
continuing energy production. According to Company C,
“you have different kind of storages. With big volume or
smaller capacity; the so-called seasonal storages (smaller flow,
but for the whole winter). And then you have the peak-
storages, where you have a smaller volume (for a couple of
days), but with very high send-out capacity”. Company A has
90 days of peak stock in Europe that is used to cope with
security-like incidents. In case of a security event, company A
tells: “we access our own stocks. We have 90 days of peak
stock in Europe that we are keeping in order to cope with
these kinds of incidents”. Company D has instead some minor problems in storing
extra inventory and therefore has to contract third parties
facilities to access extra storage capacity. “The market is a way
to buy flexibility from other parties, or to sell our flexibility to
other parties. We have another few ‘storage-contracts’,
i.e. using the storage of other parties to park our supplies”.
Company C exploits the spot market which implies being
connected to other EU hubs in neighbouring countries. This
would ensure that in case of interruption, emergency stocks
will be quickly refurnished. “We rent several storages, [. . .]
Part of it is used by us and the remaining capacity sold to the
market.” To apply portfolio diversification and exploit spot markets,
companies A and C point out the importance of information
sharing, quick communication and good business
relationships. In particular, Company A, based on the
experience of terror attacks in Nigeria, Iraq and Latin
America, emphasised the importance of accessing information
quickly to ensure that the best strategies are put in place
promptly.
You have terrorist attacks on a regular basis when you look at the map of the world. You had some recently in Nigeria; you have some from time to time happening in Iraq of course, and in Latin America. But these things are well known very quickly by the traders [. . .] information flows very quickly and the measures to supply the assets are taken very quickly as well.
Company C confirms the importance of communication and
adds that good business relationships with suppliers to ensure
that disruptions are handled quickly, are fundamental (see
Table VI).
When the actual disruption takes place, then, I have a very important function in trying to remedy the situation. Then I need to call upon my contacts, suppliers and anybody else I trust who can help me with providing me gas where we need it at that moment (Company C).
Companies A and C highlighted the importance of re-routing
and product-switch to enhance their flexibility (see Table VI).
The former is fundamental when a security threat such as sea
piracy or wars (e.g. potential Iran war and/or closure of the
Strait of Hormuz), may put in disadvantage a particular route,
or if a port or a pipeline is shut down due to a terror attack.
For instance, company A underlines that “in case a pipeline is
damaged, gas may be transported in liquefied form (LNG)
and therefore imported by means of sea vessels from the
portfolio of suppliers”. Product-switch refers to the ability of
the company to slightly change the design of the product;
hence, it comes into play whenever a disruption takes place in
the country of origin and the company has to make a choice
between different sourcing countries and different qualities of
gas and crude oil.
Crude oil comes from the producing countries, but we don’t know exact where it could come from. The supply is made on the basis of price and quality. This changes per minute. Traders decide what they are going to get from where at what time.
4.3 Cross-case by EU roles
Four companies, B, C, D and E, underline the importance of
stable foreign politics with non-EU countries. Company C
sees foreign politics as a support to mediate negotiations
between buyers and sellers. According to Company B, this
would decrease the risk for conflicts, while in case of crises it
Table VI Cross case findings on management approaches
Risk management and resilience Management strategies Information sharing
Safety stocks – A,C,D –
Re-routing – A,C –
Capacity – A –
Communication – – A
Product switch – A,C –
Portfolio – A,B,C,D,E –
Contracts – C,D,E –
Business relationship – – C
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could bring unmanageable price increases. Finally, company D believes that stable foreign politics is essential to deal with countries where big reserves of gas are available, e.g. Algeria, Nigeria, Angola, Qatar and Iran. In particular, the company sees the necessity that the EU is able to act and drive foreign politics as a single entity and not on a member state level (see Table VII).
Three companies, A, C and D, point out the importance of reducing dependence from non-EU countries (see Table VII).
Company A states “In Europe, because of the way the fiscal incentive is provided, the majority of the new cars are diesel cars. So you end up having to export your exceeding petrol outside of the EU; about 26 per cent of the total European petrol has to be exported. And we have to import exactly the same amount of diesel from former Soviet Union. So that is putting the refineries in Europe in a fragile position, because it does create dependence on non-European countries [. . .] this dependence has to be reduced.”
Companies C and D suggest the usage of alternative resources to produce energy. In particular, shale gas production, a method widely used in the US, appears to be the most promising alternative resource that could be produced locally. Therefore, to speed up the usage of this alternative source, the case companies request the EU to drive more studies and research on available methods of production and related impacts on environment.
By means of an unconventional way to produce natural gas, from shale layers, a new technique (water and detergent-injection) developed in the US has freed up a lot of gas in different areas of US. This technique to produce shale gas is allowed in US but in Europe, there is more concern on environmental friendly issues.
Companies C and D agree on the necessity to build new pipelines to reduce dependence. Company C states that new pipelines should be built to import resources from countries that are geopolitically more stable. Examples of new projects are the Nabucco1 and South stream2 projects to partly reduce the dependence on Russia. Company D points out that the procedures for initiating such projects are challenging and should be improved by the EU. In addition, the company believes that a more accurate analysis should be done to evaluate the pros and cons of different infrastructure projects.
The more pipelines there are, the safer you are in ensuring your supplies. How hard are procedures to initiate such a project? This can be made easier at European level.
Company A is also of the opinion that dependence from non- EU countries should be reduced. However, the suggested role is linked to fuel (the company works in the oil sector). In particular, the company sustains that the reduced dependence on energy supplies should be achieved by harmonizing tax
regimes related, e.g. to car incentives and tax rates for diesel
and petrol fuels. Today, diesel incentives tax rates make it
convenient to purchase diesel vehicles. This increases the
demand for diesel that EU energy companies cannot cope
with. Hence, much of the diesel has to be imported from non-
EU countries.
Increased demand for diesel fuel, is putting the refineries in Europe in a
fragile position; this creates dependence on non-European countries [. . .] if
you talk about the volumes, we are producing exactly what we would need.
However, the tax regime on these products is creating some imbalances.
However, given the lower environmental impacts of diesel
engines, automotive lobbies are exerting pressure to maintain
these incentives; and this exposes the EU to disruptions in
case of political conflicts with the exporting countries,
e.g. Russia.
The car manufacturers in Europe will not be interested in that. They are
trying to protect their diesel-leadership. For the European Union, any tax-
matter would require unanimity, so you’ll never get the 27 members in the
Council agreeing for the Commission to take this on the agenda. There is
already an initiative driven by DG Customs and Taxation to harmonize the
tax rate, but, the Member States of Europe have decided they are not in
favour of this anyway. They are protecting the automotive industry.
Four companies, A, B, D, and E point out the importance of
the role of the EU in crisis management (see Table VII).
Company B sustains the importance to harmonize quality
standards. Quality standards for gas are not regulated today
and therefore, in case of an emergency situation, companies
may basically import any kind of gas. This causes uncertainty
and companies may lose time in finding the right balance in
price and quality. Having EU quality standards in place may
allow EU companies to act in a relatively faster manner if
shortages occur and new gas sources have to be found.
“European Union can play a useful and important role in creating legislation
such as the standard on security-of-supply. This legislation should strive to
uniform the quality of gas [. . .]” and ultimately improve “the
interchangeability of gas supplies in EU. This is also important for a truly
competitive market”.
Company B also saw a problem in the existing regulation 715/
2009 (Council Directive, 2009). According to the company,
the regulation needs to be updated due to the lack of reliable
control and monitoring mechanisms to ensure compliance
with the regulation. Hence, companies tend to rely on the
extra supplies of other companies meaning that in the event of
crisis situations, the extra stocks available might prove to be
insufficient. Hence, mechanisms to enhance monitoring and
cooperation and to encourage companies to increase their
own safety stocks have to be introduced. The same company
underlines the role of stable foreign politics and mediation in
Table VII Cross-case findings on EU roles identified by the companies
Critical infrastructure protection Foreign politics Dependence reduction Crisis management
Mediate buyers/sellers negotiations – B,C,D,E – A
Alternative resources – – C,D –
New infrastructure (pipelines) – – C,D –
Tax rate harmonization – – A –
Harmonize quality standards – – – B
Enhance monitoring and cooperation – – – B,E
Market liberalization – – – D
Military protection – A – –
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buyer/seller relationship to handle price increments in crisis
situations.
You need a pan-European organization that is able to coordinate activities
and requirements of all EU countries. This organization should be able to
solve conflicts between buyers and sellers and to coordinate activities in
times of crises.
Similarly, Company E states: “We should be an open market
with common regulations on items like Compulsory Storage,
Import taxes, CO2 emission reductions and Bio Fuel
Obligations”. Company D, working with natural gas, wants the EU to
liberalize the markets by giving more decisional power to the
industries (market liberalisation). State intervention in the gas
sector looks like an attractive solution to protect customers
from rising energy prices. However, this issue carries
economic and security impacts, according to the company.
First of all, it prevents smaller players from entering the
market, which in turn lowers competition and keeps prices
high. Secondly, the existing regulatory framework implies that
gas supplies cannot be imported by companies without the
approval of the State. This reduces the freedom of traders in
emergency situations and also reduces the capability to secure
supplies.
You have two schools: one is saying “you should have as much as possible
directives, and regulate the matters”, the other is more liberal and saying
“leave it up to the market, and it will be regulated in place”. What role
should the supervisors have in that case? Both can eventually lead to
problems.
Finally, company A apprehends an international crisis in the
Strait of Hormuz and is of the opinion that the European
Union should increase its capabilities in foreign policy and
military intervention to protect companies. Company A works
in the oil sector and has flows passing through the channel,
just like many other European oil companies. In case of a
crisis or a political conflict these companies would need
protection to evacuate tankers out of Saudi Arabia and
Kuwait.
European Institutions have a little role to play outside of the EU at the
moment. At the moment if you talk for example about the Strait of Hormuz,
the UN military forces got in there through the US. So, if you want to
evacuate your tankers out of Saudi and Kuwait, you are protected by the US
navy.
Currently the US Navy and NATO forces are in place, but
many know that in the future the US will complete the
construction of oil pipelines from Alaska to Southern regions
of America. This could imply that only Asia and Europe will
depend on the Middle East. If Europe will not increase
military presence as well as will not use foreign politics
activities to improve relationships with the Middle East, the
risk is that Asian countries could gain more control.
There is no European armed force in this region at all. It is completely
guaranteed by the United States. If you assume that oil sand extraction in
Canada will become more effective and new pipelines from the Northern
Part of America to the US will be built, then the US will be sufficient in oil
and gas. In addition, recent technology developments are allowing the US to
increase the extraction of shale gas in their territory. And the next question
is: do we believe that the US will be active in the Middle East to protect oil
and LNG routes? Also, what is Europe going to do? Only Asia and Europe
will be dependent on the Middle East (Company A).
Thus, European companies would be disadvantaged putting
at risk the security of oil and gas supplies as well as the safety
of operators abroad (see Table VII).
5. Discussion and conclusion
Europe is an energy intensive continent with a heavy reliance
on imports, making it particularly vulnerable to disruptions.
At the same time, Europe is under constant exogenous threat
of criminals, terror groups and political conflicts that could
strike energy supply chains and interrupt the ultimate
production of fuel and electricity. Against a backdrop of
rising demand for energy and high dependence on imports, it
is necessary to build resilience in energy supply chains.
Hence, this paper examined more closely the main exogenous
security threats of energy companies, disruption strategies put
in place by companies and, 3) EU roles necessary to support
the resilience of supply chains. Following a multiple case
study approach, data has been collected and analysed from
five European oil and gas supply chain companies. The analysis of the data confirmed that criminals target
business in foreign countries as the result of a rational choice.
This is in line with previous research stating that perpetrators
make a decision whether to attack the supply chains by
weighing diverse factors such as effort, potential payoff, risk of
apprehension and punishment and individual needs (Cohen
and Felson, 1979; Ekwall, 2007). According to the interviews,
piracy brings lucrative revenues in the form of ransoms, while
the risk of being prosecuted is low. Likewise, respondents
confirmed that also terror activities have non-monetary
payoffs, i.e. these are performed with the intent to promote
ideologies, in particular through media visibility. The
importance of environmental factors is also highlighted in
criminology research as a main factor influencing security
threats (Hopkins, 2002; Hopkins and Ingram, 2001; Hurst,
2008; Taylor, 2006). In this study, political instability and
internal conflicts in countries were pointed out by all the
companies, as being a major factor giving rise to wars, riots,
theft, sabotage and strikes. These may cause serious
disruptions in the extraction of crude oil and natural gas,
threatening the production and distribution of energy across
Europe. In view of the identified threats, the companies
demonstrated to have in place a good portfolio of disruption
strategies to ensure the resilience of their operations. Previous
research has widely studied and recommended the application
of risk management and resilience approaches (Manuj and
Mentzer, 2008; Norrman and Jansson, 2004; Finch, 2004;
Franck, 2007), but surprisingly none of the managers
interviewed mentioned the adoption of risk management
approaches. More focus is given to management strategies
and information sharing, similarly to what is suggested in
previous literature (Blos et al., 2009; Christopher et al., 2011; Li et al., 2006; Skipper and Hanna, 2009; Tomlin, 2006). Typical management strategies included safety stocks to
handle emergencies and the diversification of suppliers in
terms of different criteria: distance to destination (geographic
diversification), type of countries and regions, quality of the
product supplied (e.g. quality of crude oil, gas in liquefied,
LNG, or gaseous form), transport capacity available, and
price. To facilitate the adoption of multiple suppliers, the
companies make extended use of short and long term
contracts, and are able to re-route shipments and reallocate
transport capacity in diverse European port terminals and
transhipment hubs. Finally, the companies are able to
produce energy from different qualities of gas and crude oil
coming in from the sourcing countries (product-switch or
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concurrent product designs). This indicates that companies
have alternative product designs that are taken up in case of
emergency situations. Previous research in the supply chain management
discipline has already pointed out the role of governments
to ensure the continuous production and replenishment of
critical supplies (Brown, 2004; Tang, 2006; Tummala and
Schoenherr, 2011). In this study we classify these
interventions within the constructs of critical infrastructure
protection, foreign politics, dependence reduction and finally
crisis management. Diverse regulations have been developed
by the European Union to guarantee the European critical
infrastructure protection (Saddodin and Samoudi, 2011;
European Commission, 2012d); however, none of the
respondents mentioned any of those. Our hypothesis is that
they probably perceive major security concerns located in
non-EU countries, where the European government has less
or no control of the infrastructure. Foreign politics is a well-
known tool at disposal of the EU to act as one entity in
international affairs, hence, it may be used to resolve conflicts
abroad, combat terrorism, and respond to sea piracy and
other security related threats and disasters (European
Commission, 2012b). Respondents agreed that these
activities open market opportunities, facilitate the
enlargement of supplier portfolios and improve business
relationships with suppliers; hence, leading to more
advantageous contracts. Dependence reduction is another
strategy applied by the EU government to maintain its
political power and international influence. This is done
through a series of initiatives including construction of new
pipelines and promoting access to renewable sources of
energy (European Commission, 2012a; European
Commission, 2012c). Also from a supply chain perspective,
it is well known that a strong dependence with sourcing
countries brings negative implications, in terms of less
advantageous contracts and loss of power (Lonsdale, 1999).
Our findings reveal that companies acknowledged the work
being done to construct new pipelines within the Nabucco
and South stream projects to partially reduce dependence on
Russia. However, they perceived that the process to initiate
these projects needs to be improved. In addition, companies
asked for more support from the EU to initiate and drive
studies and research to access alternative sources of energy
locally, e.g. shale gas production. Finally, respondents
unveiled that sustainability programmes driven by the EU
(e.g. the automotive fuel economy policy) are hiding security
pitfalls and increase dependence on Russia. From a crisis
management perspective, the EU is active in developing
regulations to ensure that safety stocks are kept by companies
to cope with emergency situations (Council Directive, 2009).
At the same time, the EU is putting efforts to liberalize the
internal energy market (United Nations Economic
Commission, 2012). The respondents acknowledged that a
regulation controlling safety stocks of oil and gas exist,
however they pointed out that not all companies are following
it, and are basically relying on each other stocks. In addition,
the interviewed managers pointed out the necessity of a
concrete plan to handle the possible exit of US and NATO
forces from the Middle-East. Finally, the companies
confirmed that the EU is actively working with the
liberalisation of the gas market; however, this seems to
apply to only some EU countries.
From a scientific viewpoint, this paper contributes to the
on-going research on supply chain disruption management.
Our literature review reveals that this area of research is
underexplored, despite some researchers have already pointed
out its importance (Brown, 2004; Tang, 2006; Tummala and
Schoenherr, 2011). Hence, this study contributes with an
overview of security threats and strategies adopted by oil and
gas industries and supply chains. In addition, this paper offers
descriptive insights into how the interaction between
companies and governments/regulatory bodies takes place
today and how it should be improved. We believe it is of
outmost importance that the research community considers
the findings of this study and most importantly that in the
future will be able to build on them to fine-tune supply chain
risk management frameworks and tools to support supply
chain managers in the difficult task to manage security risks. From a practical viewpoint, this paper describes relevant
threats and strategies that should be taken into account by
supply chain managers of energy companies. First of all, we
point out that the application of some of the disruption
strategies adopted by oil and gas companies can be
coordinated with governmental actions in foreign politics.
For instance, the mediation of buyers and sellers negotiations
or the access to local supply markets may help companies in
opening new market opportunities, expanding their supplier
portfolios or increase their negotiation power to obtain more
advantageous contracts. In addition, this paper suggests that a
closer collaboration with governments may improve the
opportunities for energy companies to highlight current
pitfalls in regulations, harmonisation of quality standards and
environmental programmes driven by the automotive lobbies.
More specifically, this could be achieved with the creation of a
pan-European sector alliance that is able to communicate
with the EU. Examples of issues to be discussed should
include: . Revision of political outcomes related to foreign and
energy policies, tax regimes and development of quality
standards for oil and gas. . Revision of the EU regulation 715/2009 and promotion of
safety stocks monitoring mechanisms. . Promotion of technological innovations (e.g. in the fields
of renewable sources and methods to extract gas and oil). . Promotion of energy market liberalization in all EU
countries.
The limitations of this study consist of the lack of theoretical
frameworks, the amount of sampled cases and the qualitative
nature of the data collected. The lack of theoretical
frameworks that could directly fit the scope of this
investigation has been challenging, thus our team had to
borrow theories and constructs from criminology and political
science. These had to be rearranged in a new framework that
could not be validated, due to the low number of case studies
performed. Researchers suggest that a number of cases
between four and ten is desirable for theory building
(Eisenhardt, 1989). Since we used only five cases it may be
claimed that the main findings outlined in this study cannot
be sufficiently used to reach generalizing conclusions. Hence,
future research could be focused on validating the developed
framework with a higher number of cases. In addition, our
findings tell that supply chain managers of energy companies
are more often asked to act in complex and conflict
environments where political, social and security skills may
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determine the difference in terms of building resilient supply
chains. Hence, exploratory research could be driven to find
out how managers could optimally deal in these situations.
For instance, new supply chain risk management tools could
be developed to enable supply chain managers to
continuously monitor and assess policies, foreign politics
and conflicts and align their strategies accordingly. Finally, this investigation makes use of a qualitative multiple
case study design. This approach is normally preferred in
exploratory studies in underexplored research contexts.
However, due to the qualitative nature of the study, the
findings, despite being richer in terms of information
provided, are often difficult to report and analyse. More
specifically, it is challenging to reach a holistic understanding
of the phenomenon investigated and thereafter to perform a
robust and rigorous cross-case comparison without some
biases. Hence, our recommendation for future research is to
build on this study to perform quantitative studies. For
instance, surveys could be used to collect data from a wider
sample of companies and also to demonstrate and validate
causal relationships among the constructs identified.
Likewise, simulations and other mathematical programming
techniques could be used in econometric models to compare
mitigation strategies and public-private partnerships in terms
of costs and benefits for businesses and society.
Notes
1 The Nabucco pipeline is a proposed natural gas pipeline
from Turkey to Austria diversifying supplies and delivery
routes to Europe. It attempts to reduce Europe’s
dependence on Russian supplies. 2 South Stream is a proposed gas pipeline for transporting
natural gas from Russia through the Black Sea to Bulgaria
and further to Greece, Italy and Austria.
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Chiang, W.C. and Russell, R.A. (2004), “Integrating
purchasing and routing in a propane gas supply chain”,
A multiple case study approach on oil and gas supply chains to Europe
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Supply Chain Management: An International Journal
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European Journal of Operational Research, Vol. 154 No. 3, pp. 710-729.
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Appendix 1
Company A works with importing crude oil, refined products and gas to Europe. Other products handled by the company
include lubricants and chemicals. The company owns also
equipment for refineries and upstream operations like
offshore platforms. The main geographical areas from which company A imports oil and gas include the Middle East, the
US, Latin America, the Caspian, the North Sea and Russia.
However, other areas and countries could be quickly contracted in case of specific market conditions, quality,
prices or crisis situations. More specifically, the company’s
traders decide what they are going to purchase, when and from where according to these criteria. If traders find
something better they can resell the stuff and buy
something else. As the set of suppliers change so quickly and dynamically, there is not an exact route or transport
means used by the company. In general, it may be stated that
the supplies are shipped by oil tankers, LNG (Liquefied Natural Gas) ships, by pipeline, by train and finally by truck
for hinterland transport to the final destination. Company B. Main products and raw materials imported by
Company B include coal, electricity, heavy fuel, and natural
gas. The gas imported by the company comes from all
possible countries within Europe (wherever there is gas available), but also outside, e.g. from Qatar, Nigeria, Algeria,
Libya, Egypt, Russia, Norway, Netherlands. By means of
specialized trading companies, the group accesses gas sources from all over the world. Looking at the importing statistics,
for the Belgian market, company B imports from Norway,
The Netherlands, Northsea and Russia. The LNG cargo arrives to Belgium directly by means of ships (LNG vessels)
and pipelines or through France or the UK (the major
quantities are from UK and France and re-routed to Belgium). Pipeline-gas comes from Russia, Netherlands and
Norway straight to the Belgian markets. Company C is a Belgian based company importing, buying
and selling natural gas. This gas comes through underground
and undersea pipelines. Liquefied natural gas (LNG) arrives
in road vessels or ships. The main sources are from North and West Africa including Algeria, Nigerian and Libya, Middle-
East (Qatar), Norway (Norwegian gas fields in the Norwegian
Sea), The Netherlands (mostly Groningen-field) and the spot
markets. Nigeria and Algeria send their LNG vessels to Italy
and then by trucks to the final destination or directly to
Belgium (Zeebrugge harbour). These vessels are sometimes
redirected by Company C to other markets like the UK and
Spain. Norwegian gas enters the Benelux market through a
sea-pipe, which is an undersea line starting from the
production field and going through a knot in the North Sea,
called the Sleipner or the Draupner-platform. From these two
platforms it is further distributed to other parts of Europe, for
instance, a sea pipe connects the Sleipner platform to
Zeebrugge, Belgium. There is a pipeline called a Euro
pipeline running from Norway to Emden in Germany.
Another under sea pipeline connects the Sleipner-platform
with Dunkerque, France, which is either the final port of
destination or a transit for Italy. From Russia there are big
pipelines connecting the Jamal-peninsula to Italy. Company D is a Dutch company, a typically midstream/
downstream party, active in transport, storage and selling of
gas. Exploration and production is not part of the company’s
portfolio. Gas is sold to customers (3-3.5 billion cubic metres
of which 25-30 per cent goes to the Dutch market) and used
for the company’s power plants (1.5 billion cubic metres).
Additionally the company has a few agro-business and other
industrial clients. The total production is approximately 7
billion cubic meters (annually). Gas is its main raw material
and since September 2011, it has started importing LNG.
The sources of gas that the company uses include Germany,
Russia and Norway (mid-term contracts). The supplies are
transported through pipelines and delivered on the border or
on a virtual trading point. The company has its own gas
storage, to cater better to the needs of its clients. Another
important instrument for flexibility is the “virtual hub” so that
in case of over-supply it can sell the extra capacity without
having much impact on prices. Company E. This company imports crude oil that is
converted to products and sold mainly in the Benelux market.
The Ural and Kuwait are the main sources of oil of the
company. The supplies are transported by seagoing vessels of
all sizes up to the VLPCs (very large product carriers). The
company partly buys from the mother company and the
remainder from the open market. Its refinery is flexible
enough to shift between the different types of crude. Its
supply strategy is partly secured by long term contracts and
partly by short term deals that allows some flexibility in the
supply situation.
Appendix 2
Interview questions
Can you please provide us the following information? . An overall description of company, including size and
annual revenue? . Position of respondent in company/department?
What are the major flows of oil/gas handled by the company?
What are the main routes and main transport modes utilized? What are the major exogenous security threats experienced
by the company? Please specify which transport modes are
targeted and which modus operandi is used. In relation to the disruptions caused by the mentioned
security threats, how is your company managing resilience?
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What is the EU doing today to support your company to manage resilience? What activities should the EU drive in the future to improve such support?
About the authors
Dr Luca Urciuoli has a MSc degree in Industrial Engineering, from Chalmers University of Technology, Gothenburg, and a Doctorate in Transportation Security from the Engineering University of Lund. He has been working at the research unit of the Volvo group as a Project Manager developing telematics services in the areas of transport and logistics optimisation, security, and uptime management and diagnostics. He also led the research of the Cross-border Research Association in Switzerland and collaborated in several consultancy and FP7 research projects, with a focus on topics like e-Customs, trade facilitation, supply chain security, waste security and postal security. At the moment, he is a Senior Lecturer at the University of Borås, School of Engineering, where he teaches in supply chain management, purchasing, and transport and logistics. Luca Urciuoli is the corresponding author and can be contacted at: [email protected]
Dr Sangeeta Mohanty holds a MAS (Master of Advanced Studies in European Integration) and a doctorate degree in English Literature from the University of Basel, Switzerland. She worked as a Project Manager, being responsible for change management workshops in the Learning and Development division of the multinational corporation, Syngenta. Since 2011, she has been working for CBRA (Cross-border Research Association) and has undertaken research on international security policies and programs,
critical infrastructure and critical supply flows in the EU,
challenges and complexities in global supply chains,
international trade facilitation, and the new roles of the EU
as a security provider. Dr Juha Hintsa is the Founder and Director of Cross-
border Research Association (CBRA), in Lausanne,
Switzerland. Dr Hintsa holds a doctorate of management
degree from the Business School of University of Lausanne in
Switzerland (HEC UNIL). He specializes in supply chain
security research, looking at the various challenges and
complexities between the private and public sector actors,
security policies, programmes and standards. In addition, he
is carrying out various studies in global trade facilitation. Dr
Hintsa has over 40 journal and conference publications and
book contributions in the topic, and is a regular speaker and
guest lecturer at related events worldwide. He is active in
multiple European research and standardisation projects,
including Framework Program 7 (FP7) and European
Committee for Standardisation (CEN). Dr Hintsa is also a
member of Transported Asset Protection Association (TAPA
EMEA) regulatory affairs working group; Partnership in
Customs Academic Research and Development (PICARD)
advisory group for the World Customs Organisation (WCO);
and editorial board member for the Journal of Transport
Security and the World Customs Journal. Else Gerine Boekesteijn holds a BA in European Studies
from Maastricht University and a MSc in Management from
the Vrije Universiteit Brussel. Her research interest lies in the
correlation between business strategy and (European) public
policy.
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A multiple case study approach on oil and gas supply chains to Europe
L. Urciuoli et al.
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