Energy Security Cost as an Externality - Increased Gas Import Price and Economy of Ukraine

By: Y. Matsuki, P. Bidyuk, G. Kalnytskyi, E. Gavrish

In this research, the tolerability of the economy of Ukraine for the increase of the gas import price is investigated. The relationship between the economic growth and imported gas price is analyzed, and it was found that the gas consumption of the food and other smaller industries was growing while the gas price was increasing; although, the larger industries such as chemical and manufacturing industries reduced the gas consumption. It was also found that Ukraine may hold a capability to lower the gas import price to the degree comparable to the current price.

INTRODUCTION

The term, energy security, refers to the economic security of a country that is relatively dependent on imports of energy resources from one or more suppliers with considerable market power such as OPEC and/or that is vulnerable to oil price shocks [1]. Energy security costs have two major components. One component of the energy security cost is the macroeconomic adjustment for the sudden change of the import price in a short term, which is not reflected in the market price of the energy supply. One more component is the economic rent as a long term cost of the imports, which the oil/gas producing countries extract from the market through its power as cartel, which makes the price of energy resource unnecessarily high. Theoretically an importer with considerable market power, such as the USA, could recover this rent owing to its monopsony power as a major consumer of oil. Here, the energy security cost is an externality, which is a concept of microeconomics theory, and which creates a negative or positive impact that is not included in the domestic market price of energy.

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