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Balancing energy security priorities: portfolio optimization approach to oil imports

Author

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  • Simona Bigerna
  • Carlo Andrea Bollino
  • Philipp Galkin

Abstract

The notion of energy security in most interpretations includes the physical supply and price affordability components, making financial risks a crucial part of energy security strategies. Mainstream analysis has focussed on the notion of the physical supply. This paper introduces a novel approach, considering simultaneously the quantity of oil imports and the risk associated with this quantity. This approach applies the financial portfolio theory to explore these issues from the perspective of four major Asian energy importers: China, Japan, Korea and Taiwan, by estimating efficient frontiers for corresponding oil import portfolios. Results show that the composition of oil import portfolios determines varying risk levels for given oil import growth rates and average import prices. Scenario analysis suggests that increasing the Saudi Arabia share of oil imports improves the portfolio performance of China and that the impact of the Iranian oil export embargo would increase portfolio risk of the economies in focus within a 3–15% range.

Suggested Citation

  • Simona Bigerna & Carlo Andrea Bollino & Philipp Galkin, 2021. "Balancing energy security priorities: portfolio optimization approach to oil imports," Applied Economics, Taylor & Francis Journals, vol. 53(5), pages 555-574, January.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:5:p:555-574
    DOI: 10.1080/00036846.2020.1808573
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    Cited by:

    1. Carlo Andrea Bollino & Philipp Galkin, 2021. "Energy Security and Portfolio Diversification: Conventional and Novel Perspectives," Energies, MDPI, vol. 14(14), pages 1-24, July.
    2. Yang, Yang & Liu, Zhen & Saydaliev, Hayot Berk & Iqbal, Sajid, 2022. "Economic impact of crude oil supply disruption on social welfare losses and strategic petroleum reserves," Resources Policy, Elsevier, vol. 77(C).
    3. Yang, Weixin & Pan, Lingying & Ding, Qinyi, 2023. "Dynamic analysis of natural gas substitution for crude oil: Scenario simulation and quantitative evaluation," Energy, Elsevier, vol. 282(C).

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