Energy trade—the backbone of sustainable energy security

Abstract

This chapter proposes that energy trade is the backbone of sustainable energy security. It argues that energy trade ensures availability of energy, lowers cost, has environmental advantages, supports economic activity, promotes energy equity and is associated with higher efficiency. International trade of oil, natural gas and coal has grown over the last few decades and is forecasted to grow further. The importance of maritime energy trade in the overall energy trade is discussed. The role of energy markets in energy trading is evaluated, and the nature of energy trading on energy commodities exchanges and power exchanges is explained. The mechanisms by which energy trade is undertaken such as long-term contracts and spot buys are presented. Fixing of energy prices, mechanisms for hedging the price of energy such as forwards and futures contract, swaps and options are briefly introduced. Other enablers of energy trade such as political and economic stability and international cooperation which promote SES are also discussed.