Measuring gas demand security using Principal Component Analysis: A case study

Safeguarding the energy security is an important energy policy goal of every country. Assuring sufficient and reliable resources of energy at affordable prices is the main objective of energy security. Due to such reasons as special geopolitical position, terrorist attacks and other unrest in the Middle East, securing Iran’s energy demand and increasing her natural gas exports have turned into a critical issue. The aim of this paper is to develop a composite index for evaluating the gas demand security. To this purpose, six individual indices (i.e. gas exports dependency, transportation cost, economic dependency, political stability of the exporting country, political stability of the importing country, and the purchasing power of the importing country) are identified and the Principle Component Analysis (PCA) method is employed to weigh and combine the indices into GDSI (Gas Demand Security Index). The results show an interesting counter-intuitive phenomenon that the political stability of the importing and exporting countries have respectively the most and the least effects on the obtained composite index.