IEEJ：May 2021 ©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (532)

May 12, 2021

Cyberattacks and Energy Security
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn May 7, the largest oil pipeline system in the United States shut down all operations inresponse to a cyberattack. The Colonial Pipeline system extends 8,859 kilometers from a refinerybase on the Gulf of Mexico coast in Texas to huge northeastern oil consumption markets including
New York, transporting 2.5 million barrels per day in gasoline, diesel and jet fuel, covering 45% ofoil consumption on the East Coast, known as the U.S. oil consumption center. It is one of the majorarteries for transporting petroleum products in the United States.
Colonial Pipeline Co. fully halted its pipeline operations after finding the ransomware
cyberattack using malware that encrypts key data in a computer system to restrict users fromaccessing those data until they pay a ransom. The company resumed partial pipeline operations onMay 9 and announced on May 10 that it would try to effectively restart full operations by the nextweekend. At present, however, no optimism can be warranted about future developments
The shutdown of the major artery tightened U.S. fuel supply. In response to the shutdown,
efforts are being made to switch to other means including tankers for transporting petroleum
products from domestic refineries, to secure petroleum product imports and to gather market
inventories to make up for any supply shortfall. Gasoline futures prices temporarily reacted to thecyberattack and crude oil futures rose gradually until May 11. However, their reaction to theshutdown has so far been limited, leaving the market to remain relatively stable. If the restoration of
the pipeline is delayed, with the supply disruption prolonged, however, the overall U.S. petroleum
product supply-demand balance could tighten. This is because demand for gasoline and otherpetroleum products is increasing amid a recovery from the COVID-19 catastrophe toward thedriving season.
In fact, the shutdown caused concerns about gasoline shortages, long lines at gas stations
and gasoline outages at many gas stations in states that depend heavily on the pipeline. Concerns
about supply shortages usually lead to panic buying and hoarding that add to shortages, causing avicious circle. While consumers are required to coolly react to the pipeline shutdown, the early
restoration of the pipeline will hold the key to future developments.
On May 10, the Federal Bureau of Investigation attributed the cyberattack to DarkSide, aRussia-linked hacking group, which has frequently hacked networks to make money. DarkSide hasissued a statement claiming that it is not political and that they only want to make money. As theattack has been attributed to DarkSide, however, Russian authorities’ potential involvement in theattack has attracted attention. President Joseph Biden said that although there was no evidence of theRussian government’s involvement in the attack, a Russian hacking group evidently implemented
the cyberattack from Russia. He thus indicated that Russia was responsible to some extent for theattack. While the Russian government has denied any involvement in the attack, the incident could
further affect U.S.-Russia relations that have already been soured.
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IEEJ：May 2021 ©IEEJ 2021Attracting attention in the future will be the restart of the pipeline, the U.S. petroleum
product supply-demand balance, oil price trends and the impact on U.S.-Russian relations ofinvestigations and arguments on the cyberattack. Anyway, the oil supply disruption caused by thecyberattack has impressed the world anew with the fact that cyberattacks are a grave risk factor forenergy security. Cyberattacks on energy infrastructure were seen earlier, bringing about hugedamage and impacts. They included a cyberattack on Ukraine’s power system, causing massive
blackouts. In April this year, an alleged Israeli cyberattack hit a power supply system for Iran’s
nuclear facility. However, the latest attack took place in the United States, becoming a remarkableincident causing a large-scale, serious energy supply disruption in a big energy-consuming industrial
economy. As a matter of fact, cyberattacks on energy systems and infrastructure were seen earlier inJapan, Europe and the United States. However, the pipeline attack inflicted the largest damage in anindustrial economy, attracting global attention. It is also significant that the attacker was from Russia
that has deepened confrontation with the United States in international politics or geopolitics.
Energy security is defined as securing sufficient energy for normal economic activities andcivic life stably at reasonable or affordable prices. There are various risk factors threatening energy
security. Among them are emergent or accidental risk factors that come suddenly and unpredictably.
They include accidents and troubles in some parts of an overall energy supply chain covering fromthe upstream sector for energy development and production to the international and domestictransportation sector, the conversion sector producing final energy from primary energy, and thedownstream sector including distribution and consumption. Accidents or troubles are caused bycyberattacks as well as political incidents such as wars and revolutions, natural disasters andabnormal weather conditions. Interests in the significance of cyberattacks have grown in recentyears.
The global energy system represents a large, complex supply chain consisting of theupstream, midstream and downstream sectors. Its stable management secures energy security. Thestable, efficient management of the giant system depends on advanced information andcommunications technologies. Energy security is based on the use of advanced information andcommunications technologies. For this reason, cyberattacks become a grave risk factor that threatens
energy security by taking advantage of potential vulnerabilities in today’s advanced energy systems
to trigger malfunctions.
Given that energy is an indispensable good for civic life, economic management andnational management, and a strategically important material, threatening energy supply or energy
security with cyberattacks can be considered identical to doing so with direct military or terrorist
attacks. Therefore, cyberattacks inflicting serious damage on energy security are significant forinternational politics or geopolitics. As noted above, earlier cyberattacks in Japan, the United Statesand Europe had triggered few large-scale energy supply shortages. However, the Colonial pipeline
attack and shutdown have led countries in the world to recognize that this kind of problem could
come at any place or time.
This year saw power supply crises caused by abnormal weather in Japan and the UnitedStates early this year before the cyberattack disrupted oil supply, indicating that how to enhanceenergy security policies to address various new risk factors would become important in future policy
discussions.
Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html
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