Future Energy

Preparing the U.S. Department of Defense for a Post-Petroleum Era

Source: EVE Online

The Centre for a New American Security recently released its vision for the energy future facing the U.S. Department of Defense.   In Fueling the Future: Preparing the Department of Defense for a Post-Petroleum Era, authors Christine Parthemore and John Nagl provide a concise, pragmatic look at the risks energy poses for U.S. security .....

"Reducing dependence on petroleum will help ensure the long-term ability of the military to carry out its assigned missions — and help ensure the security of the nation ....

• Heavy dependence on large fuel supplies can increase operational vulnerabilities and make fuel supply infrastructure a more valuable target.

• Every dollar increase in the price of petroleum costs DOD up to 130 million additional dollars.  Rising global demand, for instance in China, is increasing the strategic importance of petroleum in ways that could be detrimental to U.S. interests.

• Countries such as Iran and Venezuela could have the largest remaining reserves in a few decades if current production rates hold – and will gain leverage as a result.

• High levels of petroleum consumption are contributing to the changing climate, which can bring destabilizing effects and trigger new security challenges."

...... and the challenges of moving to a non-petroleum fueled armed services.

"To ready America’s armed forces for tomorrow’s challenges, DOD should ensure that it can operate all of its systems on non-petroleum fuels by 2040.  .....  Some estimates indicate that the current global reserve-to-production (R/P) ratio – how fast the world will produce all currently known recoverable petroleum reserves at the current rate of production – is less than 50 years.  ..... Ensuring that DOD can operate on non-petroleum fuels 30 years from today is a conservative hedge against prevailing economic, political and environmental trends, conditions and constraints."

To address the challenge, they propose 12 principles:

1. Set a common energy goal of "managing a smooth transition beyond petroleum over the next 30 years".
2. Establish a clear set of guidelines that help the services and the private sector to understand what sorts of fuels, infrastructure and efficiency technologies will be needed.
3. Plan for an uncertain future.
4. Demand new fuels for old vehicles.
5. continue to increase alternative fuel use at domestic bases.
6. Invest for maximum impact - factoring distribution and infrastructure into decisions about where to invest.
7. Save energy, keep the change - addressing the incentives and dis-incentives built into current budgeting rules and norms.
8. Understand that energy is not free.
9. Promote a shared understanding of the the DOD's energy future with Congress, the Executive Branch and private companies.
10. engage allies in the energy transition.
11. streamline energy management.
12. Plan for the worst.

Whats most interesting for the principles is that they could equally be applied to the country as a whole, guiding the U.S. to a less risky future based on a substantially reduced appetite for petroleum fuels. 

The authors do not appear to even hint at a broader application of the principles they enunciate.  However, given a government even partly focused on governing for the long haul (versus whatever the focus is now - its beyond my understanding) these would be national principles.  I wonder what Tom Friedman would have to say about that?

 

McKinsey: Energy and Environmental Resource Constraints a Key Global Trend

 

"Understanding a company's full exposure to energy and environmental risks will in many cases be a - if not the the - decisive factor determining its long-term viability."

Yet another interesting bit of information I came across over the summer was some research from McKinsey & Company.

In the June edition of McKinsey Quarterly, the authors behind a survey of more than 1,400 executives around the world discussed the importance of key global trends, their impact on business and the need for pro-active trend-spotting, issues management, etc.

"The fact is, trends matter. Systematically spotting and acting on emerging ones helps companies to capture market opportunities, test risks, and spur innovation. Today, when the biggest business challenge is responding to a world in which the frame and basis of competition are always changing, any effort to set corporate strategy must consider more than traditional performance measures, such as a company’s core capabilities and the structure of the industry in which it competes. Managers must also gain an understanding of deep external forces and the narrower trends they can unleash. In our experience, if senior executives wait for the full impact of global forces to manifest themselves at an industry and company level, they will have waited too long."

McKinsey's research identified five global trends expected to define the coming era, including:

• The Great Re-balancing - the shift in the nexus of the global economy from developed to emerging economies.

• The Productivity Imperative - the need for among developed-world economies for pronounced gains in productivity.

• The Global Grid - impacts of increasing cross-border flows of capital, information, goods and people on the global economy.

• Pricing the Planet - the effects of growing resource shortages and competition.

• The Market State - the role of national entities in a globalized world.

The most interesting/relevant trend from an energy point of view is "Pricing the Planet", i.e. McKinsey's take on the role of resources and resource shortages in the future economy.

"A collision is shaping up among the rising demand for resources, constrained supplies, and changing social attitudes toward environmental protection. The next decade will see an increased focus on resource productivity, the emergence of substantial clean-tech industries, and regulatory initiatives."

McKinsey identified three forces that will affect what resources we use, how we use them and what price we will need to pay for them, including:

• Growing demand - projections for global economic growth over the next decade suggest that demand for natural resources will rise by at least a third. About 90 percent of that increase will come from growth in emerging markets.

• Constrained supply - as easy-to-tap, high-quality reserves are depleted, supply will come from harder-to-access, more costly, and more politically unstable environments.

• Increased regulatory and social scrutiny - there is an emerging global consensus focused on environmental sustainability. While climate change is the most visible battleground, other issues loom: water scarcity, pollution, food safety, and depletion of global fish stocks, among other things. For businesses, this new sensibility will lead to stricter environmental regulations and growing demands from consumers and employees that companies demonstrate greater environmental responsibility.

McKinsey's research is really a business-focused take on what has been a long line of research and opinion tattempting to understand the limits to human population growth.  Beginning with Malthus in the early 19th century, the Club of Rome in the 1970's and more recently the exploration of "planetary boundaries",  there as been a regular dialog on the limits to how much our population can growth and obtain the resources needed to support us.  McKinsey is looking at the globalizing economy and what it means for business, but it builds on a well established foundation.

McKinsey's research applies to resources in general.  However, looking specifically at energy, the authors offer two views.

One speaks for the status-quo:

"The fossil fuel consumption infrastructure is so large that, despite recent clean-energy investments, the ratio of fossil fuel to renewable and nuclear power use in 2020 will still be 80 percent, as it is today. ....... Despite huge investments in clean energy, in 2020 the ratio of fossil fuel consumption to renewable and nuclear power will remain largely as it is today—roughly 80 percent. No realistic scenario will move the needle: the embedded resource infrastructure is so large that any transition away from fossil fuels will take decades."

But the other looks at the key role clean tech will have for new energy investment:

"But the view changes dramatically when you look beneath the supply stock to the flows of new investment. Suddenly, clean tech emerges as one of the next decade’s biggest growth industries. Upward of $2 trillion will probably be invested in building clean-energy capacity globally over the next ten years. In the United States, 90 percent of this expanded capacity will be in renewable or nuclear energy—66 percent in the European Union and China. Before 2020, this investment will probably create a clean-tech industry generating well over $1 trillion a year in sales."

As these trends come to affect energy and other resource availability, McKinsey predcts a changed global economy, one in which resource productivity will be key.  To achieve that goal, the authors offer a range of prescriptions.  However, the philosophy that they are espousing seems best summarized as "in uncertain times, the need to plan for widely differing outcomes is the one clear certainty".

  

Burtynsky's View: The Spill in the Gulf

The current edition of Canadian Art has an article highlighting Edward Burtynsky's most recent photo collection, aerial photos of the BP Deepwater Horizon disaster in the Gulf of Mexico.  For those who remember Burtynsky's earlier collection - Oil - released late last year, the contrast between the almost striking beauty of the photos and the shock of the situation they portray will be familiar. 

While Canadian Art has included some of the photos from the collection in their article, I couldn't resist copying some of the more interesting images in a larger format than you can get at the magazine's website.  My respects to one of Burtynsky's dealers, Nicholas Metevier Gallery in Toronto, for posting at least some of the images on their website.

  

"For 30 years, Burtynsky has made it his practice to record, in large colour prints, the human imprint on the natural world, photographing mines and quarries and railway cuts and, more recently, the impact of oil extraction and use around the world, from the freeways of Los Angeles to the shipbreaking deltas of Bangladesh and the oil fields of Alberta and Azerbaijan."

  

    

"Some of Burtynsky’s pictures from this day are aesthetic marvels, and I find myself thinking about the craggy lines of Clyfford Still, or Kandinsky’s nervous whiplash gestures and lustrous chromatic variations. You can’t help it; aesthetic pleasure is impossible to forestall, the context notwithstanding."

               

 

"The blue of the ocean, like Kandinsky’s, has a souped-up, unreal quality, like lapis lazuli, and a pilot would later tell us that this new colour showed up just a week ago, when the spraying of chemical dispersants, principally Corexit 9527 and 9500, commenced full-bore. The toxic qualities of Corexit has led to its banning in Britain, but here it’s full-tilt boogie. In Burtynsky’s pictures, the ocean looks like Sani-Flush."

                 

   

"How was this different from what I had imagined, watching the TV news in Toronto, researching online and flipping through magazines on the flights south? First, it was clear that the spill’s impact on shore life had not, in late June, even begun to be felt. Virtually all the oil still hung offshore. Did people understand what was coming? How could they?

Second, the dispersant seemed to have moved the oil deeper underwater, where the skimmers and booms could no longer intercept it ....."

     

    

Picturing Energy Use - Who Knew it Could be So Simple

I've always liked a good diagram to help me understand something complex, and, as they say, a picture is worth a thousand words.  That's particularly true of the diagrams of U.S. and Canadian energy consumption I found on the Lawrence Livermore National Laboratory website.

The first diagram shows estimated U.S. energy use in 2009.

The second diagram shows U.S. carbon emissions for 2008.  as you would expect the dominant roles of coal for electricity generation and petroleum transportation fuels in the U.S. carbon budget is readily apparent.

 

The third diagram looks at estimated future U.S. energy use by 2050.  The big changes that are apparent relate to the expected growth of renewable sources of electricity, the role of hydrogen as an energy intermediary and the dramatic drop in use of oil (looks like LLNL is a believer in peak oil).

The fourth diagram looks at U.S. energy losses, the biggest single proportion of which is electricity generation, transmission and distribution losses.   Notably, more than 55% of current energy consumption in the U.S. is wasted (and I would assume that a similar proportion is wasted in Canada).

LLNL hasn't limited itself to looking only at U.S. energy consumption patterns either.  Below are two more diagrams which look at 2007 energy use in Canada and 2006 carbon emissions in Canada.

The biggest difference in energy use patterns when comparing to the U.S. is the truncated lines indicating energy exports - mostly to the U.S.

Comparing carbon emission patterns with those in the U.S. highlights the much smaller role of coal in Canada.

Enjoy.

Three Polls for Sustainability

Source: Signal Environmental

It was a busy summer and some things, like this blog, just couldn't keep up.  But that's not to say I didn't come across lots  I'd like to look back at as I try to get back in the habit of posting again.  Take the three polls I came across in early August (that's when I came across them, not necessarily when they were made public).

Back in June, Pembina Institute released a survey of 5,000 "thought leaders" (whatever the heck a thought leader is - I'm not sure that academics and government middle managers are leading many in their thinking these days).  The survey was conducted by McAllister Opinion Research and was released in advance of the G8/G20 meetings in Huntsville and Toronto, respectively.  Needless to say, with the uproar over fake lakes, $1 billion in security costs and riots in T.O., this survey sank without a trace. 

In the words of the press release ......

"The federal government is out of step with leading thinkers on issues related to sustainability, energy and climate change, according to the results of a groundbreaking survey of more than 5,000 experts and government officials  ....  These results clearly illustrate that leaders within government, academia and the private sector understand the energy and sustainability challenges Canada faces, and have a high level of agreement on how best to tackle them  ....  What Canada still lacks is the political commitment to take sufficient action."

Whats most interesting for me is that 59% of the respondents work in government (and most are in Canada), suggesting a profound disconnect between the Harper government and its civil servants on energy policy, climate change and sustainability.

Shifting direction (but just a bit), Gibbs and Soell, a New York based public affairs firm released their 2010 Sense and Sustainability Study, looking at how 2,600 U.S. consumers and 300 Fortune 1000 executives view the corporate pursuit of sustainability.   Scepticism is the key word Gibbs and Soell use to describe their own study.

Again in the words of the press release ...

Corporate America has embarked on its journey toward sustainability, but still draws public skepticism. Only 29% of executives and 16% of consumers believe that a majority of businesses (“most,” “almost all,” or “all”) are committed to “going green” – defined as “improving the health of the environment by implementing more sustainable business practices, and/or offering environmentally friendly products or services.” Many executives (54%) and consumers (48%) believe only “some” businesses are committed to “going green.”

However, I don't know if I would really define the response as sceptical.  If anything, it may be incredibly optimistic for 29% of executives to believe that "most", "almost all" or "all" U.S. companies are going green.  While the press release says that "Corporate America has embarked on its journey toward sustainability ...", as someone that makes a living helping companies down this particular road I would suggest that the majority of companies display the symptoms (e.g. publishing sustainability reports) but provide only tepid support beyond what the regulations require.

Finally, the last poll, conducted by Harris Poll for the Financial Times, looked at U.S. and European support for greater regulation of oil companies in the aftermath of the BP-Deepwater Horizon disaster.  The poll, released August 12^th, found that support for more regulation ranged from 73% of Britons to 91% of the French (U.S. respondents were in between with 77% of those spoken to favoring more regulatory constraints).

"The findings underline the challenge facing the industry after the accident on April 20 when the Macondo well ruptured, killing 11 workers and spewing 4.9m barrels of oil into the sea. Although the Obama Administration's moratorium on deep-water drilling in the gulf, imposed after the spill, should be lifted earlier than it's November 30th expiry date, the industry is already bracing itself for further regulation and higher costs"

So what does it all mean?

At a minimum, I would say there is a disconnect between industry claims to be "going green", becoming sustainable, etc. and the public that is on the receiving end of the message.  It also shows what bad performance on the part of one or two companies can do to the whole sector, and even all industry.  Looking at Canada and the Pembina/McAllister survey that disconnect extends to include a government and the thought leaders that are in many cases employed by it. 

Its been a tough summer for corporate reputations in the energy sector so it would be interesting to look at similar polls again in six months.