Friday, 18 January 2008

My View on Energy Shortages

By Sikander Hayat

Today was a very tough day at work as I had to meet some deadlines before the weekend. Energy business is increasingly under severe pressure due to lack of verified oil and gas deposits. On the other hand there is a clamour for green energy which is making energy companies like my employer to look for sustainable resources like nuclear. Now nuclear is such can of worms because after Chernobyl disaster it was banished from the thoughts for never to be talked about again but it is back and let me tell you it is back with vengeance and we better get use to it.

There are number of challenges faced by energy industry and some opportunities as well.



Depleting Oil Gas Resources
Security of Supply
Environmental Concerns
Industry Regulations
Skills Shortage


Competition for resources is hard and for the first time in history, China is embedding itself deeply in Africa and to a certain degree in South America which will create for African commodities and also shows the desperation shown by emerging economies.



There aren't any major discoveries being made in terms of new reserves and there is not much hope for that happening in future as well.



Feverish demand by societies and individuals is forcing oil to touch $100 a barrel and this state of affairs is unlikely to change in near future.





North Sea oil supplies are dwindling by 7% on average each year and it is increasingly the case that fuel id being imported.

Russia has emerged as a major contributor and any instability in that country, keeping in minds the tendency to use fuel as a tool to project political power in Ukraine in other neighbouring countries, could push the process up in UK wholesale market.



Then there is the issue of Middle East which from time to time flares up and in these situations we can clearly see that our supplies are increasingly coming from troubled parts of the world.



There is a near consensus in the world that earth is going through a period of huge change and if we keep on doing what we are doing at the moment it won’t be long before life on this planet as we know it will be untenable.



It is a huge threat to our business.



New polluters emerging economies like China, India, Brazil & Russia are adding to the carbon emissions but leaders like USA have until now have decided not to comply with any targets set by the UN apart from California which has set a target for its emissions.



I also believe that emissions trading is going to become a major part of the mix as it will be a challenge and an opportunity for us to first produce excess carbon neutral energy and then selling/buying the right for extra emissions. The meeting which is going on in Bali, Indonesia has the chance to rectify the failures of Kyoto and also come up with a radical new plan and as I said emissions trading will become a big part of industry strategy.



Although there is a new vitality in the nuclear sector, it remains politically divisive and leads to heated debates about its merits.



Industry must not let new regulation hinder its plans because it is calling for a change from our traditional ways of doing business.



Regulation towards cleaner fuels should be taken into stride and it is a big opportunity for us to takes a lead in this field.



It will give us credibility among our buyers/end users and hence increased competitive advantage.



Talent is a scarce resource these days in general but in the generation sector the need is particularly acute.



Because of our brand power we have the opportunity to attract the brightest people and retain them and thus having a competitive advantage over rivals.



This could once again be a major opportunity for us.



We can use our European muscle and negotiate better prices and use funds at our disposal to construct storage facilities to be used in volatile times to give us the competitive advantage.



There is an opportunity for us to be a secure source of energy in a volatile environment.



Demand for energy keeps growing by the day and it will be very beneficial to build LNG terminals near the ports to make sure that we have the power to influence the market when the supplies are volatile.



We have the opportunity to use latest IT applications to gauge our buyer profile and flag our green credentials. Green is not just good for our customers but in the long run it will be most profitable for us as well.



As a utility business we must factor in any unknown factors, a cataclysmic change, may be in the form of an invention which may hurt us badly. Although it is hard to predict but having a plan B will help in the long run.



In 1920’s, Theodore Levitt (a famous Harvard Business School Professor), wrote in one of his articles that a business must understand what is its purpose. For example, an electricity company or a gas company must not think that it is in the business of providing electricity or gas to its customers but rather think of it as being a business which keeps people’s houses warm and their cars running.

If the ways to achieve these goals change then the business must change to adapt itself to the new ways of delivering the desired end result.



We as a company have the strength to make diversity our most potent weapon and this will hep us stay on top.



I view this R & D activity as a major area of opportunity. This should be availed in both non traditional areas and to improve the output of traditional fuels.



Nuclear, I believe, is going to be the major contributor in our future energy mix, not only because of its CO2 credentials but also because of the reliability of the output.



It is paramount that we do research in improving methods to spent nuclear fuel in an environment friendly way to remove the stigma attached to this form of energy especially after the Chernobyl disaster in the former Soviet Union.



In the short to medium term we have to make some tough choices and at the moment making our supplies secure take the primary seat.



Example: US buys 60% of its oil from Venezuela despite Mr Hugo Chavez’s (The Venezuelan President) frosty relationship with US and her allies in South America.



Germany – Russia pipeline (Adopting the policy of engagement with Mr Putin of Russia and creating a stake for Russia in Europe’s security)

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