Where are we going?

At the start of a New Year the futurologists emerge in force. They are usually wrong, sometimes hilariously so. In ‘The Witch Doctors’, in which some years ago the authors put the gurus through the salami slicer, they recount how at the end of WW1 there was a solemn prediction that the number of cars on the road could be limited by the supply of chauffeurs; another that the oil would run out in 1973.

 

What is clear is that the two key emerging issues are energy and climate-change.

 

There have been two seismic shifts in perceptions about energy supply.

 

Five years ago it seemed as if nuclear was the way to go. Since Fukushima, enthusiasm has dwindled. Some countries are in ‘wait and see’ mode; others, notably Germany, have turned their faces against it. And there were assumptions that the US was running out of oil. Since then, crude oil output has more than doubled and imports have dropped by around 40%. It was predicted that the US would become the largest importer of LNG. But due to advances in fracking, it is now set to become a net exporter. The effect on US foreign policy towards MENA might be dramatic, a ‘who needs ya, baby?’ shift.

 

Having given up on nuclear, Germany went headlong into renewables. The consequence is high energy and loss of competitiveness. ‘Renewables, have been a disappointment. Wind turbines have fallen out of public favour; they are increasingly seen as subsidy-gouging, bird-macerating, failures. They produce little electricity at high cost and blight the environment.

 

Electric  cars have stalled.

 

Recent predictions* hedge the bets by suggesting three alternative scenarios.

 

The first scenario is ‘global redesign’.

 

It predicts a massive growth in energy supply, especially LNG. One adverse effect will be on the energy-dependant Russian export market due to falling prices. It is anticipated that output will be rapidly increased in the next ten years through exploitation of gas and oil from major discoveries in East Africa, the Mediterranean, Brazil and elsewhere, bringing new countries into the ‘club’ – Israel, Cyprus, Uganda and others.

 

Better technology will improve the efficiency of wind turbines, probably ensuring their survival, but still at a large cost in subsidies. Battery-driven cars will remain a niche market because of sluggish development of cheap and efficient batteries.

 

The second scenario is ‘the age of renewables’.

 

The governing facto is climate change.

 

We are already experiencing freak weather characterised by hurricanes, drought, storms and extensive flooding in many parts of the world. Over the next 15 years this could no longer be ‘freak’. This might push climate-change issues to the top of the agenda. In this event, expect to see massive investment in electric-powered transport, tidal power (for which the technology already exists but which has been under-exploited due to the obsession with wind-power), a return to nuclear including the development of mini-plants that could be factory-assembled and transported to the installation site.

 

But gas will be king.

 

Last is ‘vortex’, the doomsday option.

 

This centres on another and more catastrophic collapse of world financial a systems, possibly generated by the bursting of the Chinese credit bubble.

 

Ominous signs are already there. The ‘shadow banking’ sector is in deep trouble. A $500,000,000investment trust has already been bailed-out, and others are likely to follow. The ‘shadow banking’ sector  holds nearly $5 trillion, 55% of GDP. There must be a limit to the extent to which the Government can prevent defaults given the scale of the sector.

 

The likely outcomes are the return of protectionism, one of the major causes of the Great Slump; flight from the market economy; extensive Government intervention and over-regulation; and a collapse in private sector investment. And perhaps the return to cheap coal as the major source of electric power, heedless of the climate-change issue.

 

This may be our antifragile moment; to expect the unexpected, to think the unthinkable  and to anticipate the impossible.

 

.Daniel Hergen; Information Handling Services; Cambridge Energy Research Associates.