Chatham House gives warning on energy future

11 June 2010

11 June 2010 | Lindsay Clark

Businesses must re-evaluate the “just-in-time” model of buying energy because it assumes a ready supply that is unsustainable, a report this week from an independent think-tank has said.

Sustainable energy security: Strategic risks and opportunities for business by Chatham House concluded that if businesses do not redesign the “just-in-time” model they should increase the resilience of their logistics against supply-chain disruptions and higher energy prices.

“Failure to do so will increase a business’s vulnerability to reputational damage and potential profit losses resulting from the inability to deliver products and services in the event of an energy crisis,” says the report, which was produced jointly with Lloyd's insurance market.

For energy buyers, the market will continue to be volatile as traditional mechanisms for balancing supply and price lose their power, it said.

“International oil prices are likely to rise in the short to mid term due to the costs of producing additional barrels from difficult environments, such as deep offshore fields and tar sands. An oil supply crunch in the medium term is likely to be due to a combination of insufficient investment in upstream oil and efficiency over the last two decades and rebounding demand following the global recession. This would create a price spike prompting drastic national measures to cut oil dependency.”

Richard Ward, CEO of Lloyd’s, said: “We have entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will have to pay for it.

“Prices are likely to rise, with some commentators suggesting oil may reach $200 a barrel; regulations on carbon emissions will intensify; and reputations will be won or lost as the public demands that businesses reduce their environmental footprint,” he said.

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