Energy For One World- The Book- updated version (December 2012)


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Energy For One World- The Book- updated version (December 2012)

  1. 1. Energy for One World
  2. 2. Energyfor One World a d r i a a n k amp
  3. 3. Copyright © 2011 Adriaan KampAll rights reserved.First editionisbn: 978-1466351219Cover & interior design: Villa YFor Marta – My LoveDedicated to my children and children’s childrenWith gratitude for my parents wisdom and love 4
  4. 4. CONTENTS Preface 71 THE OTHER STUFF 9 New Glasses 9 The Other Stuff 10 How did we get here? 11 The people behind Power and Electricity 14 The Bigger Picture 15 World Poker with Five Parties – Uneven hands 182 MAKING ROOM 21 Safe in My Own Castle 21 Staying Real 24 What is worse: Over-promise, or under-deliver? 25 The Golden Age of Gas, America’s Energy Future, Stretching the Envelope 29 Form follows function? Selling More, Not Less 35 Andre Kuipers’ View 38 The battle between Electrons and Molecules 41 Being a Fool in your children’s eyes 43 Book-Keepers 47 What or Who is determining the price, what is its effect on our economies? 48 5
  5. 5. energy for one world3 LEARNING TO PLAY THE GAME 55 Merit Order 55 Sense and sensibility in Policies 62 What each of us can do 67 Connecting the dots – Projects of the Future 72 Looking at the Five Hands 80 Top-Down and Bottoms-up and All of the Above 1104 ENERGY FOR ONE WORLD 113 Dialogue, Charter and Council – Playing the Five Hands Well – Winning the Game for the World 113 Recommended Reading, Bibliography 117 References 119 Sources 121 Concluding Words to this First Version 123 About the Author 125 Words of Thanks and Acknowledgement 126 Notes 127 6
  6. 6. PREFACE This book is like a broad-brush painting. A painting of the world as I came to know it. And a painting of the world as I “vision” and wish it to be. It’s a book on our World Energy System. On Leadership. On Courage. It’s a book for you. This book is out of respect. And out of compassion.Out of compassion for the people in the energy industry. Out of respectfor the achievements in the conventional energy industry and the creativ-ity and enthusiasm in the clean-tech industry. Out of compassion for thepeople in the East and in the West. The North and the South. For the peo-ple who care for others. The deprived. The poor. Out of love for my family, my children. And my children children. If you have read this book, I would like you to read this preface again.To better understand what I have just written down here. Because of my knowledge and insights I gained over the last 25 years, Icould do no other than to write this book the way it is. To give this to our world. And with the hope and pray that you, ourleaders, the professionals in the energy industry and people everywherearound the globe will find inspiration and step-up to our common futureand challenge: How do we fuel and provide energy to all people of this world- reliably, sustainably and in harmony? 7
  7. 7. energy for one world 8
  8. 8. chapter 1 – the other stuff chapter 1THE OTHER STUFFNEW GLASSESFor most of my life, I have been an Oilman. Not a writer. Nevertheless, Iwanted to share you this story about how I see and know we have orga-nized energy in our world and perhaps could do a little bit better. Thisbook is about that path. I’ve walked it now over the last several years. Infact, I have been in the energy business for 25 years from oi to clean-tech.From the practice to thought leadership. This book is my sharing with you on what I’ve discovered while walk-ing it. Ever since the discussions on climate change (never mind howgood the intentions were), we’ve seem to have forgotten to speak aboutthe “other important stuff”. Like energy availability and affordability or like a realistic dream onour common world energy future. Or on our relationships towards eachother influenced by global energy or how we are going to share and payfor the resource or take care of the people in our world, all depending on astable energy supply.This book is about the “this other stuff”, not about climate change. By thischange of perspective, we may actually gain some new common groundand perspective on the matter. And create a bit more trust, and a bit moreproductive and positive dialogue. Maybe even create a vision on our com-mon future. Let us move away from “fear” and from “energy security”,towards a healthier and hopeful path creating “energy availability forall”. On this journey, new doors for our understanding of world relationswill open, and we may become aware and discover some new actions andsome new and real solutions. And you know what: I expect that than theseissues with climate change will automatically be resolved. As a given. Andwithout the present polarization or riff-raff. This is a book of hope, not fear. This is a book for all. 9
  9. 9. energy for one world“THE OTHER STUFF”Most of my life I’ve been living in countries bounty with energy. I canswitch the lights on in the morning, trust the refrigerator, use my com-puter and have heating and cooling year round. I can catch a plane andI can afford the price of a ticket and of motoring fuel. I live abundantly. Ikind of like that, and, I must admit I’m kind of dependable on it. I can do this because generations before me invented electricity, foundoil, created the car, designed appliances and got it all organized to bringit home to me. My comfort zone. But I am also aware of the nuisance ofnot having it around me. I have lived and travelled the world- extensively,visited countries where it was not so normal to have it around or alwayson. And I have been in power-cuts.In areas without electricity, I have met some amazing people in beauti-ful surroundings, but I must say, I’ve missed my freedom of switch “onand of” my light, tv, air-conditioning, and so on. In our world, there are2 billion people living and working without the “regular stuff”. They stillhave to use their own physics to move stuff around or get around. Walk 10miles for a bit of food or water. Work the ground without any power tools.Go to bed without any light. And there are some countries- I have beenthere as well- where the cost of a liter of petrol is less than a liter of water.Where ice-skating rings are built in the middle of the desert and peopleenjoy 24 hours air-conditioning. So, in essence, this energy thing is noteverywhere in the same way available. Or evenly priced. This inequality may be the source of new or escalating conflicts withinor between nations. Between the Have’s and the Have not’s. Then there is the World growth issue. Our world seems to be in accel-eration. Growing in wealth, in population and in the velocity and inten-sity of events. Things seem to move faster and faster and more people areboarding and start to enjoy the ride. The last 10 years has seen a significantincrease of economic activity and wealth creation in the East.1 This “acceleration of our world” is predicted by some industry people2to require twice as much energy as we presently consume, over the next12-15 years. 10
  10. 10. chapter 1 – the other stuffTriple amount by 2050. That’s a lot. Never seen or done before. I do notwant to scare you, but I must tell you: we do not really know how or howlong, we can continue this, without affecting the price or the access/avail-ability of this energy thing. Never mind the ethical (and perhaps idealis-tic) thought of how to make energy available to all. There is a little maneuvering going on between the East and the West.Or the North and the Sout to secure their take. It is like a group of monkeyslooking at a banana. Who get’s the banana? Who is making that decision?And on what grounds? Weak? Strong? Rich, Poor? By rules of politeness orby force? And will there be more banana’s tomorrow? I do not see us as monkeys but sometimes it makes me wonder. Is itthe survival of the fittest that controls our dialogue about energy supplyand availability or is it the humanistic idea of equality and righteousness?I feel it could get a little bit tricky or nasty if we do not find better ways torelate to each other. Now, and over the last 10 years, a new energy solutionhas been born. Energy based on Wind, on Sun, on Bio or on Geo. Basically,energy from planet earth, too. The contribution and working of these new energy sources in theenergy industry are still well beyond the capacity and capability of whatwe need in order to make our day. Remember: we need triple the amountof today’s energy by 2050. 3 Our present day life-style and working-life has just got used of hav-ing lot’s of energy around us, and honestly speaking: no one likes cuttingdown or saving. So how can we become a little bit smarter in bringing thisnew capacity in our world and getting it to work for us? For you. For me.For everybody. But in order to understand it we need to know how thisenergy-thing is presently being organized, made, distributed and sold tous.HOW DID WE GET HERE?Ever since Colonel Drake set his drill bit in the ground and found oil inTitusville on August 27th 1859, the world has changed. With this act ofcourage and faith of the Colonel- but in fact– (also out of shear desperation 11
  11. 11. energy for one worldbecause all funds for drilling were depleted) – a new industry was born:The Age of Oil. Initially, it started small with some lighting, but then itspread out to transportation and heating. Rockefeller, the first great oil tycoon in the USA, understood the impor-tance of controlling transportation and distribution of oil. And scale. From1870 and onwards, and with the birth of Standard Oil Company – (thelater Exxon Mobile)- he successfully managed to secure smart businessdeals with railroads, key transporters and distributors, allowing him tocompete on price. In fact- he put all others out of business, thanks to hisvision and integrated business model. In this period, he secured himself avirtually monopoly on the product. Next boost came with Henry Ford. In 1910, he introduced assembly linemanufacturing of the model T-Ford. An affordable car for the many wasborn. Earlier an employee – chief-engineer- of Edison Co., Henry wantedto progress his vision on cars- and incorporated, NOT a battery, NOT elec-tricity, but an internal combustion engine- for petrol- in his assembly car.A decision with an incredible significance and impact for the car industry. In 1911, and thanks to an earlier book publication of Ida Tarbell, theHigh-court in the USA declared the Standard Oil Company a monopolyand ordered it to split-up in order to create better competition. The birthof anti-trust law in the US. Meanwhile, in Western Europe and the Far-East, the Royal DutchPetroleum Company and The British Transportation Company Shell madean agreement to merge in order to better be able to compete with the dom-inance of the Standard Oil Company. To grow market share and in orderto better service the market. The complimentary capabilities of the twocompanies were believed the basis of its growth and future success. It was in the Second World War that oil became a strategic weaponin the hands of the army. Air, naval and land troops required lots of oilto fuel their divisions. Battles were lost or armies came to a stand-still bythe absence of gasoline. It was the co-operation of the Petroleum Admin-istration of War with the numerous American Oil Companies which gavethe Allied forces a strategic advantage over Germany’s deficiencies of oiland supplies. Oil and National Security were now strongly connected andinterwoven. 12
  12. 12. chapter 1 – the other stuffJust before the Second World War, the King of Saudi Arabia had grantedthe Standard Oil Company a concession to explore for oil in his Kingdom.In 1938- first oil was struck in well Dammam-7: the start of something bigand something remarkable: the later giant Saudi Aramco. 4 Ever since the exploration and production for oil, host country govern-ments and business men have debated their fair share of the new foundwealth: oil. In the period immediately following the Second World War, the Inter-national (and mostly western) Oil Companies (“7-sisters”5) were reigningthe market. They were in the ”driving seat” and determined the conditionsto their concession givers. Change started in Venezuela, and was soon followed by the King ofSaudi in 1950. A better “split of the pie” was being conceived. Earlier sto-ries of the eager and ambitious western business men were now seen andperceived by their hosts as “lying and cheating”. So, in 1960 OPEC6 was formed. It became an intra-governmental orga-nization between the oil producing nations and with the aim to stream-line and secure a stable oil sector and governmental income. In the 70’s, oil became a political weapon in the hands of oil producingnations- and in the wars and disputes between Israel and neigh-boringcountries. Arabian producing nations declared a brief oil supply embargoto the West7 and further nationalization of assets were initiated. In 1980-they had fully acquired their national oil company: Saudi Aramco. A new age of National Oil Companies was born. The role and influence of Western Oil Companies (the IOC’s8) in thesemain resource holding nations was to be changed from then onwards. In early 1973/74 the IEA9 was created, also an intra-government organi-zation. It’s early and key role was to better co-ordinate a collective responseto supplies disruptions and through the release of emergency stock. (Pres-ently, this autonomous organization works to ensure reliable, affordableand clean energy for its 28 member states (mostly OECD10) and beyond). Meanwhile, American explorationists from the Gulf of Mexico hadstruck oil and gas in Europe, in the Netherlands, North Sea, and later Nor-way. Decades of a blossoming industry and abilities to supply and fuellarge parts of Europe was rapidly being expanded and created. 13
  13. 13. energy for one worldIn the beginning of the century, the western oil companies were hold-ing access to most of the world oil reserves. Toda, the early 7-sisters havepresently access to a meager 6% of the international oil production andreserves, and are pursuing new, intensive and aggressive production tech-niques in new and untested reservoir basins, in the arctic, in deep-waters,in shale and sands, and in poisonous reservoirs in order to fuel their fun-nel. The Western countries continue to consume nevertheless 40% ofpresent world total. So, the balance of power has changed. Was oil earlier last century used for heating, power and transporta-tion, today, oil is mainly used for transportation of cars, trucks, planesand ships, and for the creation of industrial products. In fact: many manyproducts of everyday use, from plastic, to clothing, to pharmaceutical andmanufacturing materials are made of oil. With a present production of85 million barrels production per day, we have come a long way from theearly days of Colonel Sam in Titusville: that well produced only 25 barrelsa day.THE PEOPLE BEHIND POWER AND ELECTRICITYElectricity has been around for some time. Man’s first inter-action withelectricity is believed to be in ancient Egypt with a shock be-ing experi-enced from an electric fish. Another early known phenomena was “light-ning and thunder” in the sky. The scientific world has spent many centuries on unfolding the mys-teries and laws of electricity or, as we presently know it, electro-magne-tism. Starting with magnetism, famous scientists such as Volta, Ampere,Ohm, Tesla, Thomson, Faraday, Maxwel all played part in the unravelingand discovery of it’s nature. It was well in the end of the 19th century, that Thomas Edison estab-lished the Edison Electric Light Company. That in itself was not such a pri-mary. What was new, however, was Thomas Edison’s business model. Mr.Edison started to develop a complete system of (central) electric genera-tion and distribution that would turn his light bulb into a commerciallyefficient and economical business. Edison’s system at Pearl Street in lower 14
  14. 14. chapter 1 – the other stuffManhattan in 1881 consisted of a large central power plant with its gener-ators, voltage regulating devices and copper wires connecting the plant tothe customer buildings. The wiring, switches and fixtures in the interiorsof those buildings and the light bulbs themselves, too. The method of sup-plying electricity from a central station to illuminate buildings (and later:power machines) in a surrounding district was born. With that, and in parallel, new opportunities to apply electricity wereinvented: the second industrial revolution with telephones, electric trains,home appliances, assembly line machines be-ing added to its arsenal. Meanwhile, Edison’s venture, got further winds in the sail and was, in1892, and in a merger- transformed into GE (“General Electric”). The pres-ent global agglomerate is still much “alive and kicking”, and a key playerin the present energy industry. These events, some 100 years ago, have shaped a complete utility indus-try servicing power to our cities, our houses and our factories. Edison’s first central power station at Pearl Station generated 130kWatt (approximately 1 million kWh). Our World presently produces andconsumes approximately 20 trillion kWh: that is 20 million times that ofEdison in his first years. Electricity and Human Productivity are now strongly inter-related.The wealth of a country and its people are in direct correlation with theamount of electricity and power in that nation.THE BIGGER PICTUREOver the last couple of years, and on lot’s of occasions, strategy peoplefrom Oil companies, leading clean-tech firms, intra-government institu-tions such as OPEC, IEF11 and IEA, but also from non-governmental orga-nizations such as UN12, UNEP13, WWF14, IRENA15, etc. and scientist haveargued on the required rate of transition and the amount of future energydemand and production need in our world. You will be surprised how dif-ferent these predictions look like- given the institute or background of thepeople involved.16 Basically – you can see two “game plans” in town – andcovering the whole world (!): 15
  15. 15. energy for one world• The world needs it all (or let it grow!)- scenario’s favored by Oil Com- panies, OPEC and in a nutshell summarized in Exxon Mobile’s energy outlook 2030.• We can transform! (our energy system)- implicitly favored by the ris- ing “stars”,17 and best worded by UNEP and/or WWF’s plan.The rapid change of views- are due to new world events or emotions, suchas e.g. China’s rapid rise, Climate Change, the Financial Crisis, Unrest inthe World, Scalability of Technology, Golden Age of Gas (new gas shalereserves), etc. But those projections or predictions are unfortunately, and often notbased on consumer wishes or wider world needs (e.g. Energy for All). Orwhat is realistic, durable and socially responsible and acceptable acrossthe nations and industries (clean-tech, conventional). Overall, and as I may say, most of the projections and predictions ofthese institutes have been proven not to be “exact” or “right”. It has notexactly proven to be a science, but still mostly “weather forecasting”. Itchanges with the season or sometimes with the mood of the day. At times,“slightly” nudged in order to promote parochial interests. These scenarios are however important, because they determine thetrust and confidence of industrialists, governments and bankers in theirinvestments in the world-wide energy system. Investments in energyinfrastructure take a lot of money, and projects do take a lot of time (years)and resources (human, material) to develop and to make a return oninvestment.Hence the importance of scenarios: for investment decisionmaking. Today and tomorrow. So, in my search for reality, I have been privy to another way of lookingat this18 on the back of an envelope. There seems to be a strong correlationbetween the average wealth in a nation (GDP) and its energy consumptionpatterns.19 Next to that, there seems to be evidence that our world energysystem is presently developing exponentially over time, not linearly asmost models assume. More and more nations are incorporating the basicinfrastructure for economic wealth development and hence energy con-sumption. An excellent indicator for comparison and goal setting is the(fossil) energy consumption per capita: kWh/capita. 16
  16. 16. chapter 1 – the other stuffWith a world average energy consumption of 2.3 kW/capita20, the US andCanada lead the world in footprint: 11-12 kW/capita (5 times the worldaverage). The non-OECD countries, with 82% of world population, are clearly yetonly starting to enjoy the benefits of fossil fuel consumption. Their aver-age consumption (per capita) is still well below 1 kW/capita. To phrase it a little differently: If the whole planet was to consume the same amount of energy as theUSA or Canada, we would presently require approximately 5 to 7 times theamount of energy we presently consume. If we are to agree that the whole world (and the upcoming additionalpopulation) till 2050 are to consume as much as Spain or Korea- then wewill require at least an additional three times of the present energy con-sumption. The wealthier the world is getting, the more energy it is using. I guess that feels logic. In addition, countries divide themselves in resource21 rich (exporting)countries or in energy (poor, importing) countries. So, -this creates a world picture in Five (Energy) Clusters:1 OECD, or the West- The high consumers of the past, present and per- haps the future2 China, and BRICS- The new party in town3 Saudi and OPEC/ Russia and Gaspec- The oil and Gas “cursed” nations4 India and leading emerging nations- Ready to join5 The Very poor- How can we join?These clusters have all their own pattern of energy behavior and politics.Their own needs. With the present rate of energy demand growth and thepresent pattern of energy use22, we are presently heading to double ourworld energy consumption over the coming 12-15 years. That’s a lot. To say it differently: We are go-ing to expand our world energy sys-tem by a factor two over the coming 12-15 years. A system which has beenevolved and built over the last 150 years! That’s quite an acceleration. 17
  17. 17. energy for one worldSo with this expectation, we may soon see the world energy system runagainst triple-A limits (affordability, availability, acceptability) or maybecome unstable (price volatilities, market swings, security or unrest,etc.). That doesn’t feel good. Does it? So, hence my interest in “the otherstuff”. Or to find an answer on our key question: What is the right time and right scale of energy transition manage-ment given the present world situation? In our world, and across our institutes, industries and nations, wepresently do not have one vision, one “leadership platform” or appear tohave “the right agenda” for creating simplicity, clarity and consensus on“the other stuff”. The clusters are presently moving more or less in their own world withtheir own interests and intelligence and sometimes meet-up with others,sharing some goodies. But not enough, in my view, to make me feel that we are here in controlor have a foresight for our future.WORLD POKER WITH FIVE PARTIES- UNEVEN HANDSIt comes, I guess, to no surprise that the 5 different clusters have theirown separate agenda’s on energy and sustainability over the coming 10-30 years:• It can be looked at as Poker Table, with five different parties all playing to win.• What is the game than all-about?• What are the players playing for?Well, first and foremost you have to ask yourself how the cards are spreadacross the five players. Very much simplified, we may observe the follow-ing hands:• The West, OECD: Concern on world climate change. There is a need to make (the global) economies low on carbon to save the planet (and our own lives). Concern on Energy Security. 18
  18. 18. chapter 1 – the other stuff• Opec and Gaspec: Reliable suppliers that can grow the supply base. The golden Age of Gas can be added to the Golden Age of Oil. Focused to expand the present energy system and register new customers for product oil and gas. Continued “drive” to grow own local industries and countries economically strong. Stimulate the use of local alterna- tive energy resources to fuel own economies and leave room for export of the, much in demand, fossil fuel base. Concern on sentiments with climate change because on the effect on the “Product Oil Brand” (fortu- nately, this debate seems gone into stall-mate). Concerns on remain- ing in control, providing jobs to the people and keeping state budgets in check.• BRICS: Add as much (and all forms of) energy capacity as quick possible, and as cheap and sustainable as possible. Obtain economic advantage by securing new and economic attractive reserves. Grow grow grow. Some concern on local pollution in cities and districts, due to manufac- turing or large scale agriculture, but growth is the main target.• Emerging Developing: To attract capital for (energy) infrastructure and growth. Exploit local opportunities for new energy resources (biofu- els, waste, small scale solar, wind, etc). Interested in keeping oil and gas prices low, so they can (continue to) afford it. Some concerns with keeping their local economies peaceful and growing against rising worldwide fuel, food and water prices.• The very poor (countries): Seeking help to scale-up micro energy sys- tems and access to relevant mobility solutions. This help is urgently needed in order to grow food, pump water and connect with the global economy. Concerns to what is happening to their resource reserves?This scenario has played out at the UN-Climate Change Conference inCopenhagen 200923, where the West (OECD) put climate change as anopening bid in the game. Now, no wonder that the 2009 Copenhagen Climate Change debatewas such a disappointment: The OECD leaders played their own card andwere out of touch with the present reality of the other players. The otherplayers played for their self-interest, and felt un-heard or un-understoodby their hosts. 19
  19. 19. energy for one worldThe aftermath of the Copenhagen Conference is internationally still pres-ent, and the other hands are rallying and organizing themselves rapidly,raising their calls and boosting their opportunities to win their game. Stillmuch playing by the old rules. Now, what would make a change? If we find a way to repair (admit ourbluff), and find a way to inject a new rule (“new spirit”) to the game. A rule that we want all five hands to be satisfied and that the next gen-erations or our planet Earth is not to be put at risk. It’s not a winner takes all game, but an all or NoBody’s happy game. Offcourse, a playing party may assume that he is temporary leading and win-ning, but how true will that be for the long haul in a world where every-thing is connected? And since we are all newcomers to this game, I suggest playing thegame with open hands.All cards on the table. Looking at the above, “three wise moves” for the immediate future (15-30 years) comes to mind:• The Western (OECD-) countries could “make room” and reduce their average fossil energy footprint significantly, in order to• Allow and to facilitate the non-OECD countries to grow their benefits and wealth creation from fossil energy.• The general predicted increase in world average energy consump- tion per capita should ideally be generated by non-fossil fuels such as renewable energy. Overall world fossil fuel production is not to rise further, significantly.I am an optimist.By agreeing and applying simple rules like the above, Ibelieve that we, mankind will, over the coming 100 years, and thanks toour ingenuity, overcome the issue of energy shortage and world equalityissues. We will grow into a society where energy, thanks to e.g. clean fossilfuels, solar, solar from space, earth power generation, nuclear fission, etc.will be in abundance available. However the first decades are determiningon how we can maintain stability, harmony and grow prosperity for all. The present (transition) period (in all aspects) is key. 20
  20. 20. chapter 2 – making room chapter 2-MAKING ROOM Don’t add, unless you subtract – john naisbitt The future is embedded in the present – john naisbittSAFE IN MY OWN CASTLEThere is presently no united or (neutral) world body (such as e.g. UN, IMF,etc.) that overlooks the world energy system. That can plan, assemble,mediate, influence, control or correct energy production, developmentand distribution. We do have a wide range of institutes, each with a historical and/orpolitical motivation, which presently assembles, analyses, proposes poli-cies and makes (individual) predictions on the world energy system. The key stakeholders which have the most influence and decisionpower are centered around:• Producer’s interests: Opec, Gaspec• Western consumer’s interests: IEA (oil and gas), IRENA (renewables), WorldCoal, IAEI (nuclear), AEI (American Energy Institute)• Eastern consumer’s interests: e.g. NDRC of China, ASEANDue to this ‘organizational’ complexity, there is no simplicity or unity infacts or opinions. Presently, a remarkable small number of professionalstaff, politicians and scientists are working, studying or overlooking the“total of the world energy system”. Most studies are related with the sup-ply side of the energy system or a specific source. Very few institutes orgovernments look at the world demand side developments. Leadership ofthese institutes has been in the hand of a couple of single individuals and 21
  21. 21. energy for one worldwhich have hold seat for quite some time. So, over time, they have builtsome vested interests to certain views or opinions. To their defense: it isnot an easy job! With the Chinese national energy demand and production still con-sidered a state secret, and being guarded by the Energy Research Insti-tute under the National Development and Reform Commission of China,the present and future energy mix and demand needs in China are onlyknown by the world to a certain degree. The execution of the plans aresteered by the above government and executed by the 5 utility firms and 3state-oil companies. The US energy policy is co-ordinated by the DOE and the NPC, homeand international policies further overseen by the Congress Committeeon Energy and Commerce, Energy Independence and security, etc. andfurther managed by the seating administration. Data collection is doneby the EIA. An impressive executive branch office with a very impressiveintelligence record. This system is very open, but one only has to read thebook of John Hofmeister (ex-president Shell Oil) to understand the pres-ent political dysfunctions of this system. No future plan making or deci-sion making. Stall-mate between the parties. The US relies on its energy supplies and energy system developmenton international trade system and local business and energy market. Nevertheless, oil and gas (or energy in general) is considered an itemof strategic, economic and military importance to a country. Opec (and Gaspec) still a somewhat closed and political organiza-tion with its own ways of handling and dealings of business interests. Itrecently celebrated its 50th anniversary. Whilst an impressive record andoverall success in, at times, stabilizing the markets, Opec has never hada clear or transparent procedure on how it plans or unlocks additionaloil reserves or manage production rates. It remains in the hands of theministers of the individual states. We even have less (neutral) knowledgeon how much reserves there will be actually available over the comingdecades for production, despite their most recent publications. So, in essence: The three leading (institutional) players on the inter-national energy market behave very differently and have quite differentinterest(s). 22
  22. 22. chapter 2 – making roomSo, in order to improve- we have to start to build the relationship betweenthese parties and between the public and these organizations. The initia-tive taken by The Global Energy Assessment24 initiative, a scientific orga-nization with members from all key countries, is a first good attempt.However, this work is purely scientific and is presently not “perceived”pragmatic or used to make new policies and to steer country- or businessinterests. There is a compelling need to set the common agenda and a commonvision, unlocking desires to share and collaborate, to create order. And toagree on the goals. Oil and gas exporting countries need to “let-go” of their autocraticpower, and may wish to become more transparent and servant in theirleadership. Understanding that they have received a natural “gift and obli-gation” to fuel the “rich and the poor”, and keep hence their supplies in-check with demand. For the next 100 years. And that they have an oppor-tunity to collaborate with the consumers from both the West and the Eastin realizing stable prizing and reliable supplies. One for all, all for One. Surely, not an everyday’s task. There is a need of some serious and sin-cere diplomatic and leadership skills here. The most recent world ministerial meeting(s) (IEF) on energy did makean attempt to start this process, but the progress is very slow and the intel-ligence of the meetings are yet mostly limited to the oil and gas world, andthen only the downstream part (the distribution of the product). Formalmeetings are presently only every two years and with very limited discus-sions on the world energy mix, reserves, infrastructure choices, invest-ments, capabilities and demand. But the world needs a bit more intense approach. A bit more constantand consistent organization for the realization of insights and positiveaffirmative actions- and with world parties involved. Representativesfrom Governments, Companies, Agencies and science. So, in essence, we ( the people and all parties) are to benefit from a newadministrative system to overlook the supply and demand side develop-ments in countries, global wealth-clusters and worldwide in the energymarket: a central world energy council. 23
  23. 23. energy for one worldBy using simplicity, focus and empathy, we may be able to make “gold”from the present (political) wait-and-see and dead-lock situation In Chapter 4, I will make some recommendations and suggestionshow we may do so.STAYING REALMassive urbanization in emerging and developing nations (the East),combined with the expectation that world population will continue togrow, and wealth exponentially rises, creates new challenges in our worldenergy system. And we need to stay “real”. Our conventional energy system is gigantic in scale, has been builtover a period of 150 years and has achieved many technological break-through achievements over its history. From the first oil wells in Pennsyl-vania (Colonel Drake) till the wonders of engineering, presently seen indeep drilling, offshore engineering and processing plants. Our geoscientists use ever more clever ways to search for, explore andunderstand downhole conditions in reservoirs and adjacent rock. Tech-nology allows us to see 3D images of our underground. To understand itand to work with it, like farmers understanding their soil. It has been build and developed over 100’s of years and the system isproven. It has served our humanity very well. It has given us the presentstate of wealth and well-fare in an ever growing part of the world. It is ourbackbone of civilization. It has built a multi-trillion´s dollar revenue indus-try. The biggest on planet earth. Coal and gas electrify us. Oil has given us wheels and materials. Utilities (since Edison in America) have built in an ever expandinginfrastructure ensuring reliable and durable power supply to our house-holds, our industries and our offices. Pretty replicable. International upstream oil and gas projects are engines of growthunbeatable yet by any other technology despite how much we may wishso. Investments in these developments are taken with an eye for at least30 years. 24
  24. 24. chapter 2 – making room As the “great” futurist John Naisbitt (in ‘Mind Set’ ) wrote:• While many things change, most things remain constant• The future is embedded in the present• Focus on the score of the game• Understanding how powerful it is not to have to be right• See the future as a big puzzle• Don’t get so far ahead of the parade that people don’t know you’re in it.• Resistance to change falls if benefits are real• Things that we expect to happen always happen more slowly• You don’t get results by solving problems but by exploiting opportunities• Don’t add unless you subtract• Don’t forget the ecology of technologyPresently, we are looking at an unprecedented speed of growth and desiresfor consumerism in the upcoming nations. Billions of new people, willwish and need refrigerators, washing machines, air-conditioning, cars,take flights, buy nice clothes, etc. To grow and expand the existing conven-tional base that amount seems next to impossible also not very sustain-able, even unwise. Reserves do deplete. In order to fuel these people, we will have to share or expand our exist-ing base of conventional power supply. We, in the West, will hence haveto transit our energy system to a more hybrid forms and become far moreenergy efficient. Energy saving for the time being should be King. Nextto that, we have to work very hard to innovate and upscale the alternativesources (clean-tech) of energy supply:• wind, solar, bio, waste, geothermal, etc.• central and de-central.• local and globalWHAT IS WORSE: OVER-PROMISE, OR UNDER-DELIVER?Over the last couple of years, I have travelled the globe and looked at thestate of development in the clean-tech industry. The advocacies, the solu- 25
  25. 25. energy for one worldtions, the policies. The investments and the present scale and capabilities.In the East and in the West. To my surprise, I sometimes come across reports from “the climatechange specialists”25 stating the impossible: a future based on (mostly)renewable energy is at hand. It’s only a matter of policy and business deci-sion. Looking at these statements and from the viewpoint of an energyindustrialists, and perhaps realist, I wish to share that whilst the scientificintelligence gathering on the state of the renewables industry is generallyspeaking alright, it’s views, directions, and possibly political agenda maynot serve our societies or do good at all. The reports and statements are painting a picture that we can do with-out the existing conventional energy solutions right now. We can ignorethem and stop investing in them. We only need policies to invest inrenewable energy. I calm my mind then by looking at China. This centrally planned econ-omy is do-ing everything what is possible to fuel its economy. If solar andwind were the answer, right now, they would do so because they can affordit and decide for it without any resistance from industry or lobbyists. China’s is presently the world largest investor in renewable(s), but Chi-na’s electricity is presently for 80% produced by coal (and a little bit of gasand renewable). And that doesn’t look to change any time soon. China ispresently aggressively expanding its conventional oil, gas and coal indus-try (as well their renewables) and this will continue so for the next two tothree decades- at least. So claiming that we, and as a world, can start to rely on renewableenergy in a time that the world is craving energy for economic develop-ment, fuel prices sky-rocketing affecting the rich and the poor, and is indesperate need to have more. is naïve, or an over-promise. It may actually hamper the collaboration and buy-in from nations,large and powerful energy corporations and key energy holders of thisworld. Reports and suggestions like this may kill the dialogue, the collabora-tion and progress. Fact is, that solar, presently, fuels less than 1% of theworld energy needs. 26
  26. 26. chapter 2 – making roomThe efficiencies of solar at the present are not all that good: you need apiece of land the size of a large airport (e.g. such as Berlin) in order to gen-erate a tenth (!) of a simple conventional coal power plant. China opens two new coal-fired plants every week. That is 1000 MWadditional capacity every week. Our solar installations, using the size of anairport, as mentioned here above, generates only 40 MW today. So, we still need some time of engineering research and development.,perhaps 5, 10, 25 years before solar and energy storage becomes so strongthat it may reach a tipping point i.e. that investments in large-scale or dis-tributed solar power (and energy storage) beats investments in e.g. gas orcoal. But it is surely “foolish” to wait-and-see now, maintain status quo andkeep using all the best and brightest fuels now because they “BURN-and-EARN” so well. Without any due respect or attention given to energy con-servation or alternative “energy architecture” solutions. We, as a civilization, have today an incredible opportunity to designand create new energy system architectures for “our present day live” andthe 600+ new mega-cities of the future. At home, in China, In India, Africaand in the rest of the world. We have the early blueprints. We only need to agree on the new forms(or business models) between the two existing industries: conventionaland clean-tech. And start to manage the mix. And start to define “inte-grated holistic projects” instead of “my industry solutions only “. Energy transition needs time, and it is in desperate need of new sys-tem architectures and inclusiveness. And in need of a positive and con-structive dialogue and creative solutions.So, a couple of health warnings:1 It’s quite easy (if not opportunistic) to state that Renewables should lead in 2050. That’s 40 years away from now. But what are the realities and targets for the next 5 to 10 years to reach that goal? And who is going to realize that number?2 Energy scenario predictions over a long range are not quite accurate. From a socio-economic and a humanistic point of view, we have con- cluded that the world will require approximately three times as much energy as we presently consume. We may hence continue to need all 27
  27. 27. energy for one world forms and sources of energy, for quite some time. I like to make a safe bet on our future and would hence require coal, oil and gas to be avail- able for at least the next 100 years.3 Some of the advice given to our Governments and Policy makers sounds as if Renewables are already technically sound, scalable and available. The reality today is a bit more complex, and actually quite different. We cannot just ignore the importance of 87% of our present primary energy sources, (finance) institutions and corporations, such as coal, oil and gas and just invest in renewables to make the transi- tion. Whilst true renewables such as Wind and Solar are presently only 0,3% of world primary energy production after more than 10 years of investments! The Energy industry is Big. Real Big. Next to that, there are also many interests, Financial as well economical (jobs, markets, etc.). Scalability and time are a real industry-issue. You just can’t dou- ble your production in (renewable) energy country every year. It’s too big for that. We don’t have the capabilities. Who is doing this anyway, right now?4 Energy investments are made with a long- range view. To serve soci- eties. To create jobs. To serve pension funds to name something. The coal, gas and oil industries are expanding and delivering, right now, as we speak. Their present investments and contributions to the world energy are a true dimension larger than the contributions and invest- ments in renewables. We invest trillion(s) of US dollars in maintain- ing and expanding the oil, gas, coal infrastructure every year. Look at the US. Look at China. It hasn’t peaked yet and it needs transition man- agement.5 The conventional industry and key governments of this world are hav- ing a complete different view on the energy reality: Renewables such as solar and wind (central or de-central) are, by its nature, not reliable or yet efficient. It will need regional planning, infrastructure and local solutions to store this energy source. And to have e.g. a back-up with hydropower or gas. By so doing, wind and solar could easily fuel Europe, US, India and China for say 20- 40%, and later in this century more. 28
  28. 28. chapter 2 – making room6 Biofuels and/or energy from biomass are, in my view, yet quite to be reviewed on its merits. I have heard some horrific reports on agricul- ture and agricultural practices in growing these fuel stocks. Surely, they have a place, especially in fuelling local economies in developing and poor nations and where they can provide jobs and provide energy to the poor. But let’s not use the poor and developing nations and exploit their soils and labor to replace fuels in our cars- while they are starving themselves. 26THE GOLDEN AGE OF GAS, AMERICA’S ENERGYFUTURE AND STRETCHING THE ENVELOPEThe second industrial revolution, that of electricity and personal mobilitywas, initially, based on coal-fired power stations and oil. In the early nineteen twenties, and thanks to the advancement of met-allurgy to create safe pipeline systems- gas could be transported and intro-duced into this quotation. A new “gas-rush” was created and many milesof new transportation system between fields and market were be-ing con-structed in the dominating markets of US, Russia, Europe. Advantage ofgas over coal was obvious: it cleaned the air in the cities dramatically! Now, 60 years later, some concerns arise on the aging of supplyingfields in Europe, it’s safety and the maintenance of the infrastructure incities and at homes, and our abilities to keep-up the system. Neverthe-less, the (fine-grid) gas infrastructure in consuming nations is still grow-ing, also thanks to industries’ ability to ship the gas over longer distancesby liquefaction of the gas, so-called LNG, some local storage capacity inunderground caverns and the latest hype around new probable reservesin shale. Global gas consumption rose 7.4% over 2010. Demand was driven bynon-OECD countries, which presently represents 51% of the global mar-ket with China leading. But consumption in OECD countries also grewby 6,4% also driven by the decisions and aftermath of Japan’s Fukushima. Today, approximately 20% of the world gas is shipped and distributedthrough LNG. 29
  29. 29. energy for one worldTotal world gas production stands at 3,1 tcm in 2010 (+7,3% over 2009),and with a proved reserves of (only) 59 years conventional gas against thepresent production levels. Globally, natural gas resources are large, but like oil, are highly con-centrated in a small number of countries and fields. Remaining provenreserves in conventional gas basins amount to 180 tcm, equal to around60 years of current production. Three countries, Russia, Iran and Qatar,hold 56% of the world’s reserves, while just 25 fields worldwide holdalmost half. OPEC countries also hold about half. Non-conventional gas resources, including coal-bed methane, tightgas sands and shales, are much larger, amounting to perhaps to over 900tcm, with 25% in the USA and Canada combined. Now those non-conventional sources of gas have been the cause ofnew optimism in the industry: the rise of a new and golden Age of Gas. Earlier this year, I ran a little article on this, in the US. I would like toproceed with this now.America’s Energy Future. I’m looking at America’s energy future from both a national as well asa global perspective, and would thus like to share three points on the shalegas revolution in the US and it’s consequences.First and foremost, I do not believe that America’s Future Energy dream iswell served by focusing on becoming energy independent. This idea stimulates the wrong ideas and behaviors in the Americanpeople. I believe that we live in a global village and no matter how hard itis to deal with and maintain relationships with others, and at times, asser-tive or aggressive nations, our human task is to reach-out, to bridge and tocreate long and lasting, and serving interdependencies. And to solve ourglobal problems, together. Energy is a global problem and deserves notjust national approaches but also international leadership. America needsto be part of that leadership. What does this mean? I would like America to develop a healthy energy interdependency,surely based on its natural resources and talents and to create reciproc- 30
  30. 30. chapter 2 – making roomity in America’s economic system, leading the US to become a leadingexporter of energy transition solutions worldwide. The world needs that.Secondly: We need to ask ourselves: what comes after shale gas rock? Instead of jumping on the bandwagon and creating a large supplychain industry to service the shale gas revolution to increase profits, wemay wish to be a little bit more cautious and think through what comesnext. We may need shale gas rock for a much longer time period then pres-ently forecasted, and as alternatives are not yet up for grasp. In addition,I’m sceptical of the present burn & earn business model and practice. Wemay find smarter ways in leveraging this gas, for example, by blending itin with clean-tech and energy conservation measures.Thirdly: I have serious doubts on the sustainability of the shale gas rockpractice. From an environmental point of view: I was part of the group that ini-tiated new research at Shell, which investigated opportunities to injectnano-sensors down-hole in order to monitor where the fracks are andwhere the chemicals are going. But while this research is nowhere nearcomplete, I can tell you that our production engineers can’t yet see or can’tyet know exactly where the chemicals and other stuff is going, right now. But also from an economic point of view: The steep decline curves andthe unequal formations of the rock are already in themselves a reason tobe very cautious of future predictions. We have seen this in our industryover and over again: Low hanging fruit is produced first. What comes afteris the tough part to produce.So what do we need to do, then? We need to make a habit of making smart energy conservation solu-tions the Nr. 1 in the energy industry and industry policy. Clean-techpower generating solutions should be the Nr 2. and on the third place onlythe workhorses of the fossil fuel industry. We need to start changing theway energy is brought to homes, and in the cities and in the cars on a largescale. 31
  31. 31. energy for one worldThe energy industry has a habit of maximizing profit through speculation,which exploits natural resources. Can we focus on building an energyindustry that is serving the people and respecting our nature? Natural Gas prices will soon pick up, because experts expect a rapiddecline in America’s conventional gas production, leading to shortagesamidst ever-increasing demand. Thus, many large oil and gas corpora-tions have invested in shale gas now in order to take advantage of highfuture prices. We need to figure out how to deliver the lowest cost, lowestearth resource consumption options to our homes. (I know about the present struggle in Germany to get this right, butthere is also some learning to do with changing the prevailing businessmodels.)I believe in an America of abundance. Abundance in life and life styles.However, in order for this to be achieved, America needs to show respectand leadership (to the world) over the use of natural resources. The shale gas industry, worldwide, is in need of policies and best prac-tice guidelines in order to avoid unnecessary harm. In Canada, the naturalgas industry themselves have offered to define best practices for moni-toring and registering the chemicals and application of this technology. Iunderstand the EPA wishes to do the same in America. I welcome and applaud that.Actions away from home can have great consequences and impact athome. Think of the 2008 subprime mortgage loans and banking crisis inUS, think of Greece, think of the present Euro-zone crisis. Now, our politi-cal leaders are beginning to understand and react to the fact that the finan-cial system needs global, regional and local oversight. However, this kind of thinking has not yet pervaded our world energysystem. There is no independent institution, organisation with experts, orforum which discusses, reviews, plans or agrees on the robustness, stabil-ity, affordability or sustainability of (decisions taken) in the energy systemin the US, in China, in Africa or in Europe. China looks after China. The US looks after the US. 32
  32. 32. chapter 2 – making roomInternational dialogue between countries on energy production and con-sumption behaviours of natural resources needs to increase, because thatwill determine the price, affordability and outlook for us all.America’s Energy Future is hence linked to my Energy Future. America’sbehavior in its oil and gas industry is hence linked with my future outlookon this industry. Thus, a fall or crisis in America’s shale gas market sectorwill affect us all. Gas will be short and prices will rapidly rise. Finally, a couple of weeks ago, America’s credit rating offices Moody’sand Fitch downgraded 7 or 8 European countries on their credit rating. There is no such thing yet in Energy Land.But if I were to staff such an organisation now then I would advise theanalysts to lower the credibility rating of the US on its present energy out-look, because of the present plans and approach taken with shale gas.STRETCHING THE ENVELOPEOpec’s view27 today is that there are presently approximately 1,3 trillion(oil) barrels reserves, and with over 1 trillion barrels reserves in OPECcountries. Ultimate recoverable conventional oil resources, which include initialproven and probable reserves from discovered fields, reserves growth andoil that have yet to be found, are estimated at 3.5 trillion barrels. Undis-covered resources account for about a third of the remaining recoverablereserves, the largest volumes which are thought to lie in the Middle East,Russia and Caspian. Non-conventional resources, which have been barelydeveloped to date, are also very large. Between 1 and 2 trillion barrels ofoil sands and extra heavy oil may be ultimately recoverable economically.These resources are largely concentrated in Canada and Venezuela. However, the pace of oil production is getting larger, today, so that wewill produce the next (easy oil barrels) 1 trillion boe in the coming 15-30years. 33
  33. 33. energy for one worldThe IEA expresses further some concerns in relation to the rate of produc-tion decline of the top 800 producing fields, including the 54 super-giantfields. Average production declines of 6.7% (now) till 10% (2030) for thesetop fields are being seen and predicted, and poses a real challenge on theindustry at large in management, investment and (new) field develop-ment programmes, in order to meet the global and rising energy needs. Today’s daily world consumption equals 225 million boe (barrels ofoil) or 15 terawatt-hour, and is approximately made-up of 35% of oil andbiofuels, 27% of coal, 23% of natural gas, 10% of renewable energy and 5%nuclear. 28 29 After more than 100 years, oil, gas and coal are still the power-horses of the world, with presently 48% of world coal being consumedin China and rising, and with oil, gas and coal production still on a rapidincrease of some 3% and 6% annually. 30 In order to maintain “in-play” and seek new growth areas, and over thelast 10 years or so, the IOC’s have set a new trend and are focusing on evermore complex and unconventional oil and gas reserves: shales, sands, ter-tiary recovery methods31, poisonous reserves, arctic, deep-sea, etc. At home or at host governments, where at times, they are exposed to“harsh” questioning and negotiations with government, local or globalngo’s or public. This “stretching of the envelope” poses some real new chal-lenges, questions and risks and that should be on the top lists of concerns:• How can we guarantee that these new and modern production tech- niques pose not a threat to the underground stability and formation waters? Now and in the future?• How can we guarantee that some of the intensive and aggressive tech- niques do not pose environmental damage or harm to people? (e.g. shale gas experience in US, Kashagan in Kazachstan)• How can the industry maintain control over ever increasing size, com- plexity, diffusion of responsibilities, people, and operations? BP’s Gulf of Mexico example. What do you think will happen when we have another BP Disaster but at another “play” in the arctic? Again a sen- ate hearing of three CEO’s of “collaborating” companies and contrac- tors previously sharing responsibilities but now openly blaming and accusing each other, and denying any wrong-doing by themselves? 34
  34. 34. chapter 2 – making room How long will that go well for an easy ride and great time in our societ- ies?• Since Putin’s take-over of a majority share in Sakhalin, we see more and more national governments “using the environmental or per- formance gun on oil companies” to shoot the messenger of bad news (“spills, incidents, under-performance”): The IOC’s. How long is the money so good that you can forego your own ethical codes of values and health in relationships?• Concern with the ethical code of oil companies dealing with rogue regimes. Societal questions following the civic unrest in Lybia (Kolonel Kadhaffi). Vica versa and similarly, ethical questions are be-ing raised by the public in Iraq, Kuwait, Egypt, etc. on leaders making “deals” with Western Companies.Now in order to maintain their license to operate, Oil Companies havecommenced with Public Relations campaigns and to educate and includethe public on their plans and their decision making processes. Even politicians jump the bandwagon and invent slogans, such as:Drill, Baby, Drill.Questions in my mind remains:• When does PR becomes “Spin” or propaganda?• Are we stretching the envelope in the right direction?• Why don’t we spend all this human energy, capital investment and innovation at the other side of the coin, i.e. Designing a more holistic energy architecture, combining energy sources and saving energy at the point of use?FORM FOLLOWS FUNCTION? SELLING MORE, NOT LESS (or who and what are the Energy Companies serving ?)In architecture communities, the phrase “Form follows Function” ringsmany bells… 35
  35. 35. energy for one world Form follows function is a principle associated with modern architecture and industrial design in the 20th century. The principle is that the shape of a build- ing or object should be primarily based upon its intended function or purpose. (source: Lexington)At my speaking occasions, I like to speak of the effects company organi-zational forms have on their function(s). It is my belief that the organi-zational forms create company’s day-to-day actions, behaviors, decisionmaking and hence their future. So, in companies the rule is the other wayaround: functions(s) follows form. Now, I would like to ask you to take amoment and to reflect on the organizational form your energy suppliersare in right now, and what business processes (re: function(s)) are leadingthem. Are they trying to sell More? Or Less? Automatically. Because of theform. I have to agree, it may be nowadays a bit confusing time for energycompanie as selling “more” may not feel any longer all so good.Nevertheless, we continue to grow our leaders and managers, to:• Buy low- Sell High• Sell more value to your client.• Grow your market share.• Focus Focus Focus• More Profit. More Revenue. More Cost Control.• More More MoreAnd as a consequence, petrol stations and utilities have been privatized,and marketeers and deal-makers have entered the industry. The focus ison quantity and profits, not on quality or sustainability. It is very hard for energy companies nowadays to tell to their share-holders that they wish to change tack and start to sell less to their cus-tomer base and to help their customers to save their bills. Duke Energy in the USA (among others) seems to be one of the excep-tions, thanks to its visionary leadership. Germany’s experiment withrenewable(s) and gas energy may also lead to new examples at utilities(e.g. E.On). These utilities are opting with new service models. 36
  36. 36. chapter 2 – making roomActually, and in the past, energy (and utilities) companies were simple andboring. They were simply about oil and gas exploration and production, dis-tribution and/ or electricity generating facilities- which supplied theircustomer base with reliable and cheap solutions. Engineers were leadingthese shops. They did their job with passion and annual (profit) returnswere 3-5%. Over time, this has changed significantly. We are now clearlyentering a new phase and are struggling to find the new ‘mantras’ for theindustry. The new Visions. And the new forms. In order to implement our wish to use “less fossil fuel” in our westernsociety (remember our poker game), western energy companies may optto evolve in more co-operatives, serving their customers, their societiesand their employees (managers) and shareholders in a more balanced way. So, coming to this theme, my questions would be:• What form is your energy company in?• Who are they serving today? What are their goals for tomorrow?• Is it you, the customer ? Or is it their supplier(s) who have given them access to the (fossil fuel) resources to develop?• Or is it the state or shareholder, who asked them to provide a financial return?• Or are their partners and employees in the organization, to secure wages, bonuses and retirement funds?• Or is it society who asked them to develop energy solutions which serve your economy and your communities- and takes into consider- ation the needs of others, and for the next 100 years?I don’t know.But what I do know is that you have to find the answer inyour own environment and based on your own experiences. To find outwhat you would like to see they do and who you would like to see themserve. Consider the following:• A National Energy Company, with a large governmental stake in its ownership, generally speaking balances the interest of the company with the interest of the country. On jobs, securities of supplies, growth rates, returns from the company, etc. 37
  37. 37. energy for one world• An International Energy Company, with shares listed on the stock/ exchange, generally speaking, aims to maximize the financial returns from its assets (human and capital). and works to serve its sharehold- ers and its management (performance and bonus contracts)• A co-operative, a national bank in the Netherlands32 a good example, are created to balance the interests of the customers with the company and society. The company is owned and governed by its customers.Who do you want your energy company in your country to be? Do youthink your present energy company form serves you, your community,your country and our world energy future?ANDRE KUIPERS’ VIEWA couple of years ago, I was in a flight from Amsterdam to Houston. Sittingnext to me was Andre Kuipers, a still active Dutch Astronaut who was in-training at NASA for a new space mission. We had a long and pleasant conversation on the energy industry andon space discovery.One of my questions to him was (and I guess everyoneis asking him that): What is the one big insight you gained from being in space?Andre’s Answer: The beauty, but vulnerability of planet Earth. The “black”marking spots on its surface created by people and cities. His answer has always stuck with me. Well, what can we learn fromthis on sustainability of our life on earth and in cities? In 2007, we’ve had 250 million households in the 600 major cities liv-ing on a global or consuming living standard, consuming food, water,energy and goods at a rate unsustainable if everyone else would do this. 33 By 2025, we will have 180 million additional wealthy households inthese top 600 cities joining them. Mostly in the emerging nations. 34 Thatis an astonishing increase in consumption and footprint. We live in houses for our comfort and day-to-day care, and life in citiesfor being connected and having lifestyle options and jobs at hand. 38
  38. 38. chapter 2 – making roomBuilding cities and houses requires hence a couple of key facets: Visuallystimulating, divers, function, efficient and innovative. Innovation is when the full value-web, say customers, regulators (policymakers), businesses (builders, architects, utility companies, sustainabilityengineers, transportation systems, innovators (science and start-ups) andfinancial institutions (lifecycle considerations, financing considerations)come and sit together and start to create “replicable, scalable, sustainableand executable” (business model) solutions. So called BluePrints. Not incompetition. But in collaboration. Houses and cities not of yesterday, butfor tomorrow. Young people at Universities are presently trained in do-ing so, butjoin an industry which is not geared yet in working this way. The processis called integrated building design. The tools and techniques are avail-able, but the ways we are organized is still old-fashioned and keep mostlythe trades in their isolated boxes. After the (functional) definition of these Urban City and Housing Blue-prints (or design criteria) – tendering and competition for execution canbe unleashed. Well here is a eye-opening view from a world expert35 on the total ofour best-in-class industry on present day sustainability: Too much talk. The second point that comes through strongly is that companies are clearly having a hard time actually doing what they say they will do. Firms with a high carbon footprint, such as oil companies and airlines, might improve energy efficiency but overall emissions appear to be rising. For manufacturers and retail, increases in production appear to be offsetting improvements in material efficiency. Few companies show an appetite for fundamentally revisiting their business strategy and introducing new designs (e.g. integrating a cradle to cradle approach), sourcing (e.g. using only renew- able energy) or services (e.g. hiring rather than selling) based on sustainability considerations. In the absence of greater government encouragement and incentives, it is only a matter of time before sustainability reports become evidence of un-sustain- ability rather than the beacons of change, innovation and hope they could be”. 39
  39. 39. energy for one worldSo, we need to change. And we do need to smarten-up. And we do need itrather rapidly. How? By Innovation and Commitment. Just Like Edison.Just like Henry Ford. Just like Rockefeller. This is actually quite simple to do and organize, but is remarkably sel-domly done. Why?Well, perhaps we can find the answer at Gary Hamel. He recently pub-lished his findings on business innovation in Business Week36: “What limits innovation in established companies isn’t a lack of resources or a shortage of human creativity, but a dearth of pro-innova- tion processes. In too many organizations one finds that: • Few, if any, employees have been trained as business innovators. • Few employees have access to the sort of customer and industry insights that can help spur innovation. • Would-be innovators face a bureaucratic gauntlet that makes it dif- ficult for them to get the time and resources they need to test their ideas. • Line managers aren’t held accountable for mentoring new business initiatives or lack explicit innovation goals. • Innovation performance isn’t directly tied to top management com- pensation. • The metrics for tracking innovation (inputs, throughputs and out- puts) are patchy and poorly constructed. • There’s no commonly agreed-upon definition of innovation and hence no way of comparing innovation performance across teams and divisions”.So, we need some learning and leadership awareness training and initia-tives here. Top-Down and Bottoms-up. I think this kind of business innovation should start with a first roundof (high-level) conceptual “integrated design collaboration” (setting thecriteria for the solution space), followed by a round of competition, artis-tic design and diversity and the actual delivery. Allowing further solution diversification and innovation, whilst main-taining global and local functional sustainability and city footprint crite- 40
  40. 40. chapter 2 – making roomria. So, it is in principle possible to define sustainability criteria and solu-tions for each of the previous mentioned economic clusters and globalcities. Separately. Urban and Non-urban. Scandinavia, Germany and Austria have developed its functional speci-fication for sustainable houses. China is doing some remarkable eco-citypilots37 and star-projects. That they share with India. In the Middle-Eastwe have Masdar and Saudi Economic Cities, which can be used as exam-ples for the Arabic nations of North Africa and Middle-East. The only thing needs doing is to simplify and translate these innova-tive (iterative) leading solutions into suitable (and if required: low-cost)practices for the regional and local industries and clusters and to improveour inter-cultural collaborations. City councils and Project developers canbecome more honest about the economics of the project vs. their socialresponsibilities. So: we need to step-up. Become more aware that it’s nolonger a nice to have, but a true essential to do in order to progress oursocieties and “make room for all”. We have an invitation to create the conditions for rapid learning andbest practice replication- across these 600 global cities. Our interconnect-edness on-line and in profession can make the impact we so seek. By so doing, we can save 30-50% of the energy use over the lifetime ofhouses and cities. The good part is: a similar exercise has been done on ourworld transportation system and car design and fuel efficiency. Exerciseswere performed by an Oil Company with some break-through insightsand business opportunities. Those haven’t seen the market, yet. Guess why?THE BATTLE BETWEEN ELECTRONS AND MOLECULESEver since Henry Ford, the car has been claimed by the Oil Companies38and the Car manufacturers. The car (and our other transportation sys-tems) is fuelled by oil. A strong “symbiosis” and synergetic business model of “standardizedfuel supplies” and “standardization” of the “internal combustion engine” 41
  41. 41. energy for one worldengineering were key in order to propel the motoring industry in its pres-ent importance and state. The contributing fact that oil was, in the early days, cheap, easy to find,produce, store, transport and sold, a great advantage over the less reliableand more difficult to distribute “electricity”. Branding and commercialswere being used to “create the habit” and to build customer loyalty. Peoplesimply loved “motoring”. The sound and the smell of it. They still do! Adda flavor of Formula-1 racing39 and you’ve got some infinite access to manyman’s heart and mind. But the world is changing. And also the needs ofpeople are changing. We see the rapid rise of cities. More and more peoplestart to live in congested cities. We see traffic jams, and we experiencehinder from the noise and fumes of cars in these traffic jams.People indeveloping and emerging nations need different cars than the averageAmerican household family with a SUV. The average person in India canonly afford a Nano40, not a gas-guzzler. Today, and worldwide, the internal combustion engine is still rapidlygrowing in numbers. New capacity is added every year. We have approxi-mately 1 Billion personal cars. Every year- approximately 77 million newcars are being added to this fleet. So, new and additional petrol demand iscreated every day. Year round. Whilst we “know” that finding and produc-ing new oil reserves has become ever more difficult or complex. Industryexperts seem to agree that the “age of easy oil” has peaked, and that we areheading towards a period of more costly (to produce) oil. So, why do we keep burning the oil, why do we keep this ‘Burn & Earn”practice alive? (which is by the way also a vital base product to much of ourindustries: clothing, plastics, building material, pharmaceutical, bio, etc.)?Is it about design, or economics, or power on the market? Over the lastcouple of years, there have been some initiatives from car manufacturersto break loose from the old paradigm. To introduce full electric vehicles or“electricity leveraged”41 vehicles. (City) Governments and some utility andIT companies have joined this band wagon, and are making attempts tobreakthrough, install infrastructure- and re-claim the car. To transfer it from molecules to electrons. To make the car “smart”. 42
  42. 42. chapter 2 – making roomBut it is still difficult to beat the petrol car on price. It’s difficult to break-inthe existing convenience of re-fill and stations or fuel options. The battleto claim victory over the design of the electric car and between the greatleading car manufacturing nations, USA, Japan, Germany and China-is infull swing. But why?Because the market is there, it’s good for brand image and because it maybe revolutionary. The electrical car is still much a niche. With an estimatedcapacity of some hundred thousand(s) cars per year, it’s still much in itsinfancy. A baby in the industry. In order to conquest the market- we surelyalso need to take some ideas and to take some lessons from Edison, Rock-efeller and Henry Ford in one- go... New whole, integrated solutions need to be developed, financed andexploited in concentration. Company Better Place is an US/Israeli VC-backed venture and is tryingto do just that, but may be a little too little, too early, and too soon to makeit great. 42 In China, and in e.g. Tianjin, General Motors is launching a completenew car system. A car system of the future. It will be ready by 2020. 43 The European Commission (EU) has expressed an intent to ban “inter-nal-fuelled combustion engines” from their leading cities. California hasset themselves some tough “clean fuel bills”. Present day Oil Companies could take a more leading role in “connect-ing the dots” and start to learn and operate new forms of personal mobilityin cities. Aren’t they the ones who kept us driving our cars, all the way? They’ve got the balance sheet. They’ve got the financial muscle. Theabilities to lead projects from start to finish. To sit them out. And the abil-ity to connect with their customer. I am still waiting for the first Oil Company to make that entrepre-neurial move. To take the initiative and take the new into a profitabilityor business proposition which is competitive and socially responsible incomparison with present-day practices. 43
  43. 43. energy for one worldBEING A FOOL IN YOUR CHILDREN’S EYESWhen thinking on the business-to-business (or country-to-country) dealmaking in the extraction industry, I come somehow to the insight that inorder to progress our approach here, we may wish to start to include theconsequences of our decisions and actions, and to start to include consid-erations for:• future generations (how will they review our decisions and actions today?)• poorer or lesser wealthy nations (how happy can they be if our behav- ior drives up the price of food, transportation, etc. and let them stand in the cold, in other words restrained access to these resources?)• the countries where extraction takes place (what steps are taken to ensure that their economies will benefit and flourish after the resources have been exploited?)I expect that the result will be a more holistic approach to field extraction.Including a larger stakeholder group and considering a longer time, in ourdecision making. The earlier suggested “Central World Energy Council”could be a body to do so. I do understand the present “scramble” practicebetween nations (West, East), companies (IOCs, NOCs) and emerginglarge sized consuming nations (China, India). Nevertheless, only by starting to create a common vision and aware-ness, can we generate hope and positive energy in building the “sustain-able energy architecture(s) of the future”. Can we raise our consciousness and improve business rules andbehaviors. When looking at the International Oilco’s44 listed at the (inter-national) stock exchanges, one sometimes wonder how they have takensustainability into their reserves portfolio thinking and account. Let’s give some examples:• R/P (Proven Reserves/Annual Production Rate) is the industry nomi- nator for indicating the amount of proven reserves the company has in terms of present production rates. A R/P of 10 stands thus for an ability to produce another 10 years. 44
  44. 44. chapter 2 – making room Now 10 years in energy land is not a long time. Energy companies lobby for understanding in society on their significant investments levels in new projects, fields and infrastructure and which can only be depreciated and monetized over a period of say 30 years.• Another trend in the industry is that the international industry (the Oil Majors) have, for some considerable time now, started to focus on finding and exploitation of new Big Cats (huge new fossil fields). Large and larger project developments. Since historically, the industry knows that these will deliver the best economic value to corporations, over time.Now here comes some thinking: Industry knows that it takes (year afteryear) more and more effort to find new and sufficiently attractive amountsof oil or conventional gas (take e.g. the present maturity of the North Seaor the Gulf of Mexico), so it is thought to be normal to consume the bestfinds, today. To explore, and to immediately exploit.To monetize instead of leaving room (and leaving major fields) for ournext generations. Traditionally, some National Oil Companies have beenexample custodian-keepers in preserving value for a longer period oftime. Saudi Aramco or Qatar and in Europe Norway being examples. Why don’t we use this form of sustainability thinking in our portfolioswithin our energy companies and licensing countries? Why do we not take the opportunity to work towards a more sustain-able R/P of our national and international energy companies (say 30 yrs),and especially now that gas seems to become so important45: Why don’twe ask our energy companies and licensing countries to maintain anddevelop a more balanced project development portfolio i.e. having andleaving some fields in the kitten for later, and electing to work on somecomplex (and thus costly) fields now? A well balanced and managed mixture of fields. Short-term and longer-term more balanced, and with planning for the next 50 to 100 years inmind? 45
  45. 45. energy for one worldI sincerely think we will benefit if we draft some new policies here, to helpto grow our industry and to use our time and capabilities more effectiveand to lead new ways to our common future.The word sustainability hasbeen used and misused in many ways, surely also in the energy world.Energy companies publish glossy and fine reports under this umbrellaword, but seem yet hardly address some of the more essential issues. Let me try to give an attempt of what we may really look to cover forunder this umbrella word.• Extraction (industry) = removal industry. Taken away for use. Will not return.• Sustainable (industry) = what you have taken for use. You will re-use, give back or improve for next generations.For starters, and what I would expect is that society and companies startto look and account for what they take-in from the world (resources bor-rowed) and what they expel or give back to the world. In principle, andwhen sustainable, these equations should be neutral. Conventional andfossil oil companies are in principle harvesting in nature (so far). We know we may need doing this for quite some time in order to letour world and national economies grow. We desperately need do-ingthis. Right now. The world does need this energy. What we could howeveralso start doing is to compensate our take from the planet (oil and gasresources) and invest some of the financial returns in contributing to thedevelopment of a more sustainable energy architecture. Some examples:• Be an absolute leader in promoting “consuming less fossil fuels”. Transform from burning the fuels for electricity or transportation, into using the product for sustainable materials (e.g. in construction, plastics, etc.)• Spend significant sums of money and effort on lowering the present fuel consumption of cars; Help the transition to fuel-save car fleets: from 1:10 to e.g. 1:50• In energy consuming countries (all nations): support, assist and lead the way to a new energy architecture blending clean-tech, local solu- 46
  46. 46. chapter 2 – making room tions, with the existing global fossil energy supply system. Reduce the dependencies on the global fossil market.• Whenever oil companies leave depleted fields, ensure that the local economies have something else they can grow their local economy on. Support the creation of jobs of the future in countries of operation.Decisions which may seem quite rationale and smart today (focusing onprofit and growth) may perhaps seem outdated tomorrow.Oil is Black Gold. It has a long and lasting value for our society (re: mate-rials, industrial processes, etc.) and should hence be treated as such. Notsolely “burned-to-earn”. I guess that our common dream and vision is that we all wish for soci-eties and corporations to balance• profits (economic goals), with• sustainability (thinking on the effects of our resource use and human efforts for today, tomorrow and next generations), and• with corporate social responsibility (what do we do to create a harmo- nized society; now and in relation to other nations).BOOK-KEEPERSOn another note, I would like to share some paragraphs on why it is so dif-ficult to get-off investing in upstream oil and gas. And why it is so difficultfor our economies to invest in Wind, Renewable Energy or Retrofitting ofBuildings, or Building sustainably. Ever since its inception, the oil industry has been blessed (or cursed) bythe incredible earning power of its offering. Over the years, the industry has learned that reserves, once found, pro-duce on average twice as much as originally foreseen. That has been “true”for a long time, and for the big and easy reserves found in the last century.So Oil and to a lesser degree Gas, had and still has an incredible “upsideearning potential”. You invest 1 dollar. You expect a return of 2 dollar. You actually get 4dollar. (Very much simplified, okay). So, with a little effort, companies can 47
  47. 47. energy for one world“sweat their assets” and make a great buck. So, the big and major oil com-panies of today are much the same as the investment banks, such as Gold-man Sachs. It’s a great place to invest your money since you can be assuredof a great ride. Especially in this age and time as the world is in accelera-tion, a little uncertain and very hungry for oil. The price of the product isnow the great driver of profits. Not reserves. That earlier time (of easy oil)seems past (and obviously further taking into consideration all the social,political, operational and economic risks of managing and investing inupstream oil projects). Now Wind, Sun, Renewable Energy, sustainable buildings, etc. is acomplete different kind of industry. It’s retail. Its’ Wall-Mart. In order tomake a living, you have to work hard, put a lot of labour in, have to be verycost conscious, and the returns are very predictable. Very little upside potential. Hardly any. So, this is part of the big puzzle.How to transform our societies, free market economy, financial institu-tions and oil companies so we can adopt another perspective on what weare after? What needs to be done?To contribute to energy transition. To contribute to transformation andinnovation. To contribute to job creation. To contribute seriously to thelasting values of our societies. Looking at the world developments as they are, we could only wishthat Oil companies (and their supervisory boards and investors) start toaccept this obligation and great opportunity to make a difference.WHAT OR WHO IS DETERMINING THE PRICE. WHAT IS ITS EFFECTON OUR ECONOMIES? (ON GROWTH, ON FOOD, ON STABILITY?)Let’s look at the working of the commodity markets, on energy prizingand the differences in looking at the price of energy in the East, comparedwith the West. Let’s commence with some basics: Under normal condi-tions- the price in the market of a commodity (oil, gold, ore) can be deter-mined by, either/or: 48
  48. 48. chapter 2 – making room1 Cost-based pricing system: the (average) cost of production, plus some overhead and profit for the manufacturer (miner, oil company) of the commodity; Or2 A (free) market-based pricing system: a competitive based pricing sys- tem based on supply and demand, on what consumers are willing to pay for the product, and on the cost-plus pricing of alternative solu- tions.Now, since commodities (and the manufactured goods such as fuels) areof such value to a local economy, the financial market and buyers createddifferent mechanisms for the purchase of a commodity:1 Long-term contracts2 Spot markets – to cover peaks and troughs in demand, for periods – like e.g. summer-time or winter-times3 Derivatives – futures on the commodities.As the commodity market(s) became bigger and more complex, and thevalue chain more immense and essential for human endeavours, com-bined with the need to stabilize the commodity market, for unexpectedevents or eruptions, the following physical additional tools to manage thesystem were created:1 Spare capacities2 Reserves in ground, or reserves of end-products (tankage, gas storage, etc.).Since the price of an energy commodity is of essence to the developmentof a local economy, and with, traditionally and over the last decades, quitea difference in the (exchange) value of the currencies and economiesbetween the West and the East, we have seen also two non-physical instru-ments entering the market:1 State subsidies and/or taxes 49
  49. 49. energy for one world2 Hedging and arbitration – traders making “a buck” by moving stock from low to high, or the other way around and based on market senti- ments.Due to the cost of the war in Vietnam, the perceived overvaluation of theUS dollar, a run on Ford Knox (the gold bank), President Nixon decided inaugust 1971 to “float” the dollar. To override Bretton-Wood. 47That changed the world. Now, let’s look at what has happened over timewith the system of pricing of a major commodity, namely Oil: Until 1973, the market was mostly controlled by the international oilcompanies and the price (in the West) was grossly based on a cost-basedsystem. Since 1973 the market rapidly moved into a system of market-based prices. The supplies in the market were more and more controlledby OPEC (the producing nations) and the market was clearly willing to paya higher price than only cost-plus. During this period, the West investedheavenly in its “own” energy system. The Gulf of Mexico and North Sea Oiland Gas were brought to market – dampening the price of oil and bring-ing it back to a cost-plus system. Well, ever since the year 2000 thingsappeared to change. Not only because the change in political agenda and energy securityoutlook (following 9/11), or because of the debates and emotions on cli-mate change. Sure both made their impact, but we were also entering anew period in world development:1 The world population was rapidly rising, due to a much improved wealth and health.2 Rapid economic development of the East and Developing Nations: The World under construction. A Power shift from West to East.3 The age of “easy oil” was coming to an end: maintaining and develop- ing the existing conventional energy system was expected to require more and more effort (and thus money) to do so, influencing the price (and earning margins) of oil.The above factors combined are perceived the present “drivers” of theworld energy system and price developments. 50
  50. 50. chapter 2 – making roomBP’s most recent statistical review of the world energy market revealedthat the present world energy demand is growing at 6% per year, indi-rectly implying a need to double global supplies every 12 years.Ever since the late 90’s when the price of oil was stable and fluctuatedaround 20 USD/barrel, we are now living in a world where the price of oil,and as presently supported by Saudi Aramco, is believed to be “stable” forproducers and consumers at around 80 USD/barrel. 48Seen over the last 20 years period,- that’s an average annual inflation of 8%in price, thus well over the World GDP (average) growth rate or inflationrate. So, in effect, today’s energy system and markets are extracting moneyfrom the economies to keep the present reigning holders of this system,oil and service companies, sovereign resource holding nations, investors(pension funds) and banks, in check. Never mind OPEC’s good intentions. Over the last 3 years or so, wehave seen and experienced again another phenomenon in our presentworld energy system: The first rapid rise of the oil price (in 2008) to 140USD/barrel was believed caused by demand needs outgrowing supply. Amere 1-2% difference between the demand and supply, was reason for a50% price hike. Some analyst belief that this rapid rise in energy price in 2008, was thelast “drip in the bucket” which caused the default on mortgage loans andloan derivatives in the USA49. In 2011, and over the last couple of months,we are experiencing again a similar pattern. The hunger for energy in theEast combined with the war in Lybia, caused the price to jump again with50-60%. Again, only by a fall of 1,5 million barrels production, that is lessthan 2% of the total world oil daily production, caused our energy systemagain to show signs of over-heating. What is the effect of this on our individual and global economies? On stability? On the price and ability to produce food to the people indeveloping nations? On Productivities? On State Budgets? On economichealth? On global collaboration or competition for energy? How can developing and emerging nations fuel their economies if thecost of fuel and energy is only payable to the “Have’s” and more maturenations? How can they maintain energy subsidies if the “energy system 51