Ten Key Energy System Dynamics – And the Implications for Global Energy Company Communications
Burson-Marsteller Global Energy Practice May 2012
In this article we explore ten important dynamics of the global energy system, as it is currently evolving, and the implications for communications and positioning for global energy companies.
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The dynamics are:
Energy issues are undoubtedly becoming more global. While oil was among the first truly global industries owing to its transportability and played a major role in the development of the global corporation – much of the rest of the energy system remained comparatively local in scope.
1. More challenging energy 2. Globalization of energy 3. Technology and innovation imperative
4. Increasing role of gas
Globalization of energy
Even if globalization of the energy system is undoubtedly increasing, much is still local in terms of both reality and perceptions – with the energy mix and energy security for different countries and regions varying significantly depending on a range of factors, including geography and what is at hand locally (e.g., big, fast-flowing rivers for hydro, coal and oil deposits, windy and sunny regions, technological and financial capacities, public awareness, expectations and acceptance of energy solutions, and so on).
5. Integration 6. Efficiency equation 7. Doubts about the alternatives 8. Growing focus on energy access 9. Green and carbon agenda 10. Energy jobs Part 1 – More challenging energy – can be found at the following link: issuu.com/bursonmarsteller/docs/tenkey energysystemdynamics.
Oil Impacts Oil prices and oil supply / demand are seen to be key factors in global development – with growing demand and tightening supply a factor in what some predict to be increasing global economic volatility, inflationary pressures and trade deficits. It is important to note that the energy price shocks of 1973-74, the late 1970s
In this installment we address the second key dynamic: Globalization of energy. Note: This is the second part of a 10-part series on key energy system dynamics and the implications for global energy company communications.
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and early 1980s, early 1990s and late 2000s, were all followed by economic recessions. It is often easier to cut back on consumption of other goods in the short term than it is to cut back on oil consumption. High energy costs can also make other goods more expensive (e.g., food). Governments have less money for funding essentials like education and healthcare. So the overall economy suffers. This can negatively impact job creation and growth, and fuel social tensions that can erupt into active protest and more (discontent over rising food and energy prices are often dynamics in social instability). The fear is that with limited spare capacity ‘oil shocks’ will become a more regular source of disruption to the global economy. This makes it imperative that we find additional supplies while reducing the extent to which we use and rely on oil.
How much of a factor is this dynamic in the long-term military planning of these nations? How much more vulnerable to oil price volatility are they going to be? Do they need to engage much more in shaping global energy frameworks and outcomes? Meanwhile, most oil production growth is expected to come from the Middle East and North Africa (MENA) – a region with around 60 to 70 percent of the world’s known oil reserves. Potential supply disruptions and the impacts of underinvestment to develop production capacity in this region could have an even greater impact on the rest of the world than in the past, even if some countries reduce the extent to which they rely on energy from MENA – as the United States has done, with now only 20 percent of its imported oil coming from this region in 2011, compared to 26 percent in 2001. (In comparison, the United States has increased its reliance on oil imports from Western Hemisphere nations like Canada, Mexico and Venezuela – with 54 percent of its imported oil in 2011 from the Western Hemisphere, compared to less than 50 percent in 2001).
Certain parts of the world will become much more reliant on imported oil in the decades ahead. For example, according to the International Energy Agency (IEA) four-fifths of oil consumed in non-OECD Asia (e.g., China and India) is expected to come from imports in 2035, compared with a little over half in 2010. Does this mean these countries will be even more assertive and active in geopolitical terms to enhance energy security in the years ahead?
It is important to realize that the oil price is determined not by where the oil is extracted, but by global markets, which are influenced by factors including perceptions of risk, market elasticity, and rising and falling demand, at the global level. For example, Canadian or Venezuelan oil will cost more in the United States – even if all things remain constant in these countries – but the global price is driven up by perceptions that a country in another region may be running out of oil or is unable or unwilling to maintain or increase production. And with limited options at present for transportation fuel, it is not simply a matter of switching to another energy – at least not unless we are prepared to pay a much higher price for energy and to jettison lots of existing equipment and technology.
Net Imports of Oil (millions of barrels per day)
Source: IEA World Energy Outlook 2011 (www.worldenergyoutlook.org)
This chart shows the increasing reliance on imported oil by fast growing economies like China and India. Meanwhile Europe, the United States and Japan are predicted to reduce reliance on oil imports. It is important to understand where relevant countries are importing oil from. These dynamics have a range of geostrategic and global implications.
Global Frontiers Our appetite for oil and gas is leading global energy companies to operate in more extreme and challenging environments around the world. Indeed, this is pushing the geological and geographical frontiers of where companies 2
cooked meal per day to save on fuel. This impacts their diet – with meat requiring more fuel to cook than other foods – if they have it.
of any kind are operating globally – whether it be ultra-deep offshore hundreds of kilometers out in the ocean (and thousands of meters below the sea floor), in the far north of the Arctic or in rock formations previously thought to be too difficult. To operate in these areas, energy companies are developing and utilizing technologies and practices that are truly amazing in their complexity, scale and sophistication (and bear comparison with anything humanity has achieved in other fields of endeavor). Energy companies are also more connected and networked through technology than ever before. Capacities can be shared and solutions arrived at by utilizing expertise and teams from all around the world – even in the most extreme locations on the planet, thanks to satellite communications and information networks.
The price of grains and other food is also significantly impacted by the cost of energy – if they need to buy and can afford them. (In 2008 a spike in the oil price was a major contributor to a dramatic rise in global food prices – with oil a major cost for food and agricultural industries. The poorest 2 billion people on our planet spend about 50-70 per cent of their incomes on food – so even modest price increases, by developed country standards, can entrench and spread poverty – and result in public outrage. Few things make people as angry as hunger or the threat of it). Burning fuel such as wood and dung also impacts the girl’s family’s health in other ways – when they breathe in the smoke (the World Health Organization estimates that indoor air pollution due to inefficient biomass consumption kills 1.45 million people per year).
Energy Poverty-Nexus Picture this: a young girl in a rural community has no light to study by at night. There is no electricity or other modern forms of energy accessible in her community. Off-the-grid solar energy provided by an NGO has not made it to her village yet. Candles are inadequate for reading at night and are used sparingly in any case.
Rural electrification, on the other hand, has been linked to myriad benefits. This includes reductions in fertility – which means a more manageable number of children and less deaths in child birth. It also increases the amount of time women can spend in the labor market earning higher incomes, and reduces the environmental impacts (such as deforestation and desertification) for societies that had been reliant on burning wood for fuel.
During the day she and her mother spend a large amount of time collecting wood to burn for cooking and heating (women and girls are the primary collectors of biofuels such as wood and animal dung in many impoverished rural communities). This further limits time for learning, so education is a luxury her family cannot afford for a number of interlinking reasons. Modern fuel is simply too expensive to enable it. Even if she could go, the local school dismisses by 4 pm because it has no reliable power. It uses a car battery to power a microphone at assemblies. The nearest electricity grid is hundreds of miles away (around 20 percent of the world’s population doesn’t have access to electricity; 2.7 billion rely on the traditional use of biomass for cooking).
Furthermore, without reliable and affordable power there is no refrigeration to keep food, no added heating or cooling for the home (another barrier to study), no ability to use more modern equipment to pump water and irrigate crops, to cultivate land and harvest on a much more productive scale, as well as no TV, radio or mobile phone connection to access news and information that could help them be more productive and know their rights as citizens. There is also no power at the local hospital – which means that options are very limited when they get sick.
The girl’s family also uses the fuel they collect sparingly. Often they have only have one
There is certainly no way they could develop more complex and productive economies –
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leading eventually to light or heavy industry and then on to more knowledge-based economies – without reliable, affordable power.
with growing energy demand, Chinese people still have a long way to go to catch up with U.S. citizens in terms of energy use in their daily life.
Indeed, developed economies use much more energy than impoverished ones, leading to striking disparities and imbalances (e.g., it has been estimated that the richest 20 percent of the global population use around 60 percent of the energy supply). And so global energy poverty reinforces overall global poverty and inequality – with a two-way relationship between energy access and human development. This is the energy poverty-nexus.
Indeed, much of China’s energy use is for industry and manufacturing by big companies – not for everyday living. In any case, is China’s energy consumption really just China’s energy consumption when we consider the amount of energy used to produce goods that are exported all over the world – including by global companies using China as a manufacturing hub? What about the fact that China increasingly imports its energy from other countries? Is the energy embodied in a smart phone – designed in Japan, produced in China and sold in the United States – Chinese? Does it depend on who profits from it? Is the pollution caused by manufacturing powered by fossil fuels in China, China’s problem to solve alone? What about when we consider the environmental benefits to countries that have offshored such manufacturing to China, while holding on to higher value links in the value chain such as branding and technology innovation?
Note: We will explore the growing global focus on energy access in Part 8 of this article.
Blurred Boundaries Economic globalization has been one key factor in globalizing the energy system. Enabled by modern communications and transportation technologies, complex global supply and value chains now link the world economy in myriad ways. To a much greater degree, goods and services are now produced and consumed across multiple countries and geographies – blurring the national boundaries that used to define and divide the global economic landscape much more.
These questions reinforce the global nature of the system and help illuminate some of the nuances involved in what are truly global energy and environment issues.
China is now the world’s biggest energy consumer and producer – and is increasingly reliant on imported energy to sustain its growth. By 2035 it is predicted that China could consume around 70 percent more energy than the United States, the world’s second largest energy consumer. This is linked to the fact that China will almost certainly be the world’s fastest-growing economy during this period – with rising living standards and a more developed economy. However according to IEA estimates, per capita energy consumption in China would be only around half that of the U.S. in 2035. To put this in perspective, the Energy Information Agency (the U.S. government body responsible for energy information) estimates that residential energy use per capita in China was one-ninth the U.S. level in 2008 – in part because Chinese people live in dwellings with about half the living space per person. Even
With the enabling effect of information and communications technologies, advances in the transportation of liquefied natural gas and the construction of intercontinental gas pipelines, increasing linking up of national and regional electricity grids, global markets for coal, the more rapid spread of new energy technologies provided by companies operating at a global level, and fewer countries that are truly energy self-sufficient – our energy system is itself more global and interconnected than ever. Add to this the increasing global reach of news media and NGO groups scrutinizing energy developments around the world, the fact that anything is global once it is on the internet, international agencies and organizations such as the United Nations that are tackling energy
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issues (and linked global concerns such as climate change, food and water security) – and energy issues are far more global than they have ever been.
They also need to make sure the global arteries of the company are working to ensure effective collaboration, cross-fertilization and sharing of best practices and knowledge.
Communications Implications Global energy companies need to be able to operate and to tell their story truly globally. This means having a communications organization that genuinely thinks and acts global as well as local.
The leadership of the company need to have and communicate a global perspective – and to balance the extent to which the focus is on the national origins of the company. It is important to remember that being global is very different to being international.
It is certainly not – and can no longer be – simply a case of paying lip service to notions of being global, for company positioning purposes.
In building local acceptance, it is important to show the global company is aware of the local perceptions, needs and expectations of people with an interest in the company, and that external input and views are valued and appreciated. Success for global companies is increasingly dependent on the extent to which they can convince local stakeholders that they are supporting local development goals and objectives. With increasing competition for energy development opportunities in many parts of the world, being able to make this ‘winwin’ case is becoming more and more important to overall success.
It involves a greater need for understanding and adapting to local cultures and diverse operating environments around the world. Even if the world is rapidly becoming more integrated and connected – cultures evolve slowly, over many generations. And while culture is just one aspect of identity (and needs to be considered along with other factors), it is important not to underestimate the degree to which it shapes the mindset of company stakeholders and audiences. Don’t assume it is simply a matter of time or access to information before local stakeholders think like you, or that they already do.
Meanwhile, energy companies have a great opportunity to position themselves as making a contribution to meeting the global energy challenge, which, as has been discussed, is receiving much greater attention and focus around the world.
Being global means having teams and capabilities in place at all the required levels – and that they work together in the right way.
Global energy companies also need to be engaged in the political and policy world – especially in key hubs like Washington, D.C., Brussels and Beijing.
Energy companies need to remember that their global success depends on people in the different countries in which they operate and on empowering local teams.
Given the way policy trends develop globally, they need to carefully coordinate at a global level using research to develop effective messages and campaigns.
Having a variety of people representing the company – at the global and local level – can help to project an image more in line with the reality of diverse global organizations made up of real people working to meet important energy challenges globally and locally.
Note: We will discuss public affairs and government relations for global energy companies in more detail in Part 10 of this article.
Global energy companies often need to be able to better leverage local talent and brainpower to help shape and tell the company story in a way that resonates with local audiences.
Douglas Dew, Chair, Burson-Marsteller Global Energy Practice – with Ryan Fenwick, Senior Associate
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About Burson-Marsteller Burson-Marsteller (www.burson-marsteller.com), established in 1953, is a leading global public relations and communications firm. It provides clients with strategic thinking and program execution across a full range of public relations, public affairs, reputation and crisis management, advertising and web-related strategies. The firm’s seamless worldwide network consists of 74 offices and 81 affiliate offices, together operating in 108 countries across six continents. Burson-Marsteller is a part of Young & Rubicam Brands, a subsidiary of WPP (NASDAQ: WPPGY), one of the world’s leading communications services networks.
About Burson-Marsteller’s Global Energy Practice Burson-Marsteller’s Global Energy Practice is an unrivalled global network of communications professionals focused on the energy industry and energy issues. Drawing on our worldwide Practice network of more than 100 communications and public affairs professionals with expertise and experience in the energy sector, the Global Energy Practice helps clients: • • • • • • • • •
Build compelling narratives that articulate value propositions and positions of energy sector players Develop and implement communications programs that impact energy sector stakeholders Map and identify energy sector stakeholders Develop common-cause partnerships Foster markets for new products and services Protect and extend licenses to operate Win public acceptance of needed energy infrastructure development Manage critical relationships with decision / policy makers Anticipate what’s coming next – and be prepared
Website: www.burson-marsteller.com Twitter: @BMGlobalEnergy Contacts: Asia-Pacific Douglas Dew (douglas.dew@bm.com)
North America Jim Cunningham (jim.cunningham@bm.com) Laura Sheehan (laura.sheehan@bm.com) Beth Diamond (bdiamond@national.ca)
Middle East Stephen Worsley (s.worsley@asdaa.com)
Latin America Ramiro Prudencio (ramiro.prudencio@bm.com)
Europe Roland Bilang (roland.bilang@bm.com) Diederik Peereboom (diederik.peereboom@bm.com)
Africa Hemant Lala (hemant.l@arcaybm.com)
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