Resources for a sustainable future

12/7/2010 Guardian Business is underestimating catastrophic consequences of declining oil, says Lloyd’s of
London/ISS report.Lloyd’s of London has joined dire warnings about peak oil. Photograph: Reuters
One of the City’s most respected institutions has warned of “catastrophic
consequences” for businesses that fail to prepare for a world of increasing oil
scarcity and a lower carbon economy.
The Lloyd’s insurance market and the highly regarded Institute of Strategic
Studies (ISS, known as Chatham House) says Britain needs to be ready for “peak
oil” and disrupted energy supplies at a time of soaring fuel demand in China and
India, constraints on production caused by the BP oil spill and political moves
to cut CO2 to halt global warming.
“Companies which are able to take advantage of this new energy reality will
increase both their resilience and competitiveness. Failure to do so could lead
to expensive and potentially catastrophic consequences,” says the Lloyd’s and
ISS report “Sustainable energy security: strategic risks and opportunities for
business”.
The insurance market has a major interest in preparedness to counter climate
change because of the fear of rising insurance claims related to property damage
and business disruption. The review is groundbreaking because it comes from the
heart of the City and contains the kind of dire warnings that are more
associated with environmental groups or others accused by critics of resorting
to hype. It takes a pot shot at the International Energy Agency which has been
under fire for apparently under-estimating the threats, noting: “IEA
expectations [on crude output] over the last decade have generally gone unmet.”
The report the world is heading for a global oil supply crunch and high prices
owing to insufficient investment in oil production plus a rebound in global
demand following recession. It repeats warning from Professor Paul Stevens, a
former economist from Dundee University, at an earlier Chatham House conference
that lack of oil by 2013 could force the price of crude above $200 (£130) a
barrel.
It also quotes from a US department of energy report highlighting the economic
chaos that would result from declining oil production as global demand continued
to rise, recommending a crash programme to overhaul the transport system. “Even
before we reach peak oil,” says the Lloyd’s report, “we could witness an oil
supply crunch because of increased Asian demand. Major new investment in energy
takes 10-15 years from the initial investment to first production, and to date
we have not seen the amount of new projects that would supply the projected
increase in demand.”
And while the world is gradually moving to new kinds of clean energy
technologies the insurance market warns that there could be shortages of earth
metals and other raw materials needed to help them thrive.
Lloyd’s also calls on manufacturers, retailers and the wider business community
to reassess global supply chains and their just-in time models because the
“current system is increasingly vulnerable to disruption.”
The report says government needs to do much more to bring additional price
stability and transparency if the global carbon market is to become a reality.
Richard Ward, chief executive of Lloyd’s, said the failure of the Copenhagen
climate change talks last December has helped lull many business leaders into a
false sense of security about the challenges ahead. “We are in a period akin to
a phony war. We keep hearing of difficulties to come, but with oil, gas and coal
still broadly accessible – and largely capable of being distributed where they
are needed – the bad times have not yet hit … all businesses … will be
affected by energy supplies which are less reliable and more
  expensive.”
Go to: http://www.guardian.co.uk/business/2010/jul/11/peak-oil-energy-disruption