The Secret Way in Which Our Enemies Use Our Infrastructure
Every year I present a briefing to a select gathering of ambassadors, officials, and energy executives at Windsor Castle outside London.
These Windsor Energy Consultations take place under a royal charter granted by Queen Elizabeth II.
One of the great traditions of these meetings is a behind-closed-doors briefing for ambassadors from around the world, held in the castle dungeon and intended for frank and open exchanges.
During my 2015 briefing, I revealed a controversial, under-the-radar crisis in global energy infrastructure. Since then, things have only gotten worse…
It’s already feeding into a global wave of violence…
And now, at long last, it’s being taken seriously by the international community.
The World’s Outdated Energy Infrastructure is Crumbling
Over the past several years I’ve talked about the accelerating energy infrastructure threat through a series of public presentations in North America and Europe (including at Windsor). There are two interrelated trends here, both moving in the wrong direction and each growing stronger more quickly than I had feared.
First, the world’s current system for producing or generating, transporting, and distributing energy is showing its age. The initial estimates for how fast this would be replaced, that I ran two years ago, were unfortunately too optimistic.
As of last week – and my most recent revisions – the situations is getting worse.
Almost 65% of all energy infrastructure, which underlies the vast majority of the world’s energy availability, is well beyond its useful life.
Some of it has already effectively collapsed.
And remember, that’s just looking at the current system, which leaves many places on the map with little to no power.
Which brings me to the second trend…
The World’s Population is Outgrowing Energy Investment
The growing global population is pushing up energy demand higher than just about anybody had anticipated.
So in addition to the crumbling of existing infrastructure, there is a quickly growing need for new infrastructure to be added.
The acute consequences of this are already surfacing, but will continue to get worse at least through 2035. Initially, the price tag for all of this was no less than $48 trillion over the next twenty years – or $53 trillion if the 2ºC climate change target in the EU’s “450 Scenario” is adopted.
But it’s now becoming clear that, extrapolating from current indicators, there will be a shortfall of some 40% in funding, according to estimates from the Paris-based International Energy Agency (IEA). As a consequence, the more environmentally-friendly EU approach with the $53 trillion is being pushed off the table.
Even that isn’t helping much.
As for the $48 trillion figure, at least $40 trillion is needed just to ensure the supply of energy. Less than $8 trillion would be available to introduce energy efficiency. Only about 45% could even address energy demand, and even then, the bulk of that would be to maintain present demand levels, not offset new ones arising from a growing global population.
These demand-side concerns also highlight another problem…
Energy Supply Isn’t Keeping Up
Despite the increase in population and demand, power production and generation are actually projected to decline without massive infusions of new capital.
While some of this money will be provided by governments, along with state-controlled and international energy companies, much of that will be of no benefit to large segments of the population.
In fact, the bulk of expected investment will be to prop up present production – that is, to put Band-Aids on declining supply. Well over 55% of all expenditures are in this category; a staggering 80-90% when it comes to crude oil and natural gas.
Even then, the total available investment will be constrained by national and corporate debt. Energy infrastructure may be essential, but it doesn’t provide a readily and directly obtainable return on investment. These investments provide a benefit over time, but are very costly up front.
And that brings me to the most dangerous ramification of the energy infrastructure crisis…
Underinvestment is Creating the Perfect Conditions for Terrorism
When I first presented this aspect at Windsor in 2015, it had an immediate and chilling impact on the distinguished audience.
Then, I shared my calculations according to which the infrastructure shortfall would leave billions of people across the globe without access to regular energy supplies. Some populations would progressively be cut off from energy altogether.
This would result in a rising portion of the world literally living in the dark.
From humanitarian and developmental standpoints, this is a calamity in itself.
But the effect for global security is, if possible, even worse. I told the ambassadors at Windsor this would be a prime recruitment environment for just about any terrorist group that came along.
Not a single ambassador assembled in the dungeon disagreed.
The situation is now causing even more concern. As the economic plight of an increasing portion of the world’s population becomes more desperate, a breeding ground is forming.
This may have been initiated by other factors, but the oncoming energy shortfall will accentuate it. The connection is now on the radar screen of international organizations.
In fact, the International Energy Agency (IEA) will hold an initial session on the link between terrorism and energy infrastructure at their Paris headquarters at the end of next week. Marina and I will be in “The City of Lights” at the time.
I’ll let you know exactly what happens, right here in Oil & Energy Investor.