Reliance on fossil fuels is pushing the search for reserves into
more difficult and risky territories as declining production from
‘easy’ oil reserves combines with rising demand from developing
economies; an example being the current oil spill in the Gulf of
Mexico. However, this could spur on the transition to more
cost-efficient clean and renewable energy systems. 

Richard Ward, Lloyd’s Chief Executive, said: “The current
generation of business leaders need to rethink their approach to
energy risks or be left behind as energy becomes less reliable and
more expensive. The environmental and economic cost of our reliance
on fossil fuels is too high. We need a long-term plan to reduce
consumption and diversify our energy sources.” 

A report by Lloyd’s 360 Risk Insight and UK think tank Chatham
House: Sustainable Energy Security: Strategic Risks and
Opportunities for Business shows we face an era of uncertainty
and volatility in our energy supply. Price spikes and supply
disruptions will become more frequent due to rising consumption,
insufficient investment, and threats to installations and
transport. 

The cost and associated risks will push up the price of fuel at
the pump and have a knock on effect on a wide range of commodities
in the short to medium term such as wheat and steel. Combined with
political pressure to reduce greenhouse gases and protect our
environment this will force businesses to be more efficient
consumers of energy and adopt clean and renewable
technology. 

The report’s Executive Summary
notes:

1. Businesses
which are able to adapt to and take advantage of the new energy
reality will prosper.

2. Market
dynamics and environmental factors mean business and society can no
longer rely on access to affordable and easy to use energy.

3. We are
heading towards an oil supply crunch and global price spike.

4. Investment
in renewable energy and ‘intelligent’ infrastructure is booming.
this presents huge opportunities for new partnerships between
energy suppliers, manufacturers and users.

5. Energy
infrastructure will become vulnerable as a result of increasingly
variable and severe weather patterns

6. Asia will be
central to global energy security.

7. Businesses
must reduce energy consumption.

8. Lack of
global regulation on climate change is creating an environment of
uncertainty for business, which is damaging investment plans.

9. Business
must address supply chains.

10. The ‘just
in time’ business model increases vulnerability to energy supply
disruption.

Bernice Lee, Research Director at Chatham House said:
“Businesses across the board need to make a serious assessment of
their vulnerability to change and volatility on the energy scene.
There are huge opportunities as energy systems evolve to include
users and increase resilience and efficiency. There is also the
potential for heavy or even catastrophic financial and
environmental losses.” 

The expected level of investment in renewables and clean energy
- up to $500 billion per year by 2050 - holds tremendous
opportunities for business, but the lack of global agreement on
carbon reduction is inhibiting commitment and investments.
Ultimately, this will make catching up or adapting to energy
shortages much more expensive for all. The report calls on
governments set clear policies and create certainty in the
transition to a low carbon economy. 

The report also warns we need to prepare for a new set of risks
as our energy system changes. Many renewable technology systems use
rare materials and the increasing reliance on electricity and IT
could raise vulnerability to cyber attacks. Businesses are advised
to reassess global supply chains and increase the resilience of
their operations.