Thursday, June 28, 2007

Preparing for Peak Oil

Business people and individuals will need to implement robust systems and products in anticipation of peak oil. By robust, I mean systems or products that can substitute one raw material for another with relative ease, and still achieve a given function.

It is natural to think of transportation systems whenever we think of oil, and indeed plug in electric cars and flexible fuel vehicles are more robust than a standard car, in that several different raw materials (many fuels/materials can be used to generate electricity, various mixes of ethanol and types of ethanol can be used to power FFVs) can be used interchangeably from the consumers perspective.

But peak oil will require more than just robust transport, and by the way rail and water based shipping could prove a much stronger link than air or truck transport at least for goods. The principle applies to energy systems themselves, shorter supply chains are good but being able to use multiple fuel sources or readily switch between fuel sources is even better. Robust energy systems tend to be smaller distributed energy systems rather than big centralized systems. We currently dismiss smaller systems because they are less efficient (at least to manage) than a centralized system, but people and businesses should also consider how a system under stress will behave. The NY power outage from a few years ago illustrates the consequences of a relatively brief system collapse, while California’s rolling black-outs from a couple years before that show that even stress that doesn’t collapse a system can cause noticeable trouble/damage.

Corporate global logistics chains will have to be revamped to make them more robust, not just because peak oil will increase transportation costs, but also because peak oil will result in hard to predict delays sporadic shortages/outages not only of fuels but of the numerous other systems these supply chains rely on today. I feel that we are beginning to see such shortages/outages ironically enough in oil company supply chains as the relative value of fuel stores increases the incentives for governments (Russia, Venezuala) to play a more active roll in their distribution, as well as non-government/sectarian forces/criminal elements (Nigeria, Iraq) trying to extract a greater portion of the existing fuel store value.

Companies most sensitive to outages, or at least public concern about outages, such as global banks may be furthest along in implementing robust systems. Both 9/11 and the SARS virus scare of a few years ago tested/reinforced the message that robust exchange/trading and record keeping systems and flexible staffing arrangements during a transport/health crisis pay off big time when the unexpected (or at least unpredictable) happens.


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