Antony Froggatt
Senior Research Fellow, Energy, Environment and Resources

As the disaster in the Gulf of Mexico has amply demonstrated, growing global energy demand and the anticipated restricted availability of some conventional fossil fuels pose an escalating threat to the security of energy supply for global businesses. Sustainable Energy Security: Strategic Risks and Opportunities for Business, produced jointly by Chatham House and Lloyd's, reveals multiple vulnerabilities in our current energy system and urges both business strategists and government policy-makers to take into account a range of encroaching risks and be bold in making plans for a more resilient and low carbon energy future.

In light of the lack of recent investment in upstream oil and the higher cost of extracting oil from difficult environments - such as deep offshore fields - an oil supply crunch in which businesses and consumers alike are hit by higher prices at the pump looms large. While some dismiss the warnings of impending oil crunch and a global conventional energy deficit as alarmist and point to past predictions of resource constraints failing to materialise, growth in the demand for energy in developing countries is key and indisputable. This growth is a result of the outsourcing of manufacturing from OECD countries and rapid economic development and domestic consumption. This is both unstoppable and taking place at an unprecedented pace.

Independently of concerns over security of supply, climate change is simultaneously unleashing a wave of policy initiatives and investments around the world that will revolutionize the way that we manage and use energy. Ensuring that policy and technology changes are introduced that address both energy, climate and environmental security issues will be vital in a smooth transition to a sustainable energy sector.

Both governments and businesses need to think differently about energy security. It is no longer just a case of securing access to foreign resources at the right price, upgrading old infrastructure or paying the bills on time but will involve actually changing practices, technology, regulation and most likely expectations. For some this will mean a lot more than changing the light-bulbs; it could involve tough decisions about switching suppliers, investing in alternative generation or even divesting from certain businesses. Not only that but the new energy systems that we install and the institutions we set up to manage them have to take into account a different range of vulnerabilities including climate volatility, pressure on scarce sources and exposure to cyber attack.

These changes will not be easy and will take time. However, just like the attempts to stem the oil from the Deepwater Horizon rig; the longer they are left the more difficult it will be to clean up the mess.

Read paper - Sustainable Energy Security: Strategic Risks and Opportunities for Business.