Juin 2004

Supplying enough energy on a reliable basis at prices that won't hobble world economic growth is emerging as a challenge with repercussions that are hard to predict. For oil and gas companies, pipelines, generators, utilities and others in the energy business this means new opportunities but also serious risks. Inexorably, energy demand is growing — not only in the developed economies of Europe, Japan and North America, but in developing nations as well. In fact, the fastest demand growth is in China and other emerging markets. From one side of the globe to the other, modern and modernizing societies need more fuel.

But the places with the greatest demand can't supply their own needs. Over the next few decades, oil and gas production in the North Sea, North America and China are expected to fall, or rise too little to keep pace with demand. Only a few places have surplus reserves — chiefly the Middle East, Africa and Russia.

Meanwhile, massive infrastructure additions are required. The cost will be huge — US$16 trillion between now and 2030. Among the most critical needs are new production and transport facilities in the Middle East, Africa and Russia, but they don't have the necessary capital.

Decision-makers in the energy industry, government, and international agencies thus face difficult decisions. How will the supply-demand problem be resolved?

One possibility is a continuation of globalization. According to this vision, free markets will ensure that investment capital and fossil fuels alike are distributed efficiently. At the other extreme is a future that involves more regulation and confrontation. Rather than free markets, anxious governments will decide how capital and energy supplies are apportioned. Further, who gets how much access to the coveted resource-rich areas will be affected by geopolitical competition or even conflict. Rather than globalization, this would be "deglobalization."

Of course, it would help to know what path the future will take. Unfortunately there's little agreement among experts. How can a company position itself to deal with such uncertainty?

Strategic Flexibility is the answer — a set of insights about effective planning developed by Deloitte Research. Applying this approach enables a company to deal with multiple contrasting versions of tomorrow's world. Strategic Flexibility involves defining scenarios as to how the marketplace might evolve, moving forward with steps that would be appropriate under any circumstances and making contingent arrangements to address conditions that are specific to just one scenario. Strategic Flexibility thus offers energy companies the new options that are needed given the uncertainties that accompany growing dependence upon international energy trade.

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