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Entries in energy (96)

11:34AM

Time's Battleland: NATIONAL SECURITY Death to “Resource Wars”!

Nice Washington Post piece on Saturday about how the “center of gravity” in global oil exploration and production is shifting to the Western hemisphere.  No, the bulk of global conventional oil reserves still sits in the Persian Gulf, but the larger point is worth exploring: we no longer project global futures where East and West logically fight over Middle East energy reserves.  Those expected long-term dynamics are collapsing right now before our eyes.

Read the entire post at Time's Battleland blog.

9:34AM

The LNG export play

Nice FT story on what Shell is saying about natural gas in the US.  Current Henry Hub price has been hanging around $2.25-2.55, which is about 3-4 times cheaper than Europe MMBTU (millions British thermal units) and bizarrely cheaper than most Asian countries are being quoted right now (more like $14-15 and moving north for the summer to almost $20 - by some predictions).

Think about that for just a second.  Natural gas in the US at something like 1/8 the price in Asia.  How long do you think that lasts?  Why should it?

To me, that's a huge LNG (liquid natural gas) market waiting to be captured by US producers.  Selling LNG ain't like moving 100,000 metric tons of diesel or jet fuel or 2 million barrels of crude in one large tanker.  Those transactions are the equivalent of one-night stands and leave your money on the dresser.  Selling LNG is more like getting married: the buyer has to have a relationship with a regasification terminal nearby.  There must be pipes that connect the end-user to that LNG terminal (only so many in the world, but plenty being built).  If no regasification terminal, then buyer needs to rent himself a regas ship ($50m a year), park it somewhere, and then connect that by pipes to the end-user.  All very complex. 

Of course, the seller must have liquefaction facilities at ports, with pipelines connecting fields.  

America is piped up like crazy and adding more pipe all the time.  We're just getting our first for-export liquefaction facility set up in Louisiana by Cheniere, which is leading the effort here to gear up for export.

All very exciting stuff, as we could be exporting - within a few years - upwards of 1/4 of our production.  Then you factor in all the coal displaced in electricity generation, and we can be exporting that high-quality stuff to Asia along with the LNG -  a win-win on trade balance and energy security.

Back to the FT piece:  the currently depressed US prices are just too low, reflecting that we're running out of storage after a mild winter and a continued production boom.  Shell's prediction?  US NG prices will double by 2015.  Expect the petrochem industries to hawk that fear like crazy, but in truth, it's a reasonable rise to just $4-6 MMBTU.

[Shell, BTW, has done a lot of exploratory drilling on NG in China and says it thinks the reserves can be developed economically.]

Shell is also "examining plans to liquefy US gas for export - which would allow it to attract higher prices, particularly in Asia - transform it into clean-burning transport fuel through gas-to-liquids technology, and use it as a feedstock for petrochemicals."  That's a quick rundown of the range of economic opportunities - in addition to displacing coal in electricity.

All good stuff and an integral part of America's coming industrial renaissance.

9:32AM

To what extent China can copycat the fracking revolution in US

Big FT piece.

China, we are told, has enough shale gas to cover its needs for 200 years.  It currently has no commercial production but wants to reach 60B cubic meters by 2020. A number of big Chinese and foreign energy firms are currently exploring China, with Sinopec running the big Tarim basin that is routinely described as the biggest in the world.

Dozens of exploratory wells have, so far, yielded mixed results.  The geology is just not the same as the US - more complex, so serious additional innovation will be required.  China's reserves are deeply buried and feature more clay, which is far harder to break up to release the gas.

China also lacks the US's existing pipeline network and trained personnel.

To overcome the stiffness of its three primary national energy companies, China has allowed foreign companies in and plans to liberalize prices on oil so its own companies will invest more.

Then there's the Chinese investment in US firms over here, a development that's been met with far less resistance than when CNOOC tried to buy Unocal seven years ago.  CNOOC plopped a solid $2b into Chesapeake Energy to access some of this technology.

This will be one follow-on to the US fracking revolution worth watching closely.

9:38AM

How fast King Coal gets fracked

Fascinating to watch all the "they're trying to kill clean coal" commercials on TV that target some politician, the Obama administration or so on (evil regulators).  In truth, what's killing King Coal right now is the uber-cheap price of gas in the US.  

Citing a WSJ story, the millions BTU price of natural gas in the US is about half of what it was just a year ago, and that previous price was at least half of the average global price - which is rising in most places given the lack of LNG and the difficulty in buying it for most emerging market players.

So, amidst that crazy glut in the US, made all the more worse by the mild winter that did not much draw down US natural gas stocks, and we're seeing stunning drops in the US use of coal to generate electricity. It fell by almost one-fifth (!) in the fourth quarter of last year, and we're expecting first quarter news any day now.

But as I've noted before, the answer for coal is exports.  The energy value of our coal is significantly higher than that found just about anywhere else, so if new market export relationships can be built, we can displace a lot of less-valuable coal from other sources.

My prediction is that America becomes a huge and important coal source for both India and China.  Just give it enough market change.

What got me tuned in on all this?  Wikistrat's recent simulation on the "North American Energy Export Boom."

12:02AM

Chart of the Day: Different listing of shale gas reserves globally

Previous one I had found (and used in brief) said:

  1. China 36.1 trillion cubic meters
  2. US 24.4
  3. Argentina 21.9
  4. Mexico 19.3
  5. South Africa (didn't write down because not in Pac)
  6. Australia 11.2
  7. Canada 11.0

Here's an old post that has similar 1-5 ranking expressed in tcf (like below), and the weird thing is, it agrees exactly with the FT numbers for China, Argentina, Mexico and South Africa but puts the US at 862.

This one, in bit FT full-pager says:

  1. China 1,275 tcf
  2. Argentina 774
  3. Mexico 681
  4. South Africa 485
  5. US 482
  6. Australia 396
  7. Canada 388

Big difference is US ranking/estimate.

Second one says EIA, as in U.S. Energy Information Agency, so I guess you gotta go with that one.  

Or is this just weird mistake by FT?

No mistake.  After some quick Googling it turns out the EIA said 862tcf a year ago and says 482tcf now, reducing its estimate of recoverable shale gas by 42%!

Betcha some industry experts refute that!

Will have to see where that number goes over time.

12:02AM

The coming American industrial renaissance

WSJ piece on Dow Chemical building . . .

. . .  a multi-billion-dollar plant to convert natural gas into the building blocks of plastic in this coastal city [Freeport TX, just south of Houston], becoming thelatest chemical maker to capitalize on abundant gas supplies that are helping spur a renaissance in U.S. manufacturing.

This is all wonderful news, but it doesn't stop up from still exporting a significant portion of our now severely glutted natural gas supplies to improve our trade deficit and empower our extractive industry further to take its revolutionary fracking techniques global.

Natural-gas futures closed Wednesday at $1.95 per million British thermal units, down 55% from a year ago and the lowest price in 10 years.

This is killing futher exploration and production in the U.S.

Why do we allow this glut to remain bottled up in the U.S.?  This crazy-ass notion of "energy independence."

12:02AM

Canada looks east, as US market complications pile up

Per the recent Wikistrat simulation (North America's Export Energy Boom), Canada grows weary of the complications of exporting energy to the US market (see Keystone XL) and starts to spot easier venues going West to Asia:

Kinder Morgan Energy Partners LP KMP +0.40% said Thursday it will begin a $5 billion expansion of its Trans Mountain pipeline, nearly tripling the capacity of crude oil it can ship to Canada's west coast—the latest project aimed at moving the country's rising oil production to markets outside the U.S.

Currently, almost all Canadian crude exports travel to the U.S. While Canadian oil output has been climbing fast, pipeline capacity to move it from the country's biggest oil patch in landlocked Alberta to U.S. refining markets is stretched. 

The resulting glut, and rising oil production in the U.S. itself, has depressed prices for Canadian crude.

Our dysfunctional politics not only scares off the Canadians, it creates the same weird glut dynamic amidst our fabulous boom in natural gas production.  While Asian markets scream for LNG and can't get nearly enough, we refuse to export. An objective look at that would suggest some dumbass mercantilist logic having gripped some immature rising economy, but - of course - those who seek to deny LNG exports have all sorts of economic illogic at their disposal.

Meanwhile, we demonize China over similar bouts of stupidity, but at least there you can spot some legitimate developmental logic (all those rural interior poor still to be delivered).

We are living through some very bad political leadership and have for years now. I think history will judge the Boomer generation as among the worst political leadership cohorts ever suffered by America.

8:56AM

States and localities fighting over hydrofracturing drilling

 

WSJ story about states pushing for fracking while localities fight them over noise and infrastructure that comes with it (want to police it more vigorously).  State lawmakers are enacting laws that restrict the rights of cities and counties to regulate these things and that's creating some genuine local resistance.  The states are seeing dollar signs in terms of tax revenue and are running a bit roughshod.

So we're starting - as usual - to see this fought out in courts (ex: seven PA towns suing the state over desire to use local zoning laws to regulate things; drilling company in NY appealing state court rulings that say towns can use zoning laws to ban fracking).  All sides naturally cite the "special interests" of their opponents.

Point being, the court fights are just beginning, introducing a certain regulatory uncertainty to the whole package. This was a prominent feature of one of the more negative scenarios we explored in Wikistrat's recent "North American Energy Export Boom" simulation.

12:02PM

The geo-pol argument on Russian-Iranian bond

Nifty oped in WSJ Monday on Russia's "stake in Syria and Iran" by Melik Kaylan, a "writer in New York."

Usual case made on the old Sov-era naval base in Syria (snore), but more vigorous one made on Iran being sort of geo-strategic southern plug that keeps Russian influence substantial in the Central Asian republics - as in, lose Iran and the CA Reps "escape" with all their oil and gas ("southern bottleneck"), thus loosening Russia's energy grip on Europe, etc.:

Why is Iran so central to Mr. Putin's global pretensions? Take a look at the Caspian Sea are map and the strategic equations come into relief. Iran acts as a southern bottleneck to the geography of Central Asia. It could offer the West access to the region's resources that would bypass Russia. If Iran reverted to pro-Western alignment, the huge reserves of oil and gas landlocked in Kazakhstan and Turkmenistan and the like could flow directly out to the world without a veto from Moscow . . .

At stake here is not merely the liberation of a vast landmass from the Kremlin's yoke. The damage to Russian leverage would amount to a seismic shift in the global balance of power equal to the collapse of the Warsaw Pact.

Hmm.  Had me going right up to that bit, but the argument is certainly compelling enough when you see just how much the emerging reality and future prospect of North America's energy export boom is already redrawing certain global energy market landscapes.

8:46AM

The case for exporting natural gas

WAPO reports that America surpasses Russia as world's biggest natural gas producer, but the WSJ notes that domestic prices have gotten so low with the NG glut that drillers are cutting back and local govs are seeing tax revenue shrink.

All that would change, of course, the minute we start exporting gas out of Louisiana and that new LNG export terminal there, but some in Congress, backed by certain industries and enviros, seek to block that. There is actually a proposed bill to block LNG exports until 2025.

This is why gas in the US is oftentimes 1/4 the price of LNG in Asia, and buyers there are crying out for gas.

So WAPO's editorial makes the case for exporting, attacking the notion that slighly higher electricity prices are worth all the benefits that can accrue:

But the benefits of expanded exports must be weighed against these predicted costs — which are neither inevitable nor dramatic. Among them would be a potentially significant reduction in the U.S. trade deficit, which would mean less need for the United States to borrow from its Asian trading partners. Foreign demand gives U.S. companies an incentive to produce more, which creates jobs; if they don’t expand production, then, over time, supply will dwindle, and domestic prices will creep up anyway. Don’t forget that taxes and other fees on gas production help state and local governments balance their books. Already, low prices, and the resulting reduction in drilling, have cost many communities revenue.

The silly chimera of "energy independence" looms in some of this anti-export thinking, but the real push is to keep gas incredibly cheap here relative to industrial and manufacturing competitors.  Problem is, the Nat Gas industry will not go along with being beggared, thus drilling slows down and the price will inevitably rise.

That's what happens when you go for win-lose instead of a win-win. 

11:54AM

LNG global demand

Of great personal interest to me right now:  FT reporting yesterday that Bernstein Research is predicting global demand for LNG will double by 2020.

That's right, double.

You may think it's all about Germany and Japan running from nuclear power, and that's certainly a big part of it. But I can tell you from personal experience right now that there is exploding demand for LNG in emerging markets.  Bernstein cites LATAM, the Middle East, India and China. But frankly, it's everybody out there.

This is why North America's emergence as a potential big source (imagining as much as 1/4 of US production being shipped out) is such a game changer.  

This is why so many investing companies are looking at East Africa right now (as another FT story portrays) for both oil and gas.  Natural gas production in Africa is up roughly 80 percent from a decade ago.  And it will only move higher in response to such incredible demand.

12:03AM

Don't export US natural gas!

Also per the recent Wikistrat simulation, a weird alliance of environmentalists and the US chemical industry getting together to try and put a halt to ambitious plans to export natural gas as LNG (liquid natural gas), something that big buyers like Japan are lobbying to see happen.  The enviros don't want all the greenhouse gases released by fracking (mostly methane), and the chemical companies want all that cheap gas to be hoarded by the US economy to keep its feedstock flow as cost-advantageous as possible (ultimately allowing that export profit to be somewhat hoarded by the chemical industry).

If all the planned LNG export facilities were built, as much as 1/4 of US nat gas production could go abroad.

We are now 7 years past when Fed Reserve Chairman Alan Greenspan warned Congress that America needed to build more import terminals.

Peak this!

8:29AM

The displacement effect of all that new US natural gas

See it already in how natural gas deals are proceeding internationally: the flow out of North America alters things, regionalizing flows more as Japan and Germany move off nukes and seek to ramp up their use of gas to generate electricity, and as emerging markets in general ramp up their gas use.

But another displacement raised in the recent Wikistrat crowd-sourced online simulation on the North American Energy Export Boom was the notion that the long-term abundance of cheap gas in NorthAm would encourage a crowding out of oil in transportation:

 

  • Encouraging hybrids by making electricity cheaper long term;
  • Enabling more direct natural gas fueling of vehicles (typically trucks); and 
  • Pushing refiners to take NG, process it into syngas and then into gasoline.

WSJ story cited here:" "Natural gas to power pickups." US auto makers introducing trucks powered by NG "as they look to catch the growing wave of interest in the fuel as an alternative to gasoline." So here we're talking either pure compressed natural gas (CNG) or vehicles, like the one Chrysler is working, that will run on a combo of gasoline and CNG.

Exciting stuff.

 

12:14PM

North American energy boom attracting Chinese investment

Per the recent Wikistrat online crowdsourced simulation on the North American Energy Export Boom, one of the summary conclusions was that China should aggressively invest in the US fracking industry (tight oil, shale gas). While the US attracts only a tiny share of China's total global FDI (foreign direct investment), when you look just at investments in oil and gas, recently North America has become the biggest Chinese target ($20B or so since onset of global financial crisis).

The key to overcoming US political concerns:  keeping it to a minority investment.

Most estimates have Chinese shale gas reserves as equal to that of the US and Canada combined.  Canada is #7 in the world and the US is #2.

The quintessential deal in the works:

Chinese firms now are attempting to negotiate partnerships with FTS International, a Fort Worth, Texas, company that specializes in hydraulic fracturing, a process used to extract energy from shale, according to one person familiar with the matter. FTS, which is owned by Chesapeake [already in deals with Chinese firms] and a consortium of Asian investors, would use proceeds from any deals to expand internationally, this person says.

That is right out of the win-win scenario ("Cooking with Gas") from the Wikistrat sim: encourage Chinese investment so super-energy hungry China can dramatically upgrade its capabilities and tackle its own shale gas challenge, but do so in a way that accelerates the internationalization of the US fracking technology via US firms.

1:48PM

China nuclear protests grow

FT story.  Fukushima is the cause.   People see smart countries like Germany and Japan basically ditching nuclear power and they’ve got to wonder about China building so many so fast.  China has 15 running, 26 under construction, 51 in the planning stages and 120 proposed.

China is the biggest energy consumer in the world, and gets just 2% of its power from nukes – a tiny dent in its massive use of coal for electricity generation.  Overall, on energy (electricity, transpo, etc.), it’s still 71% coal, 18% oil, and natural gas on 4%!  The renewables/water/nukes are about 8%. 

But here is where the fracking revolution can be huge, as Wikistrat just explored in its multi-week sim on the North American Energy Export boom (just finished report and taped brief on that).  China has the biggest shale gas reserves in the world – something on the order of almost 20% of all known reserves and 50% more than #2 America.

As the shale revolution eventually takes off in China, it’ll be interesting to see what happens with China’s quiet ambition to take over the global nuclear supply industry from a fading Japan.  Maybe attempting to be the biggest producer of shale gas will do the trick, but I’m better China tries to master both domains.  It just needs that much more energy over time.

10:22AM

WPR's The New Rules: A Positive Narrative for U.S. Foreign Policy

Where is the positive vision for U.S. foreign policy in this election? President Barack Obama and on-again, off-again “presumptive” GOP nominee Mitt Romney now duel over who is more anti-declinist when it comes to America’s power trajectory, with both slyly attaching their candidacies to the notion that “the worst” is now behind us. On that score, Obama implicitly tags predecessor George W. Bush, while Romney promises a swift end to all things Obama. 

Halftime in America? Indeed.

Read the entire column at World Politics Review.

2:16PM

Nice PR for Wikistrat's North American Energy Export Boom simulation

Nice write up of master narratives that I, as chief analyst, constructed from the roughly two-dozen scenarios ginned up by Wikistrat analysts during the first week of the sim. Author is WS analyst himself, writing at the Foreign Policy Association's blog site.

That then gets picked up by the Natural Gas Americas website (find the permanent entry here).

Here's what it looked like on their front page for a while:

Got energy on the brain this week.  Yesterday I keynoted to about 800 directors of rural electrical co-ops from around the US.  Big conference was as Universal @ Orlando theme park.  After my talk I got in a quick quidditch match at the Harry Potter park.  Kicked some wizard ass, although I found out later it was just a bunch of retired California firemen attending a local conference.

11:08AM

From a Wikistrat crowd-sourced simulation: North American Energy Export Boom meta-scenarios

 

These are the four master narratives that got fleshed out in the first week of the Wikistrat simulation looking at an unfolding/future North American Energy Export Boom.

We went into the exercise with the four implied "bins" of the X-Y:

 

  1. The lose-lose of North America getting the revolution "wrong" by getting the rule-set wrong (too restrictive out of environmental fears or too loose out of greed) and the Rest of the World either contributing to that outcome or exploiting it for their own equally short-term mindset.
  2. The lose-win of NorthAm getting it "wrong" and the ROW drilling ahead anyway, "winning" on terms they find acceptable enough, even if NorthAm might define them as a loss.
  3. The win-lose of NorthAm getting it "right" but doing so in such a way as to set off a destructive global competition toward that end; and 
  4. The win-win of North-Am getting it "right" and triggering a virtuous QWERTY effect where the world benefits similarly.

 

The Wikistrat crowd came up with about two dozen scenarios, each filled out to the tune of several hundred words spread across about ten fields that explored their up- and down-sides, uncertainties, risks, etc. At the end of that first week, I thereupon read through everything (after commenting all the way during the week) and binned the two dozen into plausible pathways (roughly the order portrayed above in the bullets per bin). Then, taking all those precursing, in-situ and downstream scenarios in hand, I rethought the original notional master narratives, naming them thusly:

 

  • The lose-lose lower-left scenario becomes What the Frack??#*!, suggesting a rude surprise and significant disappointments and a sense of having one's dream destroyed by circumstances beyond one's control. As a stream, it involves a Euro crash delaying investment flow, thus delaying development and allowing negative environmental evidence (water contamination and seismic activity chief among them) to mount. Then you get the environmental counterattack, as the Not In My Backyard Types declare their opposition (Build Absolutely Nothing Anywhere Near Anything). The "Erin Brockovitch" fights thus begun, foreign competitors swoop in to both steal the technology and complicate its local application through "lawfare" campaigns designed to keep the fracking revolution bogged down in courts for years. By the time all the legal dust settles, what the energy industry can actually exploit in terms of resources is far less than originally imagined, yielding a "red queen" sort of outcome (running in place) where the additional supply tapped is quickly swallowed up by growing domestic demand and the fabled export boom never quite occurs.
  • The lose-win master narrative is dubbed, The Gas is Always Greener on the Other Side of the Fence, suggesting that, no matter how if unfolds in NorthAm, it seems to go better elsewhere in the world. In NorthAm, a compromise emerges between industry and enviros: short-term regulations allow for a fairly permissive situation but mid-term data collection ensures a legal/regulatory showdown down the road. This situation creates an overall market uncertainty that allows a certain amount of macro-questioning to unfold: Are we trading gains in CO2 emissions (coal to gas on electricity) that are just ruined by releasing more greenhouse gases instead? The NorthAm effort diverges as Canada, less fussy and more greedy in its mindset, moves aggressively to connect its unconventional reserves to Asia and NorthAm industry players decide it's easier to experiment more aggressively abroad, leading to a quick global spread of the technologies. Over time, we witness more desperate Europe (fearing Russian dependence) and Asia (fearing dependence on EVERYONE!) actually moving ahead more successfully with the revolution, with the latter suffering exacerbated water difficulties as a result. In the end, the US, desperate at the lost lead, moves toward national energy companies (public-private partnerships) to try and catch up.
  • The win-lose scenario is called, Fits of Peaks, suggesting both more great-power contentiousness (fits of pique) and destabilizing shifts in global energy profiles (akin to the imagined "peak oil" in supply, but here in terms of demand). In this narrative, the US is especially creative in setting up enclaved experiments (the example of letting Native American reservations do things that states cannot) that get around the usual environmental rule-sets. Here, Mexico becomes its own big NAFTA experiment, as the political system there, desperate over PEMEX's decline in oil, sets up a sister national energy company to pursue the fracking revolution and that entity becomes a magnet for investment and aggressive experimentation. Sensing a way to push the Free Trade of the Americas idea, the US uses the lure of cheap energy cooperation to reach out to Latin America in a geostrategically defensive move (good-bye Carter Doctrine focus on the Persian Gulf, and welcome back Monroe Doctrine's historical ambitions regarding the Western Hemisphere's economic and political integration). Yes, OPEC tries to fight back by keeping oil prices low, but the fracking revolution's main impulse (natural gas) still takes off magnificently, giving America a newfound geostrategic confidence that allows it to press China all the more on the negative aspects of its rise in East Asia. The Middle Kingdom, in turn, sensing that America is aggressively organizing the Western Hemisphere to its long-term economic advantage, attempts the same in East Asia. Thus, in an attempt to stave off one sort of strategic vulnerability, the US amplifies another, making this the "be careful what you wish for" scenario.
  • The win-win scenario is called, Now We're Cooking with Gas!, which is actually the old marketing catch phrase used in late-19th century America when pushing natural gas stoves as an ungrade to old wood-burning ones. More generally, the phrase has come to refer to a process that has experienced a significant increase in efficiency. Here we talk about the US and Canada coming together to finesse the environmental challenges in a responsible manner, allowing their companies to promote the technology worldwide to their own market advantage. As a result of the long-term boom in incredibly cheap natural gas, King Coal is dealt a death blow first in NorthAm and thereupon globally, as there's now no economic reason for not building gas-fired electricity generation plants almost exclusively (raising the question of what happens to nukes?). Over time, natural gas becomes so plentiful and cheap globally, that a portion of shale gas is siphoned off to gasoline production, so that even the gas-combustion half of hybrid cars are sourced by natural gas - in addition to the electricity part. This development proves a boon for the swapping out of pure gas-combustion automobiles with hybrids and natural-gas fired mass transportation vehicles. Over time, the explosion of cheap energy redefines the North American economic scene, leading to an industrial renaissance and a rebuilding of America's manufacturing industrial base. It also boosts NorthAm's competitive advantage in agriculture, befitting an increasingly voracious global middle class as global climate change stresses crop production in many of the world's emerging economic regions. In the end, all that academic speculation about looming "resource wars" proves to be just that, and the fracking revolution, well-played by North America, is the primary reason why.

Now, with the first week's scenario drill completed, the community moves on to brainstorming and competing their ideas regarding how this range of master narratives could impact the strategic interests of our six main characters: US (NorthAm), EU, China, India, Russia and Brazil.  Naturally, the fate of OPEC will loom throughout the proceedings.

The simulation thereupon unfolds over a third week that focuses on generating strategic options for the six pack of players.

11:39AM

Unfolding Wikistrat simulation on North American energy boom

After the success of the "China as Africa's de facto World Bank" simulation, we start moving expressedly into a series of sims aimed to flesh out the logic of the world's first crowd-sourced strategy book, the proposal for which we're now circulating in NYC. It was about time for me to gin up another, and I was really looking to do something different because I feel like I got my "vision" out in the trilogy.  Plus, I wanted to do something long-term in its thinking.  More details later as things unfold.

For now, we tee up the first of about a half-dozen major sims that will explore the drivers of a particular future world order that I became intrigued with as a result of last summer's Wikistrat Grand Strategy Competition. To me, how the NorthAm energy boom (question mark suggests nothing in this world is a given) unfolds is one of the major global uncertainties.  North America can get it right or wrong on a host of levels, and since we're the inventors of these fracking revolution, the QWERTY effect would be huge, triggering a host of possible future pathways from fabulous to self-desructively nasty in terms of the environment and/or whether or not this great gift becomes an excuse for bad geostrategic choices by the U.S., China, Europe, Brazil, India, Russia - the big six we're focusing on here.  You can say, it's a simple projection: it works or it doesn't.  But the secondary and tertiary pathways that are revealed in this two stage process (NorthAm leads, others follow or ignore) are varied and immense in their capacity to make global stability better or worse.

So, naturally, I'm pretty pysched about the sim.  One thing to go and read a bunch of books and try to get smart enough to cover this in a book, but another to turn loose dozens-to-hundreds of virtual co-authors in a competitive space to brainstorm all the possibilities.

Especially exciting for this sim: we now have senior experts stepping in and providing big-time ideas.  Dr. Anne-Marie Slaughter, just out from the Kennan job at State (Policy Planning) under Obama, joined Wikistrat weeks back and she brings not just a wealth of experience and keen insight, she's also a not-too-closeted enthusiast for this sort of social networking as a tool to drive new thinking and change old thinking. She's already made a huge contribution to the sim that lays out, in a very clever way grounded in real-world vehicles, how a positive path in NorthAm could go global (as a fellow optimist, my attraction to her scenario was immediate, not because it was rosy per se, but because she elucidated why, given the parameters, this was the best forward-moving deal for the universe of public and private-sector actors working this policy space now in the U.S.).

Other senior experts piping in with their own scenarios include: Gary Hunt, president of Tech and Creative Labs, a tech mash-up that moves software solutions into the energy vertical market; and Chris Cox from Gesellschaft für Konsumforschung (GfK), Germany's oldest consumer research org (Chris comes with an energy focus on the fmr USSR realm).

But, as always, the coolest outlier ideas come from the Wikistrat rank and file, and that's the way we love it: "big firm"/senior experts with the go-to-market pillar concepts that structure the sim, and our "sea of entrepreneurs"/younger analysts with all the just-on-the-edge-of-plausibility stuff that most of us seniors have had beaten out of us by experience and bad bosses.  Already there's been a nice cluster of jaw-dropping ideas out of this bunch, many of which see major players gaming the process very cleverly (both in a nice and nasty way).

I've been chiming in throughout on the scenarios ginned up to date (about two dozen).  Each results in a wiki page that gets fleshed out across a dozen or more fields, to make sure we're collectively thinking out the scenario to the degree of robustness. I had given the pool of analysts my notional master narratives (simple frameworks for putting all these scenarios into "bins") and they've responded nicely by distorting the implied framework with all sorts of surprises I hadn't anticipated.  At the end of the week I'll array and string together all these scenarios and rejigger the master narratives to cover enough of them for the next phase of the sim to unfold: brainstorming competiting notions of how these master narratives impact the strategic interests of our six-pack of great powers.

My only fear?  How to stuff all these ideas into one book?  But this is a good problem to have.

11:24AM

Chart of the day: Flat-liners versus climbers on L.T. energy demand


From an otherwise regurgitating Economist special report on state capitalism, a wonderfully clear chart on primary energy demand, aggregated as billion tons of oil equivalent.

Not amazing: semi-flat growth for Russia, given its demographic slide.

Impressive for US and EU: the efficiency angle keeping growth flat, despite modest economic growth and significant demographic growth for US.

Curious is Brazil's capacity to keep its curve semi-flat.

So that leaves only the two great risers as demand climbers: China's stunning trajectory and India's late-blooming-but-likely-to-skyrocket-from-that-point-on curve (India surpasses China in labor around 2030 and then grows 50% larger, suggesting it will replicate China's trajectory on some level, understanding that its energy profile could be dramatically different in those future decades).

To me, this is a great example of why the military containment strategy (keep the PLA boxed-in in East Asia is dangerous - and counterproductive.  China needs to go so incredibly global due to its energy demand that it's only natural that it build up power projection and become more contentious on the issue of energy security. America can address all that or go super-unimaginative and make it all about an arms race in East Asia, believing that we'll temper China's behavior by doing the same things we did with the Sovs in the Cold War.

But making China feel nervous at home makes it harder for it to address its growing overseas dependencies in the very same regions where the U.S. is becoming less interested in providing stability and more focused on just killing bad guys. Conceivably, our willingness to go anywhere we want, when we want, to kill anybody we want, would make the Chinese feel better about their interests in these regions. But this thin-green-line approach, augmented with the transparent encirclement strategy in East Asia, essentially works to keep China nervous on both scores by insinuating that growing Chinese military capacity is automatically bad - both at home and extra-regionally, unless, of course, the Chinese become "transparent" in the direction of the very same superpower that threatens them in their home region with its world-class military (the same one that's just declared China to be its primary force-sizing threat from here on out).

Bit much, huh?