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Entries in Wikistrat simulations (1)

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.