From globalism to national security

COVID-19 had already exposed vulnerabilities of globally interdependent supply chains as P&U players struggled to access critical resources throughout the pandemic. Now that Russia, Ukraine, and possibly other neighboring countries have effectively been cut out of supply chains, it’s vital to find new, reliable sources swiftly.

Those countries at an earlier stage in their energy transition face difficult choices, as they have fewer alternatives to fossil fuels and won’t want to risk blackouts or industrial disruption.

Supply chains for nuclear, hydrogen and renewable energy components, especially uranium, batteries, solar and wind power, will likely come under more significant pressure as the race for alternatives intensifies.

For some governments, especially in Europe, the shock of reducing dependence on Russian gas and, to a lesser extent, oil has made them even more determined to decarbonize their economies. The EU’s ‘Fit for 55’ proposals (to cut greenhouse gas emissions by 55 percent by 2030) continues to be a significant driver of investment. China has committed to reducing its carbon footprint, with the subsequent associated costs in the short term..

The US also has ambitious clean energy plans. However, with its abundant shale gas and oil supplies, it will remain a fossil fuel player to meet domestic consumption and satisfy global demand. Australia has been relatively unaffected by events in Europe and has rich seams of coal, gas and other natural resources. But it also has a solid green agenda, with many solar and wind projects in progress. Almost one-third of Australia’s electricity in 2021 came from renewable sources — a 5 percent increase on the previous year.⁴

Net zero targets place considerable pressure on governments and private P&U operators to invest in carbon-free technologies. It’s a similar story with the anticipated renaissance of nuclear, which is expected to play a more prominent role in the energy mix. Establishing secure energy capabilities requires a wide range of capital-intensive infrastructure to achieve electrification of transport and other parts of the economy. These efforts are primarily on a country-by-country basis rather than collective, cross-border initiatives, with different nations traveling at varying speeds.

The huge investment required to achieve net-zero may strain economies only starting to emerge from a pandemic-induced recession.

P&U assets are increasingly recognized as vital to national security. Given the sanctions and other actions taken against Russia, and the support for Ukraine, the threat of retaliation is exceptionally high in the form of hacking, ransomware, and malware. This is on top of other nation-state actors, cybercriminals and hacktivists. The geographical scale and complexity of P&U organizations mean that attack surfaces are broad, with the risk of putting power plants, generators and wind turbines out of action; remotely disconnecting grids to halt transmission and distribution to customers; and attacks on IoT, devices and electric vehicles, leading to the theft of customer information, billing fraud and disrupted services.

The topology of power generation is changing with a transition to a more distributed, decentralized grid, with many new players — often able to generate their own (renewable) electricity and sell it to others. All of which shifts power to consumers and threatens P&U revenue streams, as customers find it easier to switch suppliers or even produce power themselves — aided by rapid digitization. Network management grows in complexity, and P&U companies must ensure they balance energy supplies from the many providers to avoid suffering reputational damage.

Wildfires, in particular, pose a substantial risk to P&U providers. With thousands of kilometers of gas pipelines and electric power lines, a minor fault in equipment can quickly spark off a new fire. Companies can suffer hefty fines — and convictions for manslaughter — if they’re found to have involuntarily started wildfires by failing to maintain infrastructure adequately.

Climate change has brutally exposed aging infrastructure and puts pressure to preserve and replace assets and trim back surrounding vegetation. Assets are also highly vulnerable to other impacts of climate change, such as floods, winds and freezing weather, increasing in frequency and intensity.

The increasing occurrence of severe weather events places a growing insurance risk, pushing up premiums to a point where they impact margins. All the more reason to improve defenses.

Like many sectors, P&U organizations face competition for people, exacerbated in some parts of the world by the great resignation accompanying the pandemic. Turnover in P&U was already relatively high compared to other industries, made more urgent by an aging workforce approaching retirement.

Younger employees are more likely to want fulfilling experiences that give them opportunities to grow. Roles and careers need to evolve to meet these expectations, including increased use of technology and less top-down management. And providers will likely be under increasing pressure to show that they are building diverse workplaces.

Many of today’s younger workers are driven by a new-age purpose to improve society and the environment. P&U organizations whose values and strategies align with these principles are likely to be more attractive to this new generation. In addition, fewer plan long careers in one organization, so a higher churn may become the norm and something that companies must plan for. It will be important to build a critical mass of capabilities in core functions that are managed internally to cope with higher employee turnover. For non-core or thinly staffed operations, or in areas where it’s hard to recruit and retain specific, in-demand skills, the use of outsourced/gig economy workers may be necessary, especially from agencies with a bench strength of specialized talent.

Some of these increases can be passed onto businesses and consumers in a regulated sector, but there is often a cap, which inevitably hits profitability. Coping with such volatility is challenging, and sourcing alternatives like LNG or shifting to renewables cannot happen overnight. 

P&U providers will be assessing how they can improve operational efficiency and productivity to avoid having to pass on too much of the higher input costs to customers.

Energy transformation and energy security are increasingly seen as complementary goals. As P&U providers plan a resilient future, they must gain more reliability over the supply of traditional fossil fuels while securing the investment in renewables — and possibly nuclear — to achieve a level of diversity that will make them more self-sufficient.

The war in Ukraine has demonstrated how quickly situations can change. Add cyber threats and climate-related risks into the mix, and there’s even more reason to establish strong resilience and incident response planning to keep vital national assets operating in a volatile world.

Much of what may happen is out of the control of the P&U industry. However, here are some steps to help your organization be as well-positioned and prepared as possible regardless of what occurs in 2022 and beyond: