Lloyd’s warns of economic energy crisis

Don’t believe in global warming? There’s a backup disaster.

Even without the threat of climate change, economic disaster looms for businesses that fail to switch from fossil fuels to alternative energy sources, the insurance giant Lloyd’s of London warns.

“Companies which are able to plan for and take advantage of this new energy reality will increase both their resilience and competitiveness. Failure to do so could lead to expensive and potentially catastrophic consequences,” according to a white paper (pdf) prepared for Lloyd’s by Antony Froggatt and Glada Lahn, researchers at the London analysis firm Chatham House.

As the global economy recovers from recession, demand for fossil fuels will increase worldwide. At the same time, breakneck development in China, India, Brazil and South Africa will vastly increase the demand for fossil fuels in those rapidly developing nations.

And at the same time, the supply of fossil fuels will increasingly lag behind demand because of poor planning, the difficulty of reaching remaining oil supplies, and an increasingly hostile political atmosphere worldwide.

The increasingly hostile atmosphere derives not only from climate change but especially from the BP oil-spill disaster in the Gulf of Mexico.

“We have entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will have to pay for it,” said Lloyd’s CEO Richard Ward.

“Is this any different from the normal volatility of the oil or gas markets? Yes, it is. Today, a number of pressures are combining: constraints on ‘easy to access’ oil; the environmental and political urgency of reducing carbon dioxide emissions; and a sharp rise in energy demand from the Asian economies, particularly China.

“All of this means that the current generation of business leaders – and their successors – are going to have to find a new energy paradigm.”

The cost of oil could pass $200 per barrel in coming years, Ward said. Meanwhile, alternative energy will require a $26 trillion investment by 2030, he said. That’s ten times the size of the 2010 U.S. federal budget.

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