Pens and Swords
How today's events show that efficiency might be our most powerful weapon to combat climate change and resource conflicts
Technology has transitioned somewhat from pens and swords and, indeed, since 1839 when Edward Bulwer-Lytton staged his play, ‘Richelieu’. However, his play contained a line that would live forever: ‘The pen is mightier than the sword’.
Whatever your weapon of choice, writing can be motivated by a desire to excavate and prosecute a point of view, to provide expression and amplification, to learn, explain, challenge and perhaps even to help to map out a pathway for a better future.
The reason I have been writing is to try to join the dots between seemingly unconnected global events, to recognise patterns, and to illustrate which of these events are driven by competition for coveted resources, the waste and overconsumption of which contributes to climate change, economic underperformance, and conflict. I write and talk about it because there are solutions to these problems and because we can do something about them, not least by being more efficient. I know because I invest in solutions and make them happen.
Russia’s invasion of Ukraine motivated me to write a book, ‘The Edge: How competition for resources is pushing the world, and its climate, to the brink – and what we can do about it’. I wrote the bulk of the book in 2022 in the immediate aftermath of the invasion, partly because I felt that Ukraine’s role in the supply of Russian gas and other resources to Europe and international markets helped to explain why it was a geopolitical flashpoint, why market turmoil ensued, and how after American energy independence, resource wars were shifting from the Middle East to Eastern Europe and, prospectively to other arenas rich in critical resources. These same resources form the foundations of global markets and society and events that disrupt supply have the potential to upend them, as the Russia-Ukraine crisis did.
The 15 years leading up to Russia’s invasion of Ukraine (Ukraine translates literally from Russian into English as ‘on the edge’) created an arc for a bigger story around a relentless and global competition to secure coveted resources, to feed and fuel societal and economic growth, but also tragically to be wasted. In the middle of that 15-year period, in 2014, Russia annexed Crimea in Ukraine. The European Commission noted then that every unit of natural gas that it didn’t use (or waste, given that more than two thirds of it was being lost in generation, transmission, distribution, and end use), was 2.6 units that it didn’t need to buy from Russia. Learning this lesson and doing something about it earlier would have helped 8 years later when Russia invaded Ukraine and 40% of Europe’s gas supplies were cut off. Although its policy of ‘energy efficiency first’ found feet in the wake of the 2014 crisis, I didn’t find heart or lungs until 2022 when energy security combined with decarbonisation became imperative.
The Edge starts with manifestations of geopolitics, resource competition and climate change today. It then seeks to go deeper into the past and behind the scenes into the worlds of energy, metal, minerals, food and water, agriculture, and forests to help to explain why these things are happening, and what we can do about it. On the journey, it uncovers how the world wastes three quarters of its energy, half of its food and a third of its water. This is at once a source of outrage and immense hope. Indeed, it’s what makes me so optimistic that we can make rapid progress cost effectively, even if only by being more resource efficient. We are blessed with an abundance of existing technology that can do most of this job today. Innovation and research and development can deliver the rest in time. We can start socialising what works, hence my chapter on media and communications. And then we can get on and do it. Putting efficiency first. Doing the same or more with less. Growing better.
My perspectives are not political but practical and commercial and, using history, try to help explain ‘why’ and ‘so what’ based on a contemporary analysis of where we are, why we got here and where we are going. Hopefully this can help to signal where some changes of direction may be needed by governments, businesses, and individuals. Changing direction often requires investment. And it must be commercial to be sustainable. So, it is also a framework for an investment thesis and an attempt to make sense of factors that may otherwise be overlooked, or seem superfluous, or like externalities for capital markets.
I started writing this series of Substack articles as a companion to the book. My aim was to keep the book’s story and messages current by both drawing on current affairs and helping to contextualise them within the patterns that the book identifies.
For example, since The Edge was published, the Russia-Ukraine crisis grinds on in parallel to re-opened EU accession talks and, at the same time, contention in Europe and the United States over a combined $100 billion of economic aid packages. But conflicts have since emerged in the Eastern Mediterranean. On 15th October this year in my article ‘The Israel-Hamas conflict presents new challenges for global energy security’, I wrote about the risk of increased oil and gas prices, particularly if Iran became directly involved in a regional conflict. Although the United States withdrew its support for Israel’s planned EastMed pipeline to Europe, which is discussed in The Edge, Israel recently entered the natural gas export market via Egypt. Reacting to the cessation of gas supplies from Russia after the invasion of Ukraine, Europe signed an agreement for Israeli gas to be liquified in Egypt and shipped to Europe. Meanwhile, Israel’s valuable offshore gas resources and extraction facilities are near to Gaza and have been closely watched by Hamas, Hezbollah, and Iran.
Over the last month, attacks by pro-Hamas Houthi rebels reportedly backed by Iran have targeted ships traveling through the Red Sea via the Bab al-Mandab Strait, the southern route to the Suez Canal in Egypt. The Red Sea is a key route for oil and liquified natural gas shipments, as well for consumer goods, and in total about 12% of global trade. Re-routing ships around the Cape of Good Hope in South Africa adds 10-15 days and millions of dollars to the routes – adding some 20% extra cost of shipping to Europe and 8% to the United States. While the cost of insurance, share prices of shipping companies and South African revenues have been boosted, none of the implications are very good for the cost of commodities or goods for consumers, particularly in Europe, where it could prove inflationary and a brake on the interest rate decreases that governments and capital markets are hoping for. So far, Russian and Middle Eastern shipments to Asia through the route have not been disrupted. But if the United States, which has suffered repeated attacks on its regional assets is drawn into a war in Yemen or beyond its ‘Operation Prosperity Guardian’ taskforce designed to create safe shipping corridor, the regional conflict risks escalation.
At the same time as this new crisis was brewing, the worlds of energy security and climate change were meeting in the region, in Dubai, for the UN Climate Change Conference, COP28. The relationship between energy and human made climate change was at the heart of the agenda. I wrote several Substack articles in the lead up to and during the conference and was not disappointed after my projections that energy efficiency would logically feature as the headlining star to combat climate change. These began ‘Countdown’, continued through ‘The War on Waste’ and concluded with ‘The Hangover’. The ‘COP debut’ for energy efficiency inspired interviews in the mainstream media, including CNBC and Bloomberg Radio in the US, and the BBC Radio 4’s Today Programme and Bloomberg TV in the UK.
But at the same time, the climate was having its own say about energy security on another side of the world. A third major world shipping route, the Panama Canal, which handles about 6% of global trade, experienced blockages in December for very different reasons – low rainfall. In Chapter 3 of The Edge, ‘Climate Change and How All Need Not Be Lost’, I discuss the impact on society and the economy of water shortages, illustrated by the challenge that Salt Lake City faced the prospect of being a city without a lake as Great Salt Lake’s surface area had shrunk by over two-thirds to the lowest levels on record, threatening drinking water, a situation that Republican state lawmaker and rancher, Joel Ferry, described as equivalent to an ‘environmental nuclear bomb’ for Utah. Similarly, the combined impacts of climate change and El Nino in the Pacific (which tends to dry up rain the region) have been attributed to a 50% shortfall of the tropical rains that are relied on to fill the Gatun Lake, which flushes water into the locks of the Panama Canal and enables ships to pass between the Atlantic and the Pacific. Supply chain disruptions and cost escalations can be expected, although divergence of shipments of liquified natural gas to Europe that were otherwise destined for China may help to reduce or offset pressure on European gas prices from the crises in Eastern Europe and the Middle East in the short term and during the winter demand pinch point.
Panama was propelled to a prominent role on the global stage for other reasons in the last month. This time for copper. Copper is critical to the energy transition. Its conductive qualities make it essential to the global electricity transmission and distribution system, while as a material it plays a role in almost every form of generation to storage, including wind farms and electric vehicles. Its extreme pressure, corrosion and temperature resistant properties make it a key player in materials efficiency, a pillar of sustainability. Chapter 2 of The Edge, ‘Testing the Limits of the World’s Resources’, discusses metals and minerals security and the potential impacts on prices from excess demand over supply over time. Long considered abundant, the closure of one of the world’s largest mines, Cobre Panama, in the face of a successful environmental campaign supported by Leonardo DiCaprio and Greta Thunberg, took out 1.5% of global supply (and 5% of Panama’s GDP) overnight. Panama’s lawmakers also banned all future mining projects. Coming at the same time as revenues from the Panama Canal have been hit by drought, the economic implications for Panama as well as the global economy and the energy transition will leave a lot to ponder. Meanwhile, the assumed abundance of copper supply, given production cuts by Anglo American, Antofagasta and Glencore, may yet be tested.
The Edge covers energy, mineral and water security, but it also covers food security. An interface between all three issues is illustrated by the extraordinary inefficiencies in the food supply chain. My Substack, ‘A New Dawn’, discussed the 90% plus energy inefficiency in the food system, from the process of transforming natural gas to fertiliser, to run off and evaporation on the farm, to land, sea and air transport the fork. 2024 will however usher in a new series of disclosure requirements that might help to address this. From January onwards, EU companies must report the carbon footprint of their supply chains, i.e. ‘scope 3’ emissions. The United States is expected to follow suit. Food companies are already responding by investing in lower carbon ammonia and in nitrogen use efficiency.
As we look ahead to 2024, there are high hopes in capital markets for an easing of inflation and the higher levels of interest rates that have been set to reduce it. As 2023 draws to a close, the reduced yields on 10-year US Treasuries tells the story of longer-term fears abating too. Together with our hopes, it is also prudent to consider the risks associated with the competition for resources, and to price them accordingly.
For now, I leave you with my very best wishes from my ‘pen’ for the xmas season, an invitation to subscribe for free to my Substack if you haven’t already done so, and an incredible discount offered by Amazon for The Edge if wish to buy a copy
… or another one as a gift …
To learn more about investing in energy efficiency, visit www.seeitplc.com or www.sdclgroup.com.