Today’s energy outlook is marked by uncertainty. Resource nationalism intensifies in Asia, South America, and Africa. Unrest is deepening in the Middle East. Reserve statistics are unreliable, and transparency is nonexistent. Constraints on supply – both ongoing, as a function of geology, and probable, as a function of geopolitics – have been paired with a surge in demand driven by rapidly industrializing Asian economies as well as oil exporting nations. The result has been a tightening of the oil market over the past several years, manifested as higher prices and greater volatility. As shown by scenario exercises such as Oil Shockwave, small disruptions in supply due to geopolitical events could lead to oil prices over $160 per barrel.
As shown in the monthly crude oil chart f, the price and volume traded in crude oil has been growing exponentially since 2003. As indicated by the widening of the upper and lower price trend lines, the volatility is increasing. For the past six months, prices have been above the 5-period moving average (show in white) and been riding up the upper Bollinger band (two standard deviations above the mean, shown in pink). While it would not be surprising, if prices touched down to the lower Bollinger band in the next year, it seems highly likely given it’s trajectory that prices exceed $150 per barrel in the next couple of years. Given the supply and demand situation and assuming continued global oil dependence, prices may only begin to stabilize when significant “demand destruction” occurs, mostly likely in the form of a severe economic recession or depression.
Cities should prepare for oil price volatility and supply disruptions as they do for other inevitable yet unpredictable disasters (e.g., earthquakes and oil spills). Such a posture could be considered energy preparedness. In many respects, energy preparedness is a direct analogue to disaster and emergency preparedness. Disaster preparedness is generally focused on prevention, response, and recovery from one-time events. Since oil price volatility and disruptions are likely to escalate as the growing demand becomes constrained by declining supplies, energy preparedness is more concerned with transition to a less vulnerable state than recovery to the previous state.
An energy preparedness perspective will increase the extent to which a city (or business) is: