Hunting with the Wolf Pack

In the 1970s Shell Oil pioneered the use of scenarios in business decision-making. Scenarios are alternative stories about the future which help shape strategy. The work of Shell analysts Pierre Wack and Ted Newland helped the company anticipate and deal with the oil price shocks in 1973 and 1979. "I had the feeling," Wack said later, "of hunting in a pack of wolves, being the eyes of the pack, and sending signals back to the rest".

Recently, Shell chief executive Jeroen van der Veer outlined scenarios of future energy use. He started from the premise that by 2100

"the world’s energy system will be radically different from today’s. Renewable energy like solar, wind, hydroelectricity, and biofuels will make up a large share of the energy mix, and nuclear energy, too, will have a place. Humans will have found ways of dealing with air pollution and greenhouse gas emissions. New technologies will have reduced the amount of energy needed to power buildings and vehicles."

Shell considers that we are "experiencing a step-change in the growth rate of energy demand due to rising population and economic development", and that after 2015, easily accessible oil and gas supplies will not meet demand. There are, in Shell's view, two possible scenarios for getting to the bright energy future of 2100 - termed "Scramble" and "Blueprints".

"Scramble" involves a zero sum competition between nations to secure energy resources, with clear winners and losers. The use of local coal and homegrown biofuels increases quickly. Policymakers do little to curb energy consumption – until supplies run short - and greenhouse gas emissions are not addressed until major shocks trigger political reactions. Responses are severe and lead to energy price spikes and volatility.

"Blueprints" is more benign. Coalitions form to address energy security and environmental pollution through cross-border cooperation. Much innovation occurs locally, as cities link with industry to reduce emissions. Governments introduce efficiency standards, taxes, and other policies to improve the energy performance of buildings, vehicles, and transport fuels. Policies converge internationally, with cap-and-trade mechanisms that put a price on industrial carbon emissions becoming commonplace. Rising carbon prices spawn technological innovation, like a growing number of cars powered by electricity and hydrogen.

What is interesting is that while scenarios are not forecasts or predictions, elements of "Scramble" and "Blueprints" can be seen now. For example, China's move to secure strategic oil and mineral supplies around the globe, and the rush by nations to stake claims to Arctic seabed, signals that aspects of "Scramble" are unfolding. And the emergence of a coalition of over 700 American cities to curb greenhouse gas emissions, and California's mandating of a 25% cut in emissions by 2020, indicates that elements of "Blueprints" are in play.

Comments

[Adrian]

The idea of scenarios isn't that the future will move towards either Blueprint or Scramble - it's just a tool to tease out what the important factors are.

[Peter]

Interestingly, Van der Veer confuses the issue slightly by referring to Blueprints and Scramble at one point as "two possible routes".

While I agree with you, Adrian, that scenarios are tools, to be useful they have to bear some approximation to a possible future. Shell often compares scenario building with cartography, and describes scenarios as "guides for a territory that no-one has seen yet".

[Alex]

I recently saw some comments by a Shell economist who suggested that demand might peak first; I'd love to see some supporting detail.

[Quentin]

This is a very good post.

The 'future proofing' idea behind scenarios has always been my mindset anyway. How will NZ look at 2100. I think in 100year frames. Especially when you view history of how nations fall and rise and decline, you notice timelines are very similar. For example, Communist Russia lasted 80 years. Cuba is still going strong.

Using Keyword furture proofing (Blueprints, scramble)helps develop pictures in one's mind to mind-map ideas about our future. Science Fiction uses this in develop alternate realities of say, 1960s mixed with a WWII world.

The Bush administration is using a zero sum model in Iraq.

[Kotare]

Hi Alex - yes, I remember reading something similar not so long ago. The right hand not knowing what the left hand is doing? There is a question as to whether scenarios are taken onboard by business units, whose managers are probably more comfortable with straight line extrapolations.

Hi Quentin - I agree that it would be useful for NZ to have that "100 year mindset". It's difficult to scan that far forward - think, for example, of the tremendous changes that have occurred in NZ's strategic environment since 1908, which would have been, to say the least, nigh impossible for someone at that time to have predicted. But it's an interesting thought exercise, and as Adrian says, a tool for thinking through important issues.

I like your idea about science fiction - the disciplined richness of imagination that comes with good sci fi is probably what is required in scenario building.