Today we’ll explore a simple idea. It’s designed to get you thinking deeply about what is about to happen to Britain, and no I’m not talking Brexit. I’m talking power.
This weekend, we’ve pencilled in a unique project. It’ll focus on a boom that should’ve happened in Britain about 100 years ago. And again in the late 60s. Something that’ll make North Sea oil look boring.
I call it Churchill’s Greatest Mistake, as I mentioned yesterday. Today, we’ll set the scene for what you need to know to understand the significance of what’s about to happen. And at the weekend, we’ll reveal how to be amongst those who profit.
But first, consider this. Oil is the world’s most traded good. If you combine refined petroleum and unrefined crude, that is. Cars take out top spot, technically speaking.
But what if our most important source of energy suddenly ceased to be traded? What if we didn’t need oil and its replacement doesn’t really lend itself to trade?
It’d be a complete transformation of the global economy. And geopolitics. And financial markets.
I’m talking about a world where every nation, or even region, becomes self-reliant in terms of energy. Not in some sort of dystopian nightmare. We’re talking a radical shift for the better. Mostly…
We only rely on international trade in oil because of where oil can (and can’t) be found. And how useful it is. But, most crucially, how easy it is to transport without losing its energy. It almost doesn’t matter where your oil came from. That’s how good we are at moving the stuff, and how good the stuff is at being moved.
But what if our energy came from places and resources that exist pretty much everywhere? What if we didn’t need to move it around?
So much of 20th century geopolitics was about energy. When my German mum asked my Japanese in-laws why on earth they attacked Pearl Harbour, they answered it was because of the US oil embargo. That’s a Christmas Eve in my family for you…
International relations would be transformed without the clamour for oil and gas. Sea lanes would matter less, as well as their choke points. What would Middle Eastern politics look like without the oil demand? What would naval power mean?
Oil infrastructure is enormous too. Huge chunks of the global economy are oil dependent. In a myriad of ways.
Oil itself, and oil companies, are a huge part of financial markets. “Revealed: big oil’s profits since 1990 total nearly $2tn” screams an outraged Guardian. “BP, Shell, Chevron and Exxon accused of making huge profits while ‘passing the buck’ on climate change.” Passing the buck to the Guardian’s readers, I’d like to mention… and they’re also the ones using the oil too…
The point is, the world looks like it does because of oil. But what would it look like without oil?
Well, you can stop daydreaming and start thinking it all through a lot more carefully now. Because the world is turning electric. And that means far more than just power will change.
While electricity can obviously flow across borders, long distances aren’t particularly efficient. Especially for an island nation. The closer the electricity generation to the user, the more efficient the process.
There are some serious disadvantages to all this change. Oil blackouts don’t happen – we haven’t had an oil shortage for decades. When the price spikes, more production just pops online remarkably quickly.
Electricity is much harder to store and manage. Blackouts happen already. Imagine when electricity becomes even more prevalent – when it powers everything.
So, perhaps electricity isn’t a silver bullet after all? Sometimes portable and storable energy is preferable. And that’s where we get to our real topic, which I’m keeping for this weekend.
Oil isn’t just great because of the energy it provides. It’s also good because of how it does so.
So, what if you could combine the benefits of both electricity and oil? And what if Britain led the world in that source of energy?
Another challenge to our electric future comes in the form of communications infrastructure. Just as the source of our power is changing, our ability to manage it is too.
Our tech expert Sam Volkering had a rather prescient experience which highlighted the point I’m trying to make. Here’s what he wrote to his subscribers of E.V. Profit Alert late last year …
I woke up abruptly this morning to the sounds of multiple alarms. It was about 1am.
Not phone alarms, not clock alarms. House alarms.
Thankfully, they weren’t mine. It was a house across the street. But a number of the “smart” lights in my place had unexpectedly come on as well.
That included the smart light in my nine-month-old son’s room. My wife was quick to yell at me to turn the bloody light off in his room to not wake him up.
Luckily I got there in time before he could wake up.
I would have turned off the lights from my phone or through “Alexa”. But all of the WiFi was down in the house as well.
I’d seen this before at my place when I killed the fuses while changing over a light fixture. When I flipped the power back on all the smart lights came back on. I knew that this abrupt awakening this morning was due to a power cut in the neighbourhood.
Our place was fine once I went and switched off all the smart lights. But the alarms at the house across the street and one out the back kept going… and going… and going.
This continued for a good 15 to 20 minutes – and made it impossible to get back to sleep. I can only conclude no one was home in these houses, because no one turned them off.
Finally it ended. And peace was restored. Although I was pretty sure I could still hear an alarm. Wasn’t sure if it was just burned into my brain by then or whether another alarm went off somewhere else.
Not long after it ended, it happened again.
Same process. Alarms on the houses all going off incessantly. The smart lights stayed off at my place, because they were all now in the off position at the switch anyway.
But the alarms… it didn’t end there either.
This happened another two more times. Roughly once an hour for 15 to 20 minutes. It was killing all the power in the neighbourhood and obviously killing all the WiFi connections in the house as well.
Hence little sleep was achieved last night due to repeated power outages. It also didn’t help that the dog needed a crap at 5.30am. At that point, you just flick on the TV and deal with the day.
During these waking hours I had some time to think.
You see, I’ve got a lot of connected gear in my house. You’d expect that from a tech-focused editor. Much of it is allegedly “smart”. Smart TV, smartphones, smart lighting, smart devices all around.
But none of it is really smart. I’ve come to the conclusion that “smart” devices are just dutiful devices. They do what you want when you ask. And sometimes they do things you don’t ask when you don’t want them to.
Most of the time when they’re not being smart there’s a root cause to the problems.
And I mean power in the sense of energy. There is no connected, smart world without the energy to power it. Our world is nothing without electricity.
Without electricity, the lights don’t work. That’s not helpful at night. Luckily we’ve got candles. Without electricity the TVs also don’t work. Not helpful when I want some entertainment at home. Luckily we’ve got books.
There are other things that don’t work without electricity. Like the computer, the coffee machine and smartphones (once they’re out of charge). All of these things are just expensive lumps of metal without electricity.
This extends outside of the home too. There are no streetlights or traffic lights when there’s no electricity. That’d be fun in rush hour during an icy winter.
There’s no power to office buildings, which also means no lighting, no heating, no computers, no WiFi, no lifts, no work.
When it comes to companies like the ones we’ve got in our portfolio –[……….………………………………………….] – they’d all be worthless without the internet and without electricity.
There is no internet if there’s no power. And if there’s no internet, there’s no “cloud” and if there’s no cloud, kiss most of these companies goodbye.
It all reinforces that we’re incredibly dependent on the internet and connectivity in our day-to-day lives. But we’re absolutely helpless without electricity.
This is a big problem. And it’s why electricity grids are becoming an increasingly “hot” target for attacks. It’s why cyber defence is becoming a more important aspect of not just our existence online, but also to protect critical infrastructure.
It’s also why there’s a growing trend of microgrids and independent power generation and storage. If your house is covered in solar panels and you’ve got an energy storage system you’re sorted. You might even be net energy producer. If so then a power outage in the neighbourhood isn’t going to bother you.
It’s like when you go on holiday and take a spare little power bank for your phone. Except this time you’re doing it for your house.
This is something people don’t give much attention to until there in the midst of an outage. But it’s an opportunity as we shift to a world where energy production and store shifts to the individual.
Energy creation, storage, trading are all key aspects of our connected future that fly under the radar. And they’re all going to be areas of focus for us in the coming months. Without these, there is no connected future.
With Huawei in the news, the importance of all this is obvious. If your ability to control your use of electricity runs via a Chinese platform, and just about everything you use is powered by electricity, you’re introducing some rather large risks.
Well, Britain may be selling out over its telecoms infrastructure for now.
But it will also be a leader in the solution to a long list of the problems we’ve discussed today. Stay tuned to find out what those solutions are…
Until next time,
Editor, Southbank Investment Research