Hill+Knowlton Strategies

In my previous two blogs postings, we looked at two of the reasons why so many energy companies have been getting into trouble and finding the implementation of infrastructure projects to be so hard in many developed countries:

•  The end of the Age of Enlightenment has produced societies less persuaded by facts and more swayed by emotion.
•  The arrival of the Postmodern Age, in which there is a widespread acceptance of the notion that there is no such things as absolute truth and that “what is true for you need not be true for me”.

 The challenging environment has been further complicated by the rise of the Internet, which has profound implications for many companies, not least those in the energy industry.

 Every significant development in communications technology has had societal implications well beyond what the technical innovators could have imagined:

•  The fact that the printing press was introduced in Europe at the time of the Reformation was not a coincidence.  This revolutionary technology turbocharged the spread of new ideas.
•  More recently, it was the fax machine which effectively brought down the Iron Curtain at the end of the Cold War.  This (very) slow-motion Twitter enabled like-minded individuals to network and the Communist authorities lost their monopoly control of the mass-dissemination of information.

 If knowledge is power (and it always has been), then, in our own era, the Internet is moving power from institutions to networks.  The Internet enables individuals who share a common interest to identify each other and then coordinate and organise at close to zero marginal cost.  This is bringing tremendous benefits in areas such as medical research and less desirable outcomes for those engaged in anti-social or criminal activities.

 Many companies in the energy industry have yet to think through the implications of this shift in power.  In their project management, for example, they still think in terms of linear, predictable regulatory approval processes, while the unfolding reality is something much more akin to political theatre as a number of hitherto extraneous actors make uninvited but impactful appearances on a stage which the companies thought they controlled.

 Many of these NGOs are small, but they are savvy in their use of the new technology and, like the mass of tiny Lilliputians, can tie a giant Gulliver down to the ground with their thousands of individually tiny strands.

 The creation of networks is of course, a game that two can play, but energy companies will need to completely re-think their approach to what now needs to effectively be a political campaign strategy in the light of this new reality.

 The Internet is also, counterintuitively, contributing to a feeling that, while many of us are more connected than ever before, we also feel more alone.  This observable increase in alienation is one of the reasons why we’re seeing a marked decline in trust in many types of institution: a subject we’ll get to in the next blog posting.

In my previous posting, I looked at the problems that very fact-based enterprises, such as energy companies, were having with the end of the Age of Enlightenment.  This is an environment in which “non-factual factors”, such as emotion, faith or superstition are increasingly accepted as a valid basis for opinions.  This is a world in which it has become acceptable to say “your facts don’t change my feelings”; a world which is hard to navigate for very fact-based individuals and organisations.

 To make matters worse for such companies, they’re also trying to operate in the Postmodern Age.

 Part of the Wikipedia entry on Postmodernism reads:

 “Postmodernism was developed by academics in the 1950s-1960s in a reaction against scientific efforts to explain reality objectively.  It was a fashionable and dominant mode of analysis in many academic circles in the last decades of the twentieth century.  Its appeal may be explained partly by the cultural vertigo that can result during periods of rapid social change, where established values may seem to have rapidly eroded and a steady stream of new technological advances produces large changes, heightening uncertainty about the future.”

 We’ll come back in a future post to the issue of “cultural vertigo”, because that’s also providing difficulties for many companies (not only in the energy industry), but crucial to today’s post is the “reaction against scientific efforts to explain reality objectively”.

 This has resulted in a widespread acceptance of the notion that there is no such things as absolute truth and that “what is true for you need not be true for me”.  Confronted with such an attitude, people such as the engineers in energy companies often have great difficulty in relating to this world view.  After all, their training has all been very fact-based: either the bridge that you have designed will withstand the loads placed upon it, or it won’t.  Theirs is often, of necessity, a relatively black and white world which has difficulty in dealing, not just with shades of gray, but with completely different colour schemes.

 Coming on top of the end of the Age of Enlightenment, this postmodernism is therefore an additional reason why stakeholders will no longer be convinced by being educated by “the facts”, since, as I said earlier, what is true for you need not be true for me.

 How to move forward in such a world?

 When I got married almost thirty years ago, my father-in-law gave an excellent speech.  Among the many pearls of wisdom that he shared that day was the following:  “Peter, every so often, you’re going to have to sit your wife down and give her a damn good listening to”.  It was wise advice and, whenever I’ve failed to do that on significant matters (or just life in general), I’ve usually got myself into situations where I had to end up doing it anyway.

 Energy companies need to do the same with those who are concerned about their activities.  Shouting “the facts” from corporate websites and brochures may make you feel like you’re doing something, but it’s seldom achieving anything.

 Instead, time spent really communicating (listening at least as much as talking), building relationships, walking a mile in each other’s shoes and looking for areas of common interest will be increasingly essential to success.  It may feel costly, time-consuming and lacking in the reassurance of foreseeable process, but the old ways, which had the appeal of misleadingly seeming to offer speed, cost-effectiveness and certainty, simply aren’t working any more.

 Consultancies like Hill+Knowlton, as they work with their clients to create the external relationships and understanding which enable their clients to succeed, are increasingly going to be in the conflict resolution business.

 Next, living in the Internet Age….

Overhead High Voltage (HV) cabling has long been the subject of debate and argument. It was at one such debate that I met Mike, business development director at Costain, and we talked about the rationale behind undergrounding HV cables in tunnels. Mike very kindly offered to show me the current undergrounding operations that Costain and partners are building under the streets of our Capital for National Grid and so it was that I spent a very interesting afternoon in North London.

Willesden Junction is not a place I knew in London and after emerging from the Bakerloo line it became immediately clear why. It is a curious mix of light industrial, train and transport depots and some residential streets, but that made it the perfect starting off point for the 7.2km 3m diameter tunnel that would end up somewhere near St John’s Wood and meet a 13km 4m diameter tunnel that had begun in Hackney.

Map of tunnels at Visitor Centre

The excellent visitor centre, which was about to be raided by the second school visit of the day, contained some fantastic visualisations of the tunnelling work including this real time drilling chart and full size mock up of the tunnel.

Tunnel Mock-up at Visitor Centre

But where the school tour ended was where our tour began and after donning the correct personal protective equipment and having our safety and orientation training, we went on site to witness the production line efficiency of a tunnel boring team, only days from reaching the target ‘breaking through’ point.

Accompanying us was Richard, who made sure we were safe during our visit and after first looking at the impressive muck conveyor belt, which carries tonnes of London clay vertically up the massive main shaft, we then descended the 50 metres or so to the floor of the shaft.

Main shaft to access tunnel

There we caught our train, one of several that continuously run between the tunnel boring machine (TBM) and the main shaft to ferry the precast concrete rings that make up the walls of the tunnel and the tonnes of clay back in the other direction and of course the people that work on this project. These trains take about 20 minutes to travel to the face and run like clockwork to ensure that they pass each other at the correct spot to ensure the TBM is constantly supplied.

Tunnel Boring Machine

The TBM has a crew of about ten, who work with production line-like efficiency. The process of fitting a 1.2m ring of concrete would take longer to describe than it would take to do, so here’s a two minute video showing some of the process (note: the camera shake when the blocks go in place gives you an idea of how big they are!).

TBM in action

It is an impressive thing to watch, and I genuinely felt privileged to have been able to join Mike and the team to watch this tunnel being built in order to futureproof London’s electricity supply. It is an ambitious project and indicative of the sort of large infrastructure investment the UK needs to make as part of the upgrade to our electricity grid, but also to support growth and investment in our construction and engineering industries. It will certainly bring some reality to my next conversation about undergrounding HV cables.

There are several reasons, many connected to the broader environment in which such companies are working.  Some of these reasons have been more discussed than others, but we’ll look briefly at some of them in this and subsequent posts.

The first of these is an epochal change.  We’re living at the end of the so-called Age of Enlightenment, which has lasted about 300 years and which was based on the primacy of fact and reason, rather than faith or superstition; a world which was underpinned by the advance of knowledge based on the scientific method.  In such an Age, feelings mattered less than facts.  Arguments could be won with such statements as “that’s just emotion, the facts are….”.

We’re now living in an age in which emotion has once again become acceptable as a means of reaching judgements and decisions.  The assertion that “your facts don’t change my feelings” is now intellectually respectable in a way that would not have been the case as recently as thirty years ago.

This is a much harder world in which to operate for fact-based enterprises in controversial industries, such as energy companies.  Such companies are typically run by people with very fact-based backgrounds (such as engineers and accountants), for whom “feelings” are typically very subservient to their interpretations of “the facts” of an issue.

Since such people as usually convinced by facts, they assume that others will be similarly convinced once the facts are known and so they communicate in emotionally fraught situations by throwing more facts into the argument.  We know from our personal experience that this is seldom, if ever, a successful approach to dealing with people who are upset about something, but this industry often persists in such behaviour.

It’s not that the facts have ceased to matter, but the route to gaining a hearing for them needs to pass through addressing the emotions of an issue first.  As the old saying goes, people need to feel they’ve been heard before they’re will to listen and we need companies to develop EQ as well as IQ.

A very instructive example of this, from outside the energy industry, can be seen in the contrast between tobacco and alcohol.  Faced with rising concerns some years ago about the side-effects of the use of their products, the two industries reacted very differently.

In the case of tobacco, their approach to the issue was entirely fact based (and litigious).  The alcohol industry, on the other hand, acknowledged the issue and worked with NGOs such as Mothers Against Drunk Driving to address people’s’ emotional concerns about the damage done by alcohol.

The result, decades on, is that in most of the developed world, people having a drink together remains a widely-accepted social practice.  Smokers, on the other hand, have become social pariahs, banished from polite company.

Next, living in the Post-Modern Age…

Glen Hodgson, a Director with Hill + Knowlton Strategies based in Brussels and Stockholm, writes about new legislation which will affect the market for biofuels in Europe and therefore create opportunities as well as threats for operators, producers and users.

What is the issue?

The European Commission proposed in October 2012 new legislation on the indirect land use change (ILUC) effect of biofuels intended to minimise the climate impact of their production. In this context, the proposed rules may lead to new classifications and subsidy streams for sources of biofuels. If adopted in its current form by the European Parliament and the EU Council, this will limit the amount of food crop-based biofuels and bioliquids that can be counted towards the EU’s 10% target for renewable energy in the transport sector by 2020 to a 5% level. This is clearly of concern for the whole industry.

 The European Commission also proposes double- and quadruple-counting the contribution of some low-ILUC biofuels towards the EU’s 20% emissions reduction target for 2020, one of the aspects of the proposal which had proved controversial within the Commission prior to its publication. In general, land-using second-generation biofuels are intended to be double-counted, while non-land-using second-generation biofuels are to be quadruple-counted due to their low-ILUC factor.

Timing and next steps

The proposal has been adopted, but work in the European Parliament and Council of Ministers has not yet begun. There is therefore a great deal of scope in shaping opinions at the national and Brussels levels to protect business interests. This also opens the possibility of setting up a biofuels debate platform which would support and complement future lobbying towards the European Parliament and the EU Council around the ILUC legislative proposal. This could establish a dedicated online channel through which to directly engage targeted decision-makers, influencers and media as a transparent means to advance policy objectives and educate on key concerns. Furthermore, such a dynamic platform would also rapidly address misinformation and showcase relevant videos, while supporting targeted offline engagement and outreach activities. Clearly, the time is right and there is a need to re-energize the debate and make it more visible ahead of this year’s first-reading negotiations in the Parliament and Council.

Last week we were reminded of the rare, but sometimes terrible consequences of working in remote places to secure energy supplies. In monitoring the situation unfolding in Algeria I was struck not only by the terrifying nature of the raid on the In Amenas facility, but also at the challenge of getting good information, by Governments, the firms involved and the media. Of course this is a very remote site, in the sands of the Sahara no less, so you would expect difficulties in getting reliable information. That said in these hyper-connected days the vacuum created by rolling news and live blogs on newspaper websites and Twitter was for an observer challenging. For those more closely involved it must have been intolerable.

In the weeks and months that follow BP, Statoil and Sonatrach together with their respective Governments and the wider industry will try to come up with a solution. There will no doubt be many suggestions though there was one thing that might help that occurred to me during a particular bulletin and that was the use of unmanned aerial vehicles.

Perhaps this has already been done by companies, but I suspect it hasn’t yet. I saw reports that the American military had used an unarmed UAV to monitor the situation at In Amenas. Of course the monitoring capabilities of these machines is vast with their specialist cameras. Their range is also extensive, their cost falling and the risks of using them very low. Will it really be that long before energy firms with remote assets start to deploy these machines?

It first struck me that it won’t be long before the media begin to use them. Watching rolling news over the last few days, there has been scant imagery showing events unfold. Only a few smartphone pictures ultimately made it to our screens. For families affected this must have been something of a blessing, but for bulletin editors used to having footage almost immediately of an event like this, it must have been a challenge. I really wouldn’t be surprised to see the first media drones (UAVs) circling above an unfolding story within a few years time.

So if the media look likely to invest to stay ahead of a developing story, I would also not be surprised to see companies investing in this technology in the coming years.

Of course the situation remains unclear still for some families and we hope and pray that there may still be some miraculous good news to come to those families who have had their lives thrown into turmoil.

You are very likely to know that the US has developed technologies which enable them to access natural gas reserves trapped in shale rock formations. This is known as the ’US shale gas revolution’, and its potential impacts on the global markets is causing great debate amongst many. 

 On the domestic front, net US imports of oil and gas will fall next year to their lowest level since 1987. By 2014, it is predicted that America will rely on the rest of the world to supply less than a third of crude, gas and other fuels (compared to nearly two-thirds in 2005). If these forecasts are correct, the US is moving towards a state of energy independence.  

 Furthermore, reduced US gas prices resulting from the surge in domestic gas supplies, may lead to an increase in US manufacturing, with many chemicals manufacturers for example, who were at one point leaving the US, intending to expand their US chemicals production and take advantage of the more favourable situation of (comparatively) cheaper gas.

 Aside from domestic implications, the US’s expansion into shale gas as one of the world’s largest economies and one of the great global energy importers arguably will have sturdier repercussions on the rest of the world.

 Take Canada for example. With 100 per cent of Canada’s current natural gas exports going to the US, and net natural gas exports to the US forecasted to contract by less than one-third of what Canada was exporting to the US as recently as 2007, Canada may have to begin to diversify its energy supplies, either by investing and developing in their own domestic markets, or by expanding abroad.

 Australia is another example of a country which has been dependent on gas exports to the US, and may need to begin to diversify its own markets. Given the geographic location of both countries, Asia is a market which both could look to expand in. However, the Australians may wait to see what Canada does, for if Canada did pursue more of a domestic energy policy, it would reduce competition for the Asian markets. Moreover, Australia could learn from Canada’s domestic energy expansion model and use it as their own.

In Europe, it is still unclear what the nature of its own shale gas opportunities look like, but if the ‘US Shale gas revolution’ was to spread across the pond, Russian markets, who export vast quantities of gas to Europe, could be affected as markets in the Middle East may be (regarding their exports to the US). 

A further point made about the Middle East by many, is that if the region is to become less economically vital to the US, then this begs the question what impacts this will have on the geopolitical importance of the region.

 What is clear, is that the US is far more advanced than its economic competitors in Europe, Russia and China, having developed the technologies to source shale reserves (which it continues to develop at a rapid rate). It will be interesting to see how the imminent use of shale gas will impact global markets.

In the last decade, the Brazilian economy enjoyed its largest growth in 70 years. More than 20 million jobs have been created since 2001 – an increase of 68% — due to business investments and increased production across several industries.

This recent growth was driven in part by the discovery of the pre-salt layer off the coast of Brazil. It is currently being explored by Petrobras, the world’s 5th biggest energy company, through partnerships with other national and international companies. Currently, the pre-salt layer (including Campos Basin and Santos Basin) has a total production yield of 230 thousand barrels per day, which represents almost 12% of the state owned company`s total production (1.94 million barrels per day).  In 2016, the pre-salt fields are expected to represent 31% of the country’s total production.

Exploration of Brazil’s pre-salt has also highlighted a lack of skilled labor in Brazil, which is needed to meet the demands of the energy industry. Obviously, the shortage of skilled labor is a global issue, not a Brazilian one, but there are some policies in this country that make everything a little harder. One of them is the local content law.

The local content law establishes that Brazilian people and services have hiring priority, but this varies according to each segment. The minimum percentage depends on a number of factors since the law is so complex. There are projects in which at least 50% of the individuals/companies hired need to be Brazilian, and other areas where demand is 70%. In the energy industry, this percentage is 65% and is one of biggest obstacles that hinder its development.

In the country, the oil and gas industry is expected to double its production by 2020, but the professionals who graduate every year are still very few and won’t meet the demand.

Some companies have already taken notice of this problem and have been investing in trainee and internship programs, partnering with universities and offering international opportunities for its employees, as well as great pay. These are moves that aim to attract what little manpower is available today, since these professionals are also being sought by other industries such as mining and infrastructure, both very heated markets in Brazil.

This lack of manpower in Brazil means the country is at risk of serious stagnation in productivity levels. Currently, only 7 percent of Brazilian workers hold a university degree. Other economies that are less developed than Brazil have a higher proportion of workers with university degrees. This is true in countries like Chile (24%), Russia (23%), Kazakhstan (18%) and South Africa (9%).

To solve this issue, some ideas have been proposed by industry experts: relaxation of work permit requirements for foreigners while still valuing domestic labor,  ensuring that foreigners who come to Brazil help train the local workforce; providing training for current workers; and more government investments in technical education and training courses for those who are interested in the opportunities generated by this period of growth in the country’s energy sector.

Hopefully the Brazilian government will address the situation shortly – it has already started public hearings about the relaxation of work permits – avoiding a collapse of the infrastructure sector and allowing companies investing in Brazil to continue growing and creating more jobs.

Petrobras Mexilhão jacket launched to the sea in Brazil - photo credit Petrobras News Agency

Yesterday’s Energy and Climate Change Committee report on consumer engagement with energy markets made for interesting reading. From a PR perspective the section on media reporting on energy costs was particularly compelling. The rising cost of energy and impact of ‘green’ policy has been one of the hot topics of 2012 – capturing the attention of the trades, broadsheets and the tabloids alike. And for a sector that’s traditionally not the topic of pub chat, this is the year that the country got talking. With squeezed wallets and fluctuating weather conditions, combined with the challenge of global warming and carbon reduction, the public is taking notice.

Depending on your newspaper of choice you will likely read very different views on how serious our energy challenge is – both in terms of dwindling resources, and environmentally sustainable sources. Yesterday’s report states that “It is likely that consumers get a lot of their information about energy issues from the media.” So with increased, and often emotive, attention now focused on energy it becomes even more important to know where our media stand on the issues, and crucially – how accurate their reporting is.

The Energy and Climate Change Committee is troubled by concerns raised over media reporting on energy matters. The report points to several witnesses who have suggested that media reporting of the cost to consumers of DECC’s environmental and social policies may be misleading. The Carbon Brief says that a series of newspaper articles have overstated the current impact of green policies on energy bills, either through error or selective research. Scottish Renewables suggested that the media preferred to rely on figures that fitted with their editorial line on energy and climate issues – relying on “unverifiable leaked reports or skewed research by think-tanks and individual consultants”. RWE npower said of media reporting, “Very often, it is a case of ‘not letting the facts get in the way of a good story’”.

The Committee wrote to the print media requesting responses to the evidence it has received on media reporting of these issues. Whilst only 6 of the 17 publications replied, the answers are telling. The Sunday Times decided its coverage has been “very balanced”, focused on the science, while The Financial Times put responsibility with the reporter. The Daily Telegraph and The Sunday Telegraph responded that the costs of green energy were “hotly disputed” but that they reported “all sides of the debate”. The Daily Mail and The Mail on Sunday acknowledged that “mistakes are occasionally made” – hmm…

One national newspaper responded that they were “uneasy that a Committee of the House of Commons appears to be asking a newspaper to justify its reporting on a particular issue based on vague, partisan criticisms from lobby groups with an interest in the issue”. That same paper failed to print a letter from the Committee’s Chair highlighting factual inaccuracies about an article on the effect that investment in renewables would have on consumers’ bills. No coincidence then that such disdain comes from the paper with perhaps the most supportive line on fossil fuels, with anti-rhetoric towards wind energy? I’ll leave it you to work out the paper in question…

Of course, in the fast paced world of journalism mistakes from time-to-time are inevitable. But the Government must do everything in its power to make facts and figures on the cost of going green transparent. It is all too easy for the media to hide behind confusing and conflicting data so they may follow an editorial line that misguides an already bewildered public. Renewable technologies and environmentally sustainable practices are a necessity not a choice for our long-term energy future. Isn’t it better that now the public’s attention is caught they get a full, accurate and honest picture?