Scaling up production

At the recent presentation I gave on ammonia as the new low-carbon maritime fuel, I was asked about the ability to scale production over the next couple of years. I think the time horizon we should be looking at is over the next 8 years up to 2030 and then 10 years after that, how things are likely going to change. We as consultants are often asked to look into our crystal balls and envision the future. We try our best to do it using data, looking at trends, making assumptions and all.

For ammonia, the demand is expected to more than double over the next 28 years. That’s still a fair amount of time, and as long as it grows by a rate of about 4% per annum, the supply will be able to meet demand in 2050. Not inconceivable though from historical trends on the production figures, it seems far fetched. But that is because ammonia has traditionally been demanded only as an industrial feedstock and for production of fertilisers. The people concerned about the competition with the existing agriculture or food industries have misplaced concerns because those are the guys who have been using grey ammonia and perfectly happy to continue to do so. The new demand is likely going to require green hydrogen; which means we are going to start growing new supply of this ammonia from scratch; no legacy issues of waiting for existing facilities to ramp up.

Then there are people pointing out the challenge of getting green electricity which seem short in supply to begin with. That is true to a certain extent; Singapore is having to import electricity from neighbouring countries, using actual physical transmission lines. But most of the time, this is caused by the fact that renewable resources may be scarce where the power demand centers are. If there are far flung locations rich with renewable resources, we can still capture these sites to produce green hydrogen as well as green ammonia, then ship them out.

So I’m actually pretty optimistic about trying to hit those demand and supply numbers over the long time frame that we are talking about. It might well surpass those numbers when the market really takes off. But the key is ensuring there’s clear price signals; and if there’s proper legitimate demand for green hydrogen, then someone will have to certify it and audit the production.

Workless Future

Is work about needs, or wants? When there are needs to be met through employment income, and yet there seems to be no job vacancies or employment available, what exactly is happening? Can the system actually cover the needs of these unemployed whilst they reskill, upskill and eventually find a place for their labour?

Or what about the future where leisure reigns over work and because production is mostly a result of capital being put to work without labour, the society can afford to just adopt a universal basic income system to sustain everyone and free them to discover what kind of work or contribution they can make to the world that would be worthwhile?

Our market economy has transformed the lives of mankind because it has freed humans to focus on a narrower scope of labour in order to provide for oneself, rather than suffer inefficiencies in having to produce, food, drinks, clothes and other material comforts or amusement, the market helps us all collaborate and provide for one another.

But in the course of trying to provide for one another, distribution of the valuable resources or output can be rather skewed without any malice or ill intent, even if allocation is efficient. So the day when capital is responsible for the bulk of meeting most needs, labour needs to identify needs to serve in the market. If there isn’t, if we as humans collectively declare our contentment then we can start looking at just helping one another contribute to the future we want to build.

Coordination problem

Most of modernity is built upon solving coordination problems. As we coordinate on more things, we discover yet more things that requires coordination to work and as we work on them, we progress. This is a story of Singapore, its progress from Third World to First. It is not about having brilliant engineers or Nobel laureates though they can certainly contribute something to this issue.

In case you haven’t realise, there’s a lot of resources about how Singapore came to be the way it is, at least in terms of physical forms and our urban system. The Centre for Liveable Cities publishes their research, rich with anecdotes and experience from our early nation-builders. In there, you’d realise most of the work in terms of raising living standards, solving issues of water, sanitation, energy, housing, are not rocket science but making bold trade-offs.

Charlie Munger had gone to the extent of saying that China’s transition into the economy today is possible due to its ability to model and take from the learnings of Singapore’s nation-building. Of course he goes on to attribute it to Lee Kuan Yew. The real world is much more nuanced and it’d be important to study the historical context, the team surrounding our nation’s first Prime Minister and so on.

But suffice to say, coordination problems are intractable; and in our society today, we continue to struggle with them even as we already had great success dealing with much of them. As we progress, these coordination problems naturally becomes more tricky and the roadmap we used to have disappears because we’re now at the frontier of development with no one else’s experience to learn from.

The climate challenge of today is exactly a coordination challenge that the world face today. And unfortunately, the experiences we had as a small island nation offers very little ideas to the world about how to navigate the climate change issues. Not to mention the fact that Singapore itself is often under flak for having high per-capita carbon emissions – which is nothing but a feature of a statistical quirk of being a highly industrialised, small island economy.

Electricity Costs

I buy electricity on the open market in Singapore. So when the bill came for the month of August, it looked pretty crazy. I have never seen my averaged cost of electricity actually exceeding the retail package pricing.

Of course I’ve allowed myself to be subject to the volatility but I wonder how often people really bother to understand or check their cost of electricity. For most part they might be using the overall cost as a proxy for consumption since they usually assume the electricity tariffs to be fixed. Well, that’s if you’re on a retail package. And even then it is fixed only for a certain time period.

I begin to wonder if there were any events and outages in the power system in August that resulted in some of those crazy rates. And with gas shortages in the world, things might be changing in the market quite a bit. People were even warned of the rising prices on the papers.

And this makes understanding the energy transition even more crucial for ordinary people like you and I. Getting a clearer view of the options for energy security for Singapore, greater transparency of the plans by the government, how far the market will be playing a role in determining the energy mix vis-a-vis policies to ensure a low carbon energy future.

Besides how much our electricity cost us, we should be also wondering how much it is costing our future and the earth.

Estimating Growth

I wrote about how we tend to overestimate mental strength and underestimate physical strength. The story is a bit similar with growth; we tend to overestimate our ability to grow and change in the short run. We would think that we can achieve some crazy target or try to force ourselves to get from Grade E to grade B in a few months. They are probably not impossible, but it will take a lot of effort and even if we plan well, things might not work out so well.

On the other hand, if we allow those short term lack of performance to cause us to be disappointed and discouraged from trying on and on, then it would be a pity. Because we tend to severely underestimate the potential for change and growth in the longer term. Even if things don’t seem to go as planned in short term, interestingly, once a direction is well-set, the longer term situation tends to be more optimistic even though more time tends to cause people to think more things can go wrong.

But more good things can happen because of that too. We severely undervalue and underestimate what we can accomplish over longer period of times and tend to think whatever happened in the short term will simply stay the same. If you’re unhappy enough about your situation, you’d tend to change it.

Nonlinear Development

Our minds seem to struggle with nonlinearity more than we should. Given how much of reality is actually nonlinear, it’s a wonder why we are still stuck with wanting things to be linear, and panicking when the progress bar is not moving as time moves forward. It is important to anticipate when further actions needs to be taken as things are not progressing well so it is important to track progress but being unable to appreciate non-linearity means we can misallocate attention and resources.

There were many occasions when I used to organise events and we review sign-up rates or “ticket sales” weekly as we approach the events. Of course things will always be slow at the start but then it tends to pick up, and even so, in a very uneven manner where it accelerates crazily a few days before the event. People tend to put off securing their places at events until closer to the date thinking they don’t want to commit their calendar so early on in time. But the management will be unduly worried about poor turnout at the events and activate disproportionately more resources to drive the numbers.

Being able to look at past figures and the growth curve from past experience helps but not perfectly because we tend to insert those ‘boost’ right before the late stages just before the sign-ups pick up wildly. So we can even think that those ‘boost’ actions (like placing more ads) actually works. Sometimes, they create so much awareness even after the event sell out that we have to turn people away. And appreciation for nonlinearity is important for any leader and one who is developing a vision for the future.

Because the journey there would not be linear and the assurance that ‘we will get there’ is not going to come from data, or your people, but from your commitment to your vision.

What is your fuel?

I once talked about finding the deep concepts in our culture that has no English equivalent and struggled with it. I thought that being famous for “Kiasu” as a concept was nothing to be proud of. It is interesting when I realised that Seth Godin picked up on this concept when he was writing The Practice.

Of course, kiasu is actually about fear and insufficiency. And it couldn’t exist if we trusted ourselves enough to know that we’re already on a path to where we seek to go.

If you are using outcomes that are out of your control as fuel for your work, it’s inevitable that you will burn out. Because it’s not fuel you can replenish, and it’s not fuel that burns without a residue.

Seth Godin

Actually, I was a bit sad; not just because this negative term describing part of our culture has spread but because what Seth said here isn’t far from truth. We all need to be taught to burn fuel that we can replenish, that is within our control, that we can use wisely.

Like fossil fuels, that focus on outcome for our society might have helped us for a while. Much of modernity was built upon the power of coal and steam engine. But as a society we need to find new fuels to sustain us as a society, fuel that is sustainable. Fuel that doesn’t burn us out, wreck our mental health and cause damage to our spirit.

Lockdowns and Energy Consumption

Industrial production might have fallen slightly across the world last year and as we see more waves of Covid-19 hit different parts of the world I’d think industries have gotten better at keeping productions up. So even with more measures kicking back in to keep people safe, industries will probably still continue to hum along.

Energy consumption across domestic sector definitely rose quite significantly as people worked from home, binged on Netflix. Datacenters probably worked harder across the world as well and even more content gets put up online by new content creators and new exchanges online that replaced what was previously offline.

Transport is probably the sector where energy consumption fell drastically last year. First with air travel, but probably also with some longer-range land transportation as well. Though logistics probably continue to move along and delivery apps for food, groceries and all that might still continued running.

Resource use in terms of masks and takeout containers, plastic bags definitely increased. So waste management cost might have risen for most part. Environment wise overall things might not have been so different in terms of moving away from the longer term trajectory.

The opportunity here is rethinking the way and the amount of energy we are consuming, now that we might be spending more time at home, and industries might do with less people being at work. Likewise, if we are taking out more often, perhaps we could use reusable containers more. We might be able to cultivate better habits that set the world on a different trajectory.

Hybrid Cars

Hybrid cars are efficient internal combustion engine (ICE) cars. They are electric vehicles to the extent they have batteries and an electric motor. But the truth is, 100% of the energy used by hybrid cars are from fossil fuels, unlike EVs which could offer a chance of using completely green electricity. Of course, you can argue that Plug-in Hybrids allows for that. So for a moment, I’m just going to declare I’m not talking about Plug-ins.

The thing about Hybrid is that they are probably great in terms of making the power generated by the ICE more efficient. Whether this is more efficient than the total process of generating the power from fossil fuels and then pushing the electrons down the power grid to the charging station to supply a pure battery EV, I’m not too sure. But the point is that you’re still using fossil fuels. On a per-unit traveled basis, your carbon footprint is lower. So yes, it reduces carbon emissions through its efficiency gains.

But then that’s what ultra-critical coal power technology does too. It makes coal fired power plants; and we stopped that. So when we think about phasing out ICE, it is important to make it more of a binary choice such that we are not leaving too much room for ICE cars in the form of hybrids. Accelerating decarbonisation is a significant priority and creating these wriggle room does not help.

Energy Disruption

The energy transition is vital for the world, for our future generations and I’ve previously explained how moving toward sustainability is a change and there is pain associated with it. And I’ve also used the term disruption then. This time, I want to look at it from the perspective of disruption to the energy industry itself.

The energy industry acted like a chain, passing on hydrocarbons from one segment of the chain down to another, processing it in different ways until you get energy. That’s why there is the upstream (which is mainly exploration, drilling, extraction), followed by midstream (transport vessels, pipelines, etc) and downstream (power plants, internal combustion engines, marine and aviation fuel engines).

Trying to decarbonise this energy value chain inadvertently changes the dynamics of that ecosystem that has been working for quite some time (if you consider just Oil & Gas, that is recent but if you consider Coal, then it’s been centuries). The players used to work together and despite the commoditisation of these products, the connections and relationships within the industry means there is some degree of coziness with the structure of who does what and how.

When an international oil company now wants to be sustainable and sees themselves not as an oil company but one that supplies energy (which they technically have been doing in the past), they are now having to sever ties with some midstream players and competing with those who were their downstream customers. All of a sudden, they are bidding for renewable energy projects against the independent power producers whom they counted on to purchase their fuels.

Transitions have knock-on effects and eventually becomes disruptions because things displaced don’t fit well naturally elsewhere. Are you ready for them? Is your business ready for them?