What can we learn from the WA Gas crisis?
Todd talks briefly about the WA gas crisis and shares a few ideas about the ripple effects of this event and how to use resilience thinking as a way to plan and prosper even when events like this occur in the future. [Download this as a pdf.]
On June 3 a massive gas explosion happened sparking a gas crisis in the state at Varanus – a small island off the North West coast of Western Australia.
About 30% of WA’s energy supply was dependent on the pipeline from Varanus for their energy needs.
Perth is now on energy rations, with large business told each evening how much energy they have for the following day. Casuals are being placed on standby and large mineral processing plants have been shut down – which are the powerhouse for the national economy.
Alan Carpenter, WA’s Premier went on television this week in an unprecedented call for people to reduce their energy consumption – heating, appliances and shorter showers to keep the state’s economy going. The WA Chamber of Commerce has said that as many as 10% of Perth businesses could go out of business as a result of this.
The effects of this will flow throughout the WA economy, and the Prime Minister has now made an address in Parliament pointing out that this matter is now nationally significant and will have an impact on the country’s term of trade. This will then flow through to the national economy, which is already slowing. Hang on for a bumpy ride!
Our team is working through in a range of ways to address this as I write, but as a passive observer from the east coast of Australia I thought it would be remiss not to talk about a few key concepts of resilience, how these concepts could have highlighted this as a possible scenario, and a few ideas which we can all apply in moving forward.
I’m going to explore a few key concepts in the resilience model to introduce some of our thinking and tools for creating resilient economies and resilient entities in those economies.
Key concepts – Diversity & Dependency
Diversity is a key ingredient in resilient systems and organisations. This is not a new concept:
- Financial planners talk about diversification of your investments as a means to reduce your overall risk - if one investment goes bad out of 10, you still have 90% to fall back on.
- Environmentalists will tell you that biodiversity is a critical component of keeping any ecosystem functioning. They’ll also tell you that without it an ecosystem can collapse.
- Your parents probably told you that you shouldn’t put all your eggs in one basket and then we all went out and did it anyway (don’t feel bad, so did they).
You may read from time to time about business continuity and resource security. These are related concepts that sound complicated (and believe me, they can be), but are relatively simple concepts dealing with managing risk and maintaining prosperity.
Business continuity refers to being able to continue to operate after a major event. This is very similar to the definition of resilience – we talk about maintaining prosperity even when faced with major shocks.
Resource security refers to being able to still have steady supply of a particular resource. You will hear politicians talk about oil security, energy security, water security, food security and so on. This is about keeping the supply lines flowing.
People in the risk game also talk about a term called single point of failure. This arises when you are dependent on one distribution channel, one supplier, one customer, one person, one resource etc. for the vast majority of your operation, system or livelihood. We also call this dependency.
So in the Perth situation, the entire city was highly dependent (30% of the city’s energy) on a single resource which had a single point of failure in its supply lines.
In networked systems where people are highly dependent on a single source, the ramifications can be very significant as seen above, so critical infrastructure planning must be viewed as a whole system when planning capacity and thinking about continuity.
Ok. So what?
These concepts allow us to better plan and be increasingly resilient as individuals, businesses, governments and economies by asking questions like:
- What would happen if there was a diversity of energy sources in WA such as coal, gas, wind, hydro, geothermal and solar? What would happen if we were less dependent on a single form (gas) and a single distribution channel (the pipeline)?
- What would happen if 30% of the state had switched to green power 12 months ago? Would today’s situation be different? Would we be less dependent on a single source?
- What would happen if 30% of the state produced some of their power at their own homes and locations using solar and other means? What would this do to our dependency on the pipelines, power stations and the grid?
- What would happen if you shared this thinking with all of your friends, and they shared it with theirs? How long would it take to create diversity and reduce dependency?
- What would happen if resilience thinking was baked into business continuity planning, resource security planning, critical infrastructure planning by government and big business? Would this have happened at all?
- What are the dependencies in my business? A single supplier? A single customer? A single market? A single boom? What happens if our economy was driven by a single factor (like resources) from a single country (like China)? How do I feel about that?
- What are my other dependencies personally? What do I rely on for my current lifestyle? How do I create diversity in my daily life and consumption for the benefit of myself and others? What ripple effects can I have through the system?
These are questions which can shape great policy and great lives. Resilient Futures is keen to share these kind of ideas and drive the debate. Please join in our discussions, and our thinking. Make a comment below, email us or subscribe to our news feed. Great things happen when conversations start.
Todd Davies
Practice Leader – Risk, Governance & Assurance
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June 20th, 2008 at 6:22 pm
Sorry to harp on the democracy angle …
I do wonder whether the scenarios of alternative fuel generation that you mention above would have happened or at least would have been considered had Her Majesty’s Opposition in Western Australia been more focused on providing an alternative government (and a more resilient state) than debating whether a chair sniffing leader should be maintained.
A resilient environment is one where alternatives are well debated.
May I respectfully suggest that West Australia is - in part - paying the price now for a paucity of such debate.
My rationale here is an extension of the
June 21st, 2008 at 1:12 am
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June 21st, 2008 at 1:12 am
Whether you call it resilient thinking or plain old fashioned disaster recovery planning, there is a whole area in which online reputation management comes into play. Resilience in reputation is dependent upon the appropriate role that companies play within the communities they work within. Companies that give back generally have stronger brands, attract more staff, are much more highly respected - and tend to be more profitable, and no doubt resilient.
One of the things I will be talking on soon is PR 2.0. A recent email that has been doing the rounds indicates that a reckless lack of maintenance created the disaster, and with a number of photos from the site, would make some - maybe many - people think it is credible.
Very good article, made me write a post on it http://justindavies.com.au/2008/06/20/digital-reputation-management-the-rise-and-rise-of-pr-20/
Keep up the good work….
Justin
June 21st, 2008 at 11:35 am
Thanks for the comments. For the people interested in the nuances - business continuity refers to being able to keep going, whereas disaster recovery talks about being able to bounce back quickly. Justin is correct, given the interconnectedness of communcations (such as email forwards), PR / comms is a key part of any disaster recovery planning and execution.
Resilience embraces DR, BCP, scenario planning and interconnectedness of systems at mulitple levels as well as a broad range of other concepts. We’ll be going to some lengths to explain the various aspects of the model on the site in the coming weeks.
Tom also raises a key point about dependency in democracy. In any system a dominant power without a strong counter balance leads to dependency, dominance and potentially complacency by that power. Monopolies are never good - including in politics. If you take Tom’s argument one step further, perhaps we’re now paying the price globally for the fall of the USSR and too much dependence on the United States to drive the global economy and prevailing thinking. Without casting aspersions on any particular side, I’d love to see a discussion on party dominance and whether the two party system is resilient.
Thanks for engaging in the discussion.
July 14th, 2008 at 7:06 pm
I wrote the following in response to an piece in the ‘West’, on 28/6/08, Don’t know if it got published, suspect not. It was basically calling on Gov’t to take responsibility.
Apache Energy- Workings of the market
I think the point about diaster planning in your weekend headline was highly pertinent. I don’t agree that it is the Government of the day’s responsibility, whatever the persuasion.
Many pressured for the privatisation of energy provision in WA, and they got their way as far as gas was concerned. It is now many of these same people who are bleating to Gov’t for not taking the responsibility. Get real, they can’t have it both ways.
By privatising gas, users, and particularly commercial bulk gas users, ought to have done decent assessment of their suppliers, ie, it becomes the buyers job to do risk assessment and mitigation, not Gov’t. That is the way of the all markets. Alinta as the bulk buyer on behalf of its reticulated customers, made sure its small print ensured their own supply.
If these bulk buyers had used the market concepts, they ought to have said to Apache, nice price but too risky, and Apache would have been forced due to market pressure to lower the risks, etc.
The market didn’t do its homework, and the market as it always does in those situations, eventually bites back.
If the Gov’t can be blamed for anything it might be that it didn’t make more of a fuss about the lack of risk mitigation to the bulk Market.
Expecting the Gov’t to take the lead in dealing with gas supply, its risk mitigation, establishing legislation, to effectively reduce risks but at a higher price, destroys the whole market concept.
As to compensating companies and workers, that isn’t Gov’ts responsibility at all, in such a market driven model. Companies chose short term gain, ie cheap gas while it lasted. Workers damaged through the reduced gas supply are an Industrial Relations matter, eg, protection of income brought about by the incompetence of Companies Executive. ‘Will the Work Choices replacement handle such issues and ought it’ is a related question?
To add to my response. I don’t mean that the market approach is weak or strong. It seems to be more a case of getting what you pay for. Private, market driven models, probably have a tendency to be on the leaner side, whereas public run over engineered. In the current situation I suspect the private sector need to accept the consequences, and part of that should be supporting their own underworked workforce.
September 29th, 2008 at 9:22 am
I notice that while I was away a federal Senate inquiry was announced. Submissions have now closed, but the inquiry is due to report on November 13, 2008. It’ll be interesting to see what it comes up with.
September 29th, 2008 at 9:34 am
I see that the Senate Standing Committee on Economics has scheduled the following public hearings for this inquiry:
2 October: Perth - Committee Room 2, Legislative Assembly Committee Office, Level 1, 11 Harvest Terrace, West Perth
3 October: Bunbury, WA - Ballroom West, Lord Forrest Hotel, 20 Symmons Street
More information can be found here: http://www.aph.gov.au/Senate/committee/economics_ctte/wa_gas_08/index.htm
October 26th, 2008 at 10:47 pm
[...] without single points of failure will be best placed when circumstances change. In this case the key dependency was capital. You only have to look at those able to pick up assets at fire sale prices, and those [...]