I'm glad that Smurf was able to verify what I have observed indirectly with regard to the dangerously insecure situation of almost all business operations.
A real example that I know about (yes it's energy related...
).
In the past there would be 20% or more spare capacity to cope with things going wrong. In addition there was backup fuel (oil) on hand at gas-fired power plants in case the gas supply was interrupted (since nobody stores gas on site due to the hassles of doing so in large enough quantity to be useful). In addition, there were contracts with the oil companies to access fuel stored by them also, and to get tankers on the road at short notice hauling it to the power station etc if it became necessary to do so.
What happens now? Well instead of all that there are simply contracts with other power generators, often in another state, to cover the
financial risk to the owner that the plant is unable to operate for some reason. Much of the risk in Victoria is underwritten by two generators based interstate, one in NSW and one in Tas.
Just one problem... On a hot day Victoria already needs supply from Tas and NSW, with the direct source of that generation being the very same generating companies who are underwriting risk for Victorian rivals. That supply is needed in order to keep the lights on, since Victoria does not have sufficient capacity within the state's borders to do so even if everything works perfectly.
So what about those contracts? Well if interstate generators need to physically deliver due to a disruption of production at a Victorian plant then they can and will do so. But the energy they supply will be the very same electricity they could have already supplied anyway, the availability of which is factored into planning. The only difference being that it is being supplied to meet a contract rather than being sold into the spot market.
So on paper, interstate generators have fulfilled their obligations with respect to supplying backup power during a plant outage in Vic and the owners of that plant in Vic have met their own contractual obligations to retailers by on-selling the energy supplied by interstate rivals.
But what about the physical supply of electricity in Vic? Well that falls in a heap simply because no amount of "on paper" contracting can actually deliver physical supply that would not already have been available. NSW and Tas already supply peak energy into Vic, all the contracts do is provide financial certainty for them and (financial) insurance for Victorian generators. They don't address the physical lack of production because some plant in Vic broke down, ran out of gas etc since their supply is needed anyway.
So what we've done is to swap physical means of maximising reliability, things like having some spare capacity and backing up the gas supply to gas-fired plants with fuel oil etc, to a situation where there is much less spare capacity and less backup fuel available (and some new plants don't have any at all - zero).
So if the Longford gas plant, that's the one that was crippled by disaster in 1998, goes offline then there goes the output of the gas-fired power stations in Vic once they burn through the few hours worth of oil they have on hand, and then find that (not surprisingly) the oil companies haven't kept more on hand because they are not contracted to do so. On paper it's fine, they are financially covered by hedging contracts, but that doesn't stop the lights literally going out if it happens to be a hot day.
It gets even worse. I won't say too much, but suffice to say that someone's worked out that having water in storage isn't a good idea and that it's better to sell the water for cash, since cash earns (or saves) interest whereas water sitting in a dam doesn't. Just wait until the next drought...
It comes down to financialisation of the energy (and every other) industry. In other words, it's OK if it physically falls in a heap as long as there's a hedge contract to cover it. That's a bit like taking out the fire sprinklers in a building on the basis that insurance has made them redundant in a financial sense. True perhaps, but an insurance payout doesn't make a new building appear overnight, now does it?
On a related note, I'm told that there is only 3 weeks' worth of diesel held in storage in Australia. That won't last long if someone starts a war or a refinery blows up in a big way, now will it? Commonsense tells me that this is high risk, especially as we are becoming increasingly reliant on imports of both crude oil and refined products as demand increases and local production (both crude and refined) declines. Contemplate for a moment how we would function, even briefly without diesel? No trucks. No farm machinery. Non-electric trains at a standstill. Mining industry shut down. Etc. And yet apparently (so I'm told) we've got very little of the stuff in storage in case of problems.
If this is how it works these days with things like electricity and diesel fuel, then I'd be surprised if any other important industry had much of a buffer in case of disruption.