KUALA LUMPUR: Fitch Solutions’ unit BMI expects geopolitical risks in the energy sector to remain a prominent concern up to 2050 prompting governments to prioritise energy security over climate concerns in the medium term.
In its outlook for power and low-carbon energy report Oil & Gas Megatrends to 2050, BMI said the emphasis on energy security for most markets saw governments backtrack on reductions in fossil fuel incentives for new investments, with the oil and gas fiscal and regulatory environment improving for international oil companies in the short term in some mature markets.
BMI noted that government opposition to new projects was currently tempered by the need to boost hydrocarbon supply amid ongoing energy security concerns and high prices fuelled by tight supply in global markets.
The Ukraine war fuelled this reversal. However, we expect the policy to become less accommodative over the coming decades, risking the durability of new long-term investments, it said.
BMI noted that the increased fragmentation between world powers over the next decade will prompt countries and businesses to cut reliance on energy imports, especially from non-aligned actors, to shield themselves from future supply shocks and price instability.
This would in turn refocus efforts on sustaining oil and gas at home in the medium term, it added.
Increased investment in low-carbon and locally produced sources of energy with particular emphasis on renewables will eventually displace dwindling reserves and appetite for fossil fuels. Wind and solar will contribute to a reduction in demand growth for oil and gas into 2050 and will be particularly prominent in developed markets.
Europe, which has spearheaded low-carbon investments away from oil and gas, is expected to register the biggest declines in oil and gas consumption by 2050. Motivated by the fallout from the war in Ukraine, Europe will be the fastest region to move toward energy diversification.
While low-carbon investment accelerates over the next three decades, old energy dependency partnerships – such as between Russia and the EU – will further be replaced by new relationships as countries seek arrangements with like-minded states to procure essential energy supplies.
Gas consumption
Overall, natural gas consumption will remain better insulated from the transition, finding support from coal and oil-to-gas switching, industrial usage, with the application of carbon capture technologies, and some niche transport applications.
BMI said the most durable demand would be found in markets with large and low-cost resource bases, high incumbency in the existing energy mix and stronger policy support, most notably the Middle East.
“We see more resilient demand for natural gas is Asia as the region holds the highest potential for additional coal-to-gas switching and strong economic growth is expected to drive increased demand for lower emission sources of energy,” it added.
BMI said Asia would remain a magnet for global gas and liquefied natural gas imports with exporters targeting the region as a key source of demand.
The role of natural gas and LNG in the region’s energy mix, especially in power sector, will continue to increase over the next three decades, it said.
OPEC to move into long-term policy impacts
The Organisation of the Petroleum Exporting Countries’ (OPEC) strategy will evolve to move away from short-term price regulation to long-term policy impacts, largely set by key Gulf Cooperation Council countries which currently control the bulk of oil production.
“We do expect some group tensions to persist and national interests to outweigh OPEC cohesion but this is only expected from the non-core producers. As a result, the group’s make-up is likely to continue to shift although ultimately, control will rest with the current top producers,” said BMI.
The group will see a wider move towards climate adaptation and emissions mitigation over a wholesale replacement of fossil fuels, the report said.
“This emphasis on technical solutions to climate change – carbon capture, blue hydrogen/ammonia, among others – raises the risk that emissions targets will be missed, as limited capital and time are diverted to pursue these oil and gas preserving endeavours,” BMI said. – BERNAMA
