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BALANCING CLIMATE GOALS WITH GEOPOLITICAL REALITIES

As geopolitical tensions rise across continents, it’s evident that governments prioritizing climate change are becoming distracted.
Balancing the act of easing global tensions while ensuring a sustainable climate is a significant challenge for those in office. Moreover, working together to calm situations within their countries is a priority, especially if their populations deem climate solutions too complicated or expensive.

In the commodities industry, we have unique insights into how these events might unfold. We’ve witnessed many governments with ambitions to combat climate change, but we’re also familiar with the global response during times of conflict. If governments get serious about the 1.5°C target, then oil demand will practically collapse over the next 25 years, falling to roughly a quarter of its current level.

A well-known agency claims that even if governments stick with their current policies, oil demand will still peak this decade, mainly due to the rapid rise of electric vehicles in China.
On the flip side, if we consider the scenario where governments follow through on environmental pledges already made—but not yet fully implemented as policy—the picture changes dramatically. Oil demand would almost halve by 2050, dropping to just 55 million barrels a day.
One needs only to examine our sector to note our investment trends. Although our dedication to cleaner and greener projects remains strong, we must recognize the dynamics of the ‘big fish eating the little fish’ in our sector.

Governments worldwide have pledged to reduce global temperatures by 1.5°C. However, we in the industry are more pragmatic about the pace of this change, especially in light of shifting global dynamics. We foresee significant growth, which, for us, translates into a surge in hydrocarbon demand.

Those predicting a peak in demand for fossil fuels, such as oil and gas, by the end of this decade are either overly optimistic or severely misguided. Historically, mass conflict has always led to a surge in commodities. To create a cleaner planet, we first must ensure its survival—I firmly believe this.
For instance, oil demand tends to spike during times of unrest. If production is limited during such times, prices naturally rise. While some anticipate oil prices reaching $100 a barrel, I’d predict a jump to $128—assuming no catastrophic global events lead to widespread fear and shutdowns.
In the upcoming years, we’ll witness the significant players in our industry grow even more prominent.

Some renowned trading shops might merge or get acquired. While their names might temporarily be retained by their new owners, they will eventually be absorbed into the mega trading firms—typically the top five private traders.
For oil giants, scaling up in an uncertain future can be a strategic move. The most significant producers might not suffer much from a dip in demand if they can produce the required barrels more efficiently than their competitors.

Diving deeper into the energy dynamics of specific Asian countries, China stands out prominently. The nation’s appetite for gas is projected to double by 2050, a stark testament to its burgeoning energy needs. Meanwhile, countries like India and Vietnam are strategically moving toward their energy futures. Both nations have invested in pipelines and LNG import terminals, signaling their commitment to sustained gas consumption long after 2050.

Over in Indonesia, there’s a discernible chorus from power producers and miners. They’re championing the need for more significant funding for gas, viewing it as the pivotal bridge that will help transition away from coal. Singapore, with its hallmark strategic foresight, is taking steps to bolster its energy security. The country has made firm commitments to erect an additional LNG import terminal, ensuring a steady gas supply.

But this surge in gas consumption isn’t just limited to a few countries. On a broader scale, discussions within industry panels point towards a substantial uptick in demand. They anticipate a requirement for another 300 million tons of new LNG export capacity by 2030. To contextualize this figure, it represents a staggering 75% increase from today’s capacity.

Yet, amidst these projections and strategies, there remains an element of uncertainty. We can’t pin down the pace of the impending energy transition.

What stands out starkly, however, is the prevailing sentiment among Asian energy importers and policymakers. Their priorities don’t strictly align with the green policies championed elsewhere. Their message is clear: they want more gas.

As geopolitical landscapes shift and challenge global priorities, the undeniable truth emerges: energy demands, especially in Asia, will shape the delicate balance between climate goals and national interests

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