The global energy market faces profound changes. What are the future trends?

At present, the international oil price is mixed, positive  negative factors interweave, the whole crude oil market is like a picture in the fog. The hesitation of the investment market reflects the reality that the international energy structure is undergoing profound changes.  both ends of the supply  demand, the peak of global oil demand is almost a foregone conclusion. Major oil-producing countries plan for the transition ahead of time. Due to the shift of investment to new energy fields, the supply capacity of fossil fuels such as oil, gas  coal may face serious difficulties in the future. In the short term, there is no shortage of supplies, but in the face of the growing crisis of climate change, the energy transition is imperative. Achieving comprehensive carbon neutrality as soon as possible is the common responsibility of the entire human society.

A recent piece of news has raised eyebrows, as well as controversy. The International Energy Agency (IEA), in its "Net Zero 2050: A Roadmap for the Global Energy Sector", proposes to stop approving new investment projects in the oil  gas sector in order to meet the 2050 goal of net zero emissions. The report also calls for a rapid  fundamental global shift towards fossil fuels.

A stone stirs up a thousand waves. Crude oil markets, which had been confident about hitting $70 a barrel, immediately reversed course on the news, Posting their biggest weekly decline since March. Oil prices have been mixed, hovering near key milestones, weighed down by a stronger dollar, expectations of global inflation  uncertainty over the future of the Iran nuclear talks. With copper, iron ore  other commodities such as the rainbow rise far apart, the whole crude oil market is like a picture of fog. In fact, the hesitation of the investment market reflects the fact that the international energy structure is undergoing profound changes,  the COVID-19 outbreak has accelerated the pace of change.

Many applauded the IEA's efforts to promote international cooperation on green energy  urge governments to speed up the transition. But critics also point out that there are serious risks to the energy roadmap,  just geopolitical risks related to energy security, but economic risks as well. Especially since the world has long relied heavily on fossil fuel supplies, a precipitous halt to upstream investments such as oil  gas would have a fatal impact on the production  supply of a range of downstream products to a depth  extent that no economic model can possibly articulate.

How should we view the current international energy market pattern  future trend? "Long wind should take a broad view of the quantity," which leads to the topic of oil supply  demand at both ends when peak.

First, demand. Global oil demand will peak in 2026, according to Goldman's research report, a judgment echoed by Norwegian Energy consultancy Rystad Energy, citing the rapid adoption of electric vehicles  the growing share of renewables. The oil majors, led by BP  Royal Dutch Shell, are even more extreme in their view that peak oil demand has passed. To that end, BP announced it would increase its renewable energy spending by $5 billion a year until 2030, take write-downs of up to $17.5 billion   pursue any new oil  gas exploration. While most oil companies believe demand is still too early to peak, supermajors such as Exxon Mobil  Chevron are slashing capital spending such as exploration.

Peak is usually referred to as the point at which global oil demand enters an irreversible phase of decline. According to the BP study, oil demand will fall by at least 10 per cent a year over the next decade, followed by an accelerated decline of up to 50 per cent. Historically, with few exceptions, energy demand has grown steadily in line with the global economy. But concerted global climate action will change the script forever. The International Energy Agency forecasts that world oil demand will fall  less than 100m barrels a day today to 24m b/d by 2050.

Major oil producers are planning the transition to a low-carbon future.

Gulf oil producers have set their sights on green hydrogen. Dubai has launched the region's industrial-scale Green Hydrogen Project, a solar green hydrogen plant in partnership with Siemens Energy. Similarly, Oman announced a $30 billion investment in a green hydrogen plant with Chinese companies  Hong Kong  Kuwait. Saudi Arabia also signed a $5 billion deal last year to produce green hydrogen-based ammonia. All of these plans show that Middle Eastern oil producers are already feeling the profound changes  effects of the energy transition  growing global demand for clean energy products.

According to statistics, the new renewable energy generation capacity in 2020 has increased by more than 45 percent compared with that in 2019, setting a new record. During the same period, new installations of solar photovoltaic (PV) rose 23% to nearly 135 GW; Globally, installed wind power capacity is up 90 per cent year on year.

For this reason, some are calling 2020 a watershed year for the fossil fuel industry. Experts warn that the energy transition is putting up to $14tn worth of oil  gas assets at risk, with nearly $900bn of reserves potentially becoming worthless.

Let's look at supply. There have been many times in the past when the "peak oil" theory turned out to be wrong because experts underestimated the exploration capacity  technology of the oil  gas sector, as well as the vast amount of resources available. Few, for example, could have accurately predicted the explosive growth of US shale oil, which has lifted US crude oil production  one to two million barrels a day to 13 million barrels in just a decade. Similarly, the demand-side "peak" theory, which has been so popular in recent years, has consistently overestimated the ability of renewables  car batteries to displace fossil fuels.

In the coming years, the supply capacity of fossil fuels such as oil, gas  coal will face serious difficulties. This is because there has been a significant decline in investment in fossil fuels in recent years. This is determined by investment orientation. Concepts such as climate policy  the green economy have a distinctly "politically correct" bias, but large-scale capital flows have nothing to do with morality  ethics,  are fundamentally determined by the free market.

Goldman Sachs, for example, a big fossil-fuel financier, decided two years ago to stop financing oil exploration  drilling in the Arctic  new thermal coal mines. Goldman has also pledged to invest $750bn over the next 10 years in areas focused on climate change.

Another example is the announcement by Blackstone, the world's largest asset manager, that it will increase its investment in environmental, social  governance (ESG)  $90 billion to $1 trillion in 10 years.

In addition, statistics through May this year show that at least $203bn of bonds  loans have been invested in renewable energy projects worldwide, while $189bn has been invested by companies focused on hydrocarbons. Over the past five years, ESG investments by major banks have expanded rapidly as investors have pushed for environmental  social responsibility.

Banks had invested more than $3.6 trillion in fossil fuels as of 2015, almost three times as much in bonds  loans for green projects, according to Bloomberg data. In just a few years, the situation has begun to reverse. New York State's $226 billion pension fund, for example, recently announced plans to divest  oil  gas over the next few years. Over the past year, 77 per cent of institutional investors have all but stopped buying financial products that are unsustainable  environmentally unfriendly in some way, according to PwC.

Investment in new oil  gas projects fell to a 15-year low of $350 billion in 2020. Because of the lack of adequate investment, new discoveries  discoveries of oil  gas fields have fallen far short of consumption. According to the Norwegian energy consultancy, the proven oil  gas reserves held by giants including ExxonMobil, BP, Shell, Chevron  Total are all falling fast  to varying degrees.

Still, the market isn't worried about short-term oil supplies. Several of the world's largest oil producers are preparing to increase their production capacity. The reason is simple: there is an urgent need for oil  countries are determined to make the most of it as best they can.

Iran is expected to increase production to 4m b/d within three months once the nuclear deal between Iran  the US is revived. In addition, Iraq  even Venezuela could rejoin the ranks of major oil exporters in the future. OPEC + is expected to raise its output ceiling further in the coming months, thereby increasing supply. Russia plans to increase production to 11.1 million b/d by 2029, its crude oil production until at least 2080,  its natural gas reserves for 103 years. Saudi Arabia will gradually ease its unilateral 1 million b/d cuts over the next few months, starting with monthly production increases of 250,000 b/d in May  June. Overall, OPEC + is expected to return to the market in July with an additional 2.1 million b/d. Opec expects total non-Opec supply to increase by 700,000 b/d year on year.

Hedge funds  other institutional buyers are understood to be betting that a strong economic recovery in the US  China will play a leading role, while the reopening of major economies to travel will increase demand for fuel  crude prices could continue to climb. As a result, oil futures  options contracts are in demand.

In a world  oil is still the lifeblood of industry, fossil fuels will continue to play a critical role for a long time to come. But climate change is a big problem,  catastrophic consequences are  out of reach. Rising sea levels, wildfires, heat waves  extreme weather events are already wreaking havoc everywhere  could lead to infrastructure collapse, crop losses  even human health in the next five years, research shows.  this perspective, it is the common responsibility of the entire human society to accelerate the energy transition, vigorously develop the green economy,  achieve the comprehensive carbon neutrality goal as soon as possible.

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Source: International Gas Network