From Petro to Electro-states, a Shift of Power
There are new powers rising in energy markets: Electro-states, at the forefront of clean energy. “We're going to see the geopolitics of oil and gas continue to some extent, because if you look at even the most climate friendly energy scenarios in the future, they all involve a reasonably substantial amount of oil and gas usage over time,” said Meghan O’Sullivan. David Petraeus, while acknowledging that China is a green power in the making, thinks we should also acknowledge the reality - the country is also still building coal plants, because of the enormous continuing demand for electricity. “You know the biggest question of all is no longer about peak oil production, it's now about peak oil demand,” he argued.
Energy Transition Laggards: a Geopolitical Risk
Meghan O’Sullivan thinks some states like China and the United States (especially with the new Biden administration serious about climate change) are well-positioned in terms of renewable energy technologies or climate financing, which will give them geopolitical power. Furthermore, with a lot of renewable energy likely to be generated closer to home, the energy security of many countries could increase. However, Helima Croft worries that while some OPEC producers are well positioned to handle this energy transition - such as Gulf producers with the greenest, cheapest barrels, higher cost producers such as Nigeria, Venezuala, Angola, Algeria, Iraq and others could struggle. “What security threats are posed by Petro-states that are now insolvent and unable to pay their militaries and pay for public services? So, I deeply worry about the left behinds in a transition scenario.”
2020: a Rollercoaster Year for OPEC
It’s been quite a year for OPEC. It started amid geopolitical risk concerns, after Soleimani’s killing and energy infrastructure attacks in the Gulf, driving prices higher. “Then we obviously had the biggest demand crash ever due to the COVID 19 pandemic,” noted Helima Croft. OPEC’s initial response was not unified. “All came to a head in early March, they couldn't reach an agreement, and then we had the onset of essentially this price war led by Saudi Arabia, but between the OPEC producers and Russia.” Helima Croft thinks this was also political, with some Russia elements unwilling to give US shale producers a financial lifeline. Then OPEC’s largest production cut ever in the Spring helped stabilize the market. “It's amazing that we only ended up down 20% year on year in terms of demand. But as we go forward into 2021, we're going to be watching to see whether this OPEC unity actually holds together,” Helima Croft remarked. OPEC will also need to address the issue of accommodating Iranian barrels when/if sanctions are lifted.