Page 23 - ISQ January 2021

JANUARY 2021

“
… the most important structural
underlying trend in the energy sector is
a shift away from petroleum and other
fossil fuels. ”

SUPPLY AND DEMAND GLOBAL ENERGY TRANSITION
Public health developments will drive the demand side of the oil Oil market recovery is an important energy story to track in 2021,
market equation, whereas supply will be influenced by more ‘stan- but by no means the only one. From a very long-term perspective,
dard’ variables with which energy investors have long been familiar. in fact, the most important structural underlying trend in the energy
Having slashed production in the early days of the pandemic, OPEC sector is a shift away from petroleum and other fossil fuels. This
and Russia can be expected to gradually move toward higher output is what’s referred to as the global energy transition. Reflecting a
levels, in parallel with demand recovery. US production, on the other potent combination of economic/technological factors and political/
hand, would continue to trend lower on the assumption of pricing in regulatory support, the energy transition is accelerating. Examples of
line with commodity futures (West Texas Intermediate (WTI) crude technological innovation include more scalable wind turbines, more
in the $45 to $50 per barrel range), and the same applies to some efficient solar panels, electric cars and buses with longer battery
other non-OPEC countries such as China, Mexico, and Colombia. range, and energy-efficient building materials. This spurs plenty of
Because demand and supply are heading in opposite directions, demand, independent of government policy. For example, more than
we forecast hefty global inventory drawdowns in both 2021 and 250 multinational companies, ranging from banks to automakers,
2022 – which, by definition, is bullish for prices. The bottom line have committed to source 100% of their electricity from renewable
is that the industry will ultimately need prices much higher than sources – and dozens have already achieved this target. Even more
what the commodity market is signaling. Specifically, we forecast impactful, a dozen of the top-tier oil and gas producers have com-
WTI ending 2021 upwards of $60, which implies an average of more mitted to reorient their operations toward renewable and low-carbon
than $50 for the year.

Renewable Resources

Growing demand for sustainable energy sources such as solar panels and wind turbines is driven by
the increased utilisation of clean energy by governments, corporations, and individuals.

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