Rapid energy transition likely to induce more price volatility

Oil&Gas Materials 24 November 2021 12:04 (UTC +04:00)
Rapid energy transition likely to induce more price volatility

BAKU, Azerbaijan, Nov.24

By Leman Zeynalova – Trend:

A rapid energy transition will likely induce more price volatility as declines to demand would discourage long-term investment, leading to sharp imbalances in supply and demand, Trend reports with reference to Fitch Solutions.

The company believes that a more gradual and predictable shift away from fossil fuels would lead to better long-term market management from industry ideally, in the race to produce as much of the existing reserves in the face of diminishing demand.

“In our core view, we do not see crude oil demand declining until well outside our forecast period to 2030. We expect emerging markets to continue to drive demand growth for oil given our view that infrastructure will remain unsupportive of the transition away from internal combustion engines. As for the impact on energy prices, declining oil demand would likely see prices head lower without a concerted effort to reduce supply. However, should global investment fail to meet supply needs prices would rise in order to entice new production to meet consumption,” reads the report released by Fitch Solutions.

The company expects volatility to remain a key facet of the market regardless given the industry’s inexperience with a long-term decline in oil demand.

“A transition to natural gas for power and industry over coal and crude will drive increased demand, helping to support higher prices. However, questions remain about the longevity of natural gas investments given their roughly 20-year lifespan. Should the energy transition occur at a rapid pace, emissions from natural gas projects could be targeted for early retirement before these assets have reached full operational lifespan. We suspect that projects heavily reliant on fossil fuel energy imports would fail to garner investment as a result. This would likely lead to an overcapacity in natural
gas production,” reads the report.


Follow the author on Twitter: @Lyaman_Zeyn