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Geopolitical risks to linger over energy sector until 2050

Oil&Gas Materials 5 August 2023 07:53 (UTC +04:00)
Geopolitical risks to linger over energy sector until 2050
Laman Zeynalova
Laman Zeynalova
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BAKU, Azerbaijan, Aug.5 In a forecast extending until 2050, geopolitical risks in the energy sector are expected to maintain a significant presence, prompting governments to prioritize energy security over climate concerns in the medium term, Trend reports.

Many markets are shifting their focus on energy security, leading governments to backtrack on reducing fossil fuel incentives for new investments. As a result, the fiscal and regulatory environment for international oil companies is improving in mature markets in the short term.

While government opposition to new projects is currently subdued due to the need to bolster hydrocarbon supply amidst ongoing energy security concerns and high prices driven by global market tightness, the outbreak of the war in Ukraine has further fueled this reversal. However, Fitch Solutions anticipates that policies will become less accommodating in the coming decades, posing risks to the sustainability of new long-term investments.

Anticipating increased fragmentation between world powers in the coming decades, nation states and businesses will aim to decrease their reliance on energy imports, particularly from non-aligned actors, to shield themselves from future supply shocks and price instability. Consequently, efforts will shift towards sustaining oil and gas production domestically in the medium term. Furthermore, there will be a surge in investment in low-carbon and locally sourced energy, with a specific focus on renewables, ultimately displacing dwindling reserves and reducing demand for fossil fuels. Wind and solar energy sources are expected to prominently contribute to the decline in oil and gas consumption until 2050, especially in developed markets (DMs). Europe, at the forefront of low-carbon investments, is projected to experience the largest declines in oil and gas consumption until 2050.

Driven by the aftermath of the war in Ukraine, Europe will emerge as the fastest-moving region towards energy diversification. The impact of the conflict on oil and gas supply has motivated companies operating in Central and Eastern Europe (CEE) to prioritize energy security as a driving factor for low-carbon investments. As low-carbon investment accelerates over the next three decades, existing energy dependency partnerships, such as the one between Russia and the EU, will increasingly be replaced by new relationships as countries seek arrangements with like-minded states to secure essential energy supplies.

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