About EFF 2017
In 2017, the following three trends were researched through an in-depth literature review, independent research, and conversations with experts. These were discussed at the annual Energy Futures Forum in June 2017.
1. The Future Structure of the Oil and Gas Industry
What will be the impact of sustained low and volatile energy prices be on the structure of the global oil and gas industry?
Oil markets are influenced by cyclical and structural changes, which can have important contextual and acute implications for governments and companies. With the advent of U.S. tight oil production and the slowdown in the rate of economic growth from pre-to post-economic crisis, oil markets are potentially entering a new cycle with some fundamentally different structural elements.
Scenario 1: Lower Prices, Periodic Volatility
The first scenario is similar to 1980s oil market dynamics. While oil price projections and scenarios for the next decade are quite varied, the idea of a lower-price trajectory ($50-60 per barrel) with periods of volatility—where prices break out of this band for a period then return—reflects the experience of the 1980s. If the next decade follows a similar pattern, what will happen to the structure of the oil and gas industry?
Scenario 2: Lower for Longer
The second possible scenario is the ‘lower for longer’ price environment persisting for the next 3-4 years until underinvestment in upstream assets and decline rates of existing production create a supply gap. The gap would eventually drive up prices until the supply base could respond. The upturn in prices would test and strengthen—or weaken—the industry’s ability to (1) weather the shorter-term, low-price environment and (2) prepare to execute on a longer-term strategy for new investment in growth.
2. Populism: Implications for Trade Flows, Governance, and Infrastructure
How will populism impact energy and climate policy, investment, and governance?
Populism is not a specific political ideology but a political dynamic where a group claims to represent the views of “the people,” often in opposition to “elites” or “elitist” interests. Populism can and does emerge along the entire political spectrum (liberal-to-conservative).
Current populist trends are most pronounced and examined in Europe and North America. Two of the most notable examples are UK’s decision to leave the European Union and the election of Donald Trump on a populist platform in the United States.
It is difficult to ascertain how long, deep, or transformative the current wave of populism could be, particularly given the often temporary or episodic nature of populism. In some cases, populist trends have been short-lived and inconsequential; in others, a populist agenda has led to widespread political reform. But often, populist sentiments have gone unaddressed and been accused of being the root cause of more authoritarian or fascist forms of governance.
The direct and indirect consequences for the energy sector will continue to develop in the coming years. The rise of environmental activism and its social justice-oriented branches are a means for rejecting the institutional (corporation and governmental) decisionmaking process for the permitting, regulation, and even ownership of energy assets and related infrastructure. The Dakota Access Pipeline was the most recent and pronounced example in which a group of people claimed that their interests were contrary to, and their rights usurped by, governing authorities and corporate ownership.
The rejection of existing and proposed global trade agreements and immigration laws by both right- and left-wing populist movements in the United States and Europe are another example of social justice activism rejecting institutional authority.
3. The Greening of Finance
How will efforts to include climate and sustainability metrics into the realm of finance change the relative competitiveness of various fuels going forward?
Concerns over the stability of global financial institutions, borne out of the global financial crisis coupled with the creation of Sustainable Development Goals (SDGs) agreed upon by the UN, have converged into a new effort to more seriously embed long-term sustainability issues into financial markets.
Famously described by Mark Carney, governor of the Central Bank of England, the financial system has a variety of risks which are broadly unaccounted for by asset owners, investors, financial institutions, ratings agencies, and regulators. Among these unaccounted-for risks, Carney emphasized the systemic risks posed by global climate change. There is robust debate in the energy and financial community about the existence and magnitude of the risks, but financial markets incorporating more data, analysis, and disclosure into their processes is only likely to strengthen (across a range of issues, not only climate change).
Advocates of deep decarbonization of the world’s energy system see the greening of the financial system as part of a virtuous circle enabling the transition to occur. Depending on how climate risk to specific physical assets and supply chains (as well as the risk of aggressive emissions reduction policies) is incorporated into the finance system, it could change the relative economic attractiveness of various energy sources, infrastructure projects, and companies over time. It could also steer more investments to other forms of green finance such as the green bond market.