Energy : Subject of Economy and Security

 

Energy, which till date since the replacement of wood by coal in 1709 to electrification of vehicles has fueled the global economy and has transformed the geo-politics around the globe will have two eras in the modern world before ‘COVID-19’ and after ‘COVID-19’. COVID-19 forced countries to re-think their energy strategy, and the question of when Oil&Gas  will run out of supply has transformed into when it will reach its peak demand. The subject of Energy has created new relationships among countries, Europe has developed economic relations with Russia and Ukraine with Nord Stream Project being most significant one. China which imports more than 70% Oil&Gas of its domestic consumption has got hold on to various central Asian countries’ Oil and also pivoted to Russia who shares similar political system and similar objective of challenging the USA dominance in the world. USA on the other hand has become one of the top 3 producers along with Russia and Saudi Arabia of Oil, and the biggest producer of natural gas. This has given the much energy security not only to USA but to the world with more growing influence of ISIS in the middle east region.

Investment flowing into renewable energy is not only subject of Climate Change but can well find its geo-political significance back in the history. Renewable Energy can give countries energy security and also will make transition to Paris Climate Deal to keep the rise in temperature well below 2.0 Degrees. To become leading player in Renewable Energy, China has been increasing its investments in renewables over the last decade with $85bn invested in 2019 and is home to second biggest EV market. International Energy Agency (IEA) estimates that by 2030 30 to 40% growth in renewable energy market would come from China. After COVID-19, Investments has been ramped up in the sector all around the world, EU’s Economic recovery package announced in May 2020 of worth $825bn, out of which significant portion will go to Solar, Wind, Hydro Energy, clean hydrogen, renovating buildings, and installation of 1 million charging points reiterates its ambition to be Net-Zero Carbon continent by 2050. This ambition is daunting and needs more investments from governments as to reach such goal Europe needs to cut per capita emission to India’s level. Similar Investments has been made in the USA, which is planning around $2tn infrastructure investment most of which is expected to go to renewable energy. But Oil&Gas, which accounts for 60% of the world's Energy demand is not here to disappear very soon, IEA estimates that over $20tn investments in Oil&Gas would be required in next two decades. It is expected that the Energy demands would be met with mixed sources by 2050, in which significant portion will come from clean energy sources while else would flow from natural gas and oil.

Big Oil&Gas giants have also been also ramping up their investments in renewables sector which are driven by Oil&Gas revenues and as a result 2020 was the year where renewable sector saw 20% y-o-y drop in the investments due to hard hit revenues in Oil&Gas. Transformation into renewables and expanding into new geographies will give an opportunity for consolidation among the companies to increase revenues, to cut down the costs and to increase holdings in small clean tech companies like Total acquired Saft, a battery manufacturer. The inflation concerns, and valuations of stocks at all time high, the possibility of market decline in the near term 12 to 18 months cannot be neglected, and which may hamper the prospect of consolidation and in turn may slow down the transition to renewable energy. The investments from the governments on renewables is only expected to grow and is a bright spot for the sector. Energy has been and will remain a topic of security in 21^st century where Europe, USA and China are not only trying to achieve the climate goals but also to become independent and global players in Renewable Energy. The transition to renewables would require more investments, and more global participation from developed and emerging economies whose Energy demands will grow rapidly over a course of coming years. New investments in renewables, security and climate concerns would make the Energy map look different over a next decade.