The road to global energy transition is full of twists and turns
In 2023, the contradiction between supply and demand in the global energy market will be alleviated, but under the influence of various factors such as geopolitical conflicts, climate change, and exchange rate fluctuations, international oil and gas prices will fluctuate significantly. At the same time, clean energy has ushered in an important period of development opportunities, and the pace of global energy transition is still sonorous. Under the current complex situation, the energy landscape needs to be deeply adjusted, and it is necessary to strive to find a balance between the complex and intertwined contradictions of emission reduction and security, mitigation and adaptation, efficiency and equity.
The oil and gas market is volatile
In 2023, the global oil and gas market will still be subject to the Russia-Ukraine conflict, US and Western sanctions, etc., and at the same time, it will be disturbed by various factors such as the sluggish global economic recovery and the new round of Palestinian-Israeli conflict, resulting in an aggravated imbalance between supply and demand, frequent price fluctuations, and market uncertainty.
Looking at the oil market, at the beginning of the year, Brent crude oil prices fell sharply in March after a brief climb, falling to a low of $70 per barrel. In mid-April, oil prices fell again after a brief recovery due to OPEC+ production cuts. In July, oil prices continued to rise amid geopolitical tensions, and a new round of the Palestinian-Israeli conflict pushed oil prices to a new high this year. However, since late October, international oil prices have once again entered a downward channel.
In this regard, even if some OPEC+ members announced voluntary production cuts totaling 2.193 million barrels per day, it did not stop oil prices from "falling endlessly". As of December 8, international oil prices have fallen for seven consecutive weeks. Analysts believe that OPEC+ production cuts have failed, in part because the market is skeptical about the execution of its production cut agreement, and at the same time, production in non-OPEC+ countries such as the United States, Brazil and Guyana is still soaring.
Compared with the supply side, the more difficult problem with the decline in crude oil prices may be that as demand weakens, the dominance of oil prices has shifted from the supply side to the demand side. According to the International Energy Agency's (IEA) November crude oil market report, as the impact of global economic growth slowdown and high interest rates is revealed, the growth rate of demand will slow down by 60%, and the market will be oversupplied; Based on this, the 2024 oil price forecast has been significantly lowered, and the 2024 West Texas Intermediate (WTI) crude oil futures price is expected to be $78.07 per barrel, compared with the previous expectation of $89.24 per barrel; Brent crude oil prices are expected to be $82.57/b in 2024, compared to $93.24/b previously.
From the perspective of the natural gas market, the record of natural gas prices in 2022 is unlikely to be repeated. Data shows that since the beginning of this year, the benchmark natural gas prices in Europe, the spot CIF price of LNG in Northeast Asia and the natural gas futures price in Henry Hub in the United States have all shown a downward trend. At the same time, the fragile supply structure and balance of the global natural gas market have also made the market still not fully overcome the "sequelae" caused by the previous supply interruptions in some regions, and some sudden supply interruptions are triggering irrational rises and fluctuations in natural gas prices.
In particular, the European Union, which is highly dependent on natural gas imports, started its natural gas procurement plan earlier this year and the storage level has reached a record high, but the Baltic Sea pipeline leak and Chevron's factory in Australia have exploded againstrike, the Palestinian-Israeli conflict and a series of supply-side problems have greatly stirred up the tense market nerves.
The clean energy transition is accelerating
Due to frequent geopolitical events and large fluctuations in the energy market, the good momentum of clean energy development has been hindered, but the fragility, instability and climate harm caused by the current fossil energy system have made countries more determined to develop clean energy, and the pace of energy transition is still sonorous.
At present, the world's major economies have taken action to integrate climate change and energy transition into broader economic strategies, and clean energy development is showing vigorous momentum. Whether it is the European Union's European Wind Power Action Plan, China's rapid development of photovoltaic wind power technology, or the recent signing of the Global Declaration on Renewable Energy and Energy Efficiency by more than 100 countries at the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28), all of them show the broad support of the international community for the development of clean energy.
Under the guidance of policies, global clean energy investment and related technology deployment have released positive signals. The IEA's World Energy Outlook 2023 predicts that global clean energy investment will exceed US$1.7 trillion in 2023, an increase of 24% over 2021, mainly in the fields of renewable power, nuclear energy, power grids, energy storage, and low-emission fuels. Among them, solar PV is considered to be one of the key development areas, and renewable energy is expected to contribute 80% of new power generation capacity by 2030, of which solar PV alone accounts for more than half.
In this process, problems such as uneven distribution of resources and unbalanced regional development are still acute. Cleaner electricity supply, more energy efficiency, and a shift to low-carbon fuels are key steps for emerging market and developing economies to meet their climate goals, but they still have a long way to go, according to the report. Sub-Saharan Africa, for example, to meet its climate goals means building 85% of new power plants based on renewable energy by 2030.
At COP28, progress was made on many fronts to help developing countries make climate finance commitments. By the end of the conference, more than $700 million had been pledged from advanced economies through a new financing mechanism to help developing countries cope with the types of loss and damage associated with the adverse effects of climate change through the establishment of a "loss and damage" fund. The Green Climate Fund, the Adaptation Fund, and the Least Developed Countries Fund under the United Nations have all received financial support to varying degrees.
At the same time, developing countries, such as China, are also shouldering their due responsibilities in the energy transition. Since the first half of 2023, China's installed renewable energy power generation capacity has historically surpassed that of coal power, and as of the end of October, it has reached a new high, exceeding 1.4 billion kilowatts, accounting for about 49.9% of the country's total installed power generation capacity. It is estimated that by the end of the year, the installed capacity of renewable energy power generation in China will exceed 1.45 billion kilowatts, and the installed capacity of wind power and photovoltaic power generation will exceed 1 billion kilowatts.
Energy security is a major concern
Promoting the global energy transition has become the trend of the times, and whether the energy transition means completely phasing out fossil fuels such as oil, coal and natural gas has become an important indicator for the future development of the global energy market. COP28 was also dragged into "extra time" due to this issue. In the current complex situation, the COP28 final agreement failed to give a "clear answer" to the global energy market.
On the issue of fossil fuel phase-out, there have been long-standing differences between representatives of relevant international organizations, oil and gas companies and other parties. Ahead of the conference, International Energy Agency (IEA) Administrator Fatih Birol said that the world's demand for oil, gas and coal will peak before 2030, the fossil fuel era is coming to an end, and new large-scale fossil fuel projects risk becoming so-called "stranded assets".
But some oil and gas company representatives disagree with the claim that fossil fuels have peaked. Shortly after Birol's article, U.S. oil and gas giants ExxonMobil and Chevron have completed a new round of oil and gas resource acquisitions, which are expected to further increase oil and gas production. According to industry analysts, these two major transactions show that the US oil and gas giants are betting that oil and gas will continue to be the core of the global energy structure in the coming period.
At the same time, carbon capture and storage (CCS) technology has become a major focus of discussion. Some countries that rely on fossil fuels want to focus on developing CCS technologies to reduce fossil fuel carbon emissions, rather than reducing the use of fossil fuels. Critics of the Intergovernmental Panel on Climate Change (IPCC) have pointed out that CCS technology costs between US$50 and US$200 to US$200 to reduce emissions by one tonne of CO2 and is currently used in only a handful of commercial facilities worldwide, arguing that the technology is too expensive and has not been tested on a large scale.
Amid the many differences, it can be seen that ensuring energy security remains a common concern for all parties. The severe energy shortages experienced by Europe amid the Russia-Ukraine conflict are a reminder that vigilance over oil and gas security remains critical in the clean energy transition, with a focus on affordability risks, electricity security and the resilience of clean energy supply chains.
Looking ahead, there is still a lot of uncertainty in the global geopolitical situation, and in order to better balance energy transition and security, the global energy market may still need to grope its way forward in volatile fluctuations. However, 50 years after the world's first energy crisis, today's energy policymakers are once again facing geopolitical tensions and the risk of energy shocks, and have more policy experience and advanced clean technologies. It is believed that although the road of global energy transition is tortuous, it will continue to move forward.
