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Energy Markets After Vaccine - Barış Sanlı

The celebration of the COVID-19 vaccine has cheered up the usual grim mode in the energy industry. Although the short term is complicated, the long term should be better than radical uncertainty created by the COVID-19 pandemic. Nevertheless, we should never forget that energy markets are addicted to uncertainty.

In the short term, a greater possibility is the higher prices for fossil fuels in the first half of 2021. My primary concern, as I mentioned in other comments, is food prices. Chinese and Indian import strategies may create food-related problems. As commodity prices surge, we should expect all to increase. But this may not even save the lowest cost producers; as today’s FT has mentioned, even Saudi Aramco is looking for loans.

One important aspect is how digitization has evolved due to pandemic. One tweet claims, not CEO or CTO, but COVID-19 has completely transformed the pace of digitization. Enron was one of the first companies to digitize energy trade. They created products and initiated new ways to trade, but they were a disaster. But having these ways internalized and normalized took a long time. And then, it created the medium for further speculation.

My take on this story is that COVID-19 has radically increased the penetration of new methods in our conventional way of doing business. We will have more digital customers and services. These services will need new enablers to work. From this digital perspective, we may move toward more human-less energy services. But with an increased number of services.

Coal may see some record growth increases next year. The sudden drop in fossil fuel consumption was due to economic activity. Even a vaccine can be invented in 2 years, but a non-fossil economic activity growth will take years. The renewables’ victory was due to non-market-based guaranteed contracts; the pandemic didn’t test them with market prices.

Natural gas is emerging as a bridge fuel, whatever anyone says. We may see a record increase in FIDs for LNG projects by 2021. The real cost cuts in LNG projects has not been achieved yet. More modular projects can create a solar moment for LNG projects. This will further improve coal to gas switching in major economies.

But the only problem of the energy world looks like energy transition and climate change. This creates a comfort zone as if we are all happy with dealing with these problems. The 2020s very much look like the 1970s. And 1970s were very turbulent. The growth in green movements around the world has lost its momentum due to the oil crisis. Therefore we have to be careful there.

The certainty a vaccine brings will lift the veil on other problems. The world has lost close to 1 year in struggling with a pandemic. Energy markets lost a year in terms of investments, cash flows, and sustainability. This will be reflected in the post COVID-19 era by favoring lean structures. With more AI and digitization, the employment prospects will shift. But we should be careful about the unexpected events that may still wait for us. Seeing a black swan is not a guarantee for white swans for the rest of our lives.


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