Projecting 2020 - Barış Sanlı

2019 is coming to an end. It was an interesting year with geopolitical events, economic growth concerns, OPEC meetings, climate change discussions, and renewable momentum. When it comes to 2020, we have to think about which ones of these will continue their gradual change and which ones have the risk of disrupting the system.

For one thing, climate change discussions will continue their gradual increase. If the past is a prologue, then the only major inhibitor can be an economic slowdown. On the EU side, we may further move for a green development agenda. The critical points will be the definitions and trade relations. With border adjustment tax, the EU is also signaling its way of protectionist measures. It will be an interesting development to watch.

The economic growth for China, India, and Germany will be critical. Apart from India, the other economies are having a better time than in 2019. What will be the significant impact of an Indian slowdown? It is a critical question. The early signs show a less than moderate effect on the world. China, on the other hand, can speed up its economic engine, but with more challenges, there will be more questions on the sustainability of economic growth.

US elections and its results may do what OPEC failed to do. A democratic candidate with a significant climate change agenda may affect the shale gas development in the US. The markets will probably price the elections result before the election day. There are two credible scenarios. Either the de-regulation policies continue, or heavy-handed regulations returns. The most significant risk is for consumers around the world. But risk also brings its bounties. In the case of a moratorium on new shale developments, major oil producers will profit handsomely. The climate taxes will be just a peanut. Therefore for “big oil,” a moratorium may do what OPEC failed to achieve. It will be disruptive.

Specifically, about climate change, we will see more publicity but less action probably because there are more far far away targets but less medium-term checkpoints. So there will be less motivation to act now. But there will be more efforts to put substance to climate discussions. If economies are in good shape, this substance may scale up the efforts. There will be more tenders, record low prices, and the early signs of industrial transformation. However, the reverse may happen. Still, there will be an opportunity window to do a Keynesian Green Deal.

Oil prices are a hot topic for 2020. The best guess for oil prices is the “status quo.” That is to stay that oil prices will continue their pattern just like in 2019. Oil prices respond to trade wars more than the stock levels nowadays. OPEC+ observe the US elections, and until November, they may not break current consensus. Most of the OPEC+ members value this agreement, and there are reasons to expect the continuation.

The only enemy of the gas is the warm weather. In 2020, the warm weather may sustain the gas prices at their current levels. Just like in 2019, the polar vortex affecting both China and Europe can affect prices. But for the rest of the year, with more LNG coming, the prices will probably average more or less 2019. The US elections may distort this equation. The developments in the Australian energy and climate discussions are also worth a look.

The disruptive changes are hard to guess. As always, a major problem in the Middle East is the biggest concern. Another one is an increasing discontent in Asia. There may be a significant cyber attack since their intensity is increasing every year. Volcano eruptions are my favorite unforecastable events.

Nevertheless, the world is moving into a new protectionist and nationalistic plane. Energy policies may not have too much space for romanticism. The realities may sink in. The most significant fact will be the cost of the transformation.

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