Introduction
Thank you for inviting me to speak at this important conference. My name is Mariam Almaszade, and I am CEO of SOCAR Trading, the global commodities trading company that is headquartered in Geneva, has trading hubs in the major financial cities around the world, and is part of the State Oil Company of the Azerbaijan Republic.
I am very happy to talk to you today about the future of energy.
My home country of Azerbaijan is fortunate to be rich in natural resources. Over the decades, successive Governments have invested in a large and diversified oil and natural gas infrastructure, including 4,660 kilometers of main pipelines, such as the Southern Gas Corridor that connects the Shah Deniz gas field in Azerbaijan to Europe.
Similarly, Turkmenistan is blessed with large reserves of natural gas and substantial oil resources, and continues to invest substantially in pipelines to export those resources.
Azerbaijan and Turkmenistan must continue to invest to maintain market leadership, and that is why the proposed Trans-Caspian Gas Pipeline connecting our two countries with Europe is so important.
Current and Future Trends
Today I want to talk about the future of Energy, and the trends that we must prepare for – and be at the forefront of – if our countries’ energy industries are to continue to succeed.
According to the IEA’s Global Energy Review 2021, renewable energy use increased 3% in 2020 as demand for all other fuels declined. The primary driver was an almost 7% growth in electricity generation from renewable sources.
Renewable electricity generation in 2021 is set to expand by more than 8%, the fastest year-on-year growth since the 1970s. Solar and wind are estimated to contribute two-thirds of renewables growth. The IEA predicts that China alone will account for almost half of the global increase in renewable electricity in 2021, followed by the United States, the European Union and India.
So Where Does that Leave Oil and Gas?
Are the days of Oil and Gas numbered? How does a global energy trader like SOCAR Trading plan for such a future?
In its September 2021 Flagship Report, the IEA stated that global oil demand is estimated to have declined for three straight months due to a resurgence of Covid-19 cases in Asia. However, already signs are emerging of Covid cases abating with oil demand now expected to rebound by a sharp 1.6 mb/d in October, and continuing to grow until end-year. Global oil demand is now expected to rise by 5.2 mb/d this year and by 3.2 mb/d in 2022.
Meanwhile, September has seen global gas prices climb to their highest level for seven years in real terms, as traders anticipate a shortage this winter, with consumption rebounding more quickly than production from the pandemic slump last year. The global market experienced an unprecedented downturn in 2020, caused by the coronavirus epidemic and lockdowns, creating the conditions for a boom in 2021 and 2022.
In their Global Oil Supply-and-Demand Outlook to 2040, published in February of this year, McKinsey & Co predicted that oil demand will return to 2019 levels by late 2021 to early 2022, depending on the duration of lockdowns and the pace of GDP recovery. Furthermore, the sector will still require new production of nearly 23 MMb/d to meet demand after 2030.
So what has actually changed?
The Rise of Consumer-Focused Governments
No doubt, we have reached a challenging moment in the history of global energy markets. We were expecting this, of course, but it has certainly accelerated because of COVID19.
In the 18th and 19th centuries, supply side players controlled the oil industry, which is how the nation state of Saudi Arabia came to be created. Then oil refineries invested to make products with greater appeal to more consumers, earning them handsome profits. In short, producers have been comfortable with the direction that the global energy market has taken to date.
But the dynamics of the energy market are changing. Under pressure from the green lobby, demand is largely determined by policy makers. And that is driving the rise of renewables. Power in the markets is shifting from suppliers to consumer governments, which are legislating for lower emissions and affecting how the industry functions at its core. But how can energy suppliers meet anticipated demand while reducing carbon emissions?
As traders – with our market knowledge, a lack of bureaucracy, and the ability to move quickly – we can always take advantage of discrepancies and volatility in the market. Indeed, SOCAR Trading has seen exceptional growth in growth and profits in recent years, and we expect that to continue unabated as we grow market share and invest in new products and territories.
But suppliers face an altogether different problem, under pressure to become substantially more efficient. Those with economies of scale – that are modern, flexible, and consumer-oriented – will likely survive. But in Europe and the United States, too many refineries – for example – are inflexible and will struggle to reduce emissions and make profits.
Europe is already investing in renewables. Asia too. But wind and solar are distributed more evenly around the world, and so how long will the huge inherent advantages of the major producers last? Surprisingly, many big US majors are still not investing enough in advance of these challenges.
SOCAR Trading’s Future
As for SOCAR Trading, we have been very clear for a while now that clean-burning natural gas is a key component in the world’s transition to a carbon-free future; it produces fewer pollutants than coal and oil, and it can produce electricity at more affordable prices using the existing gas infrastructure, enabling under-powered locations to produce the cheaper energy they need to support economic growth.
LNG-to-Power is expected to grow significantly throughout the world over the next decade, and SOCAR Trading is planning to be at the heart of this exciting development.
Although Azeri Light marketing remains a core part of our mandate, trading in third party crudes, distillates and LNG has grown to account for a significant portion of trading volumes and profitability.
SOCAR Trading is looking to significantly expand its footprint in greener energy solutions. In particular, we have identified LNG as a potential area for growth. In fact, SOCAR trading has been actively supplying and trading LNG on the global markets for more than three years. Traded LNG volumes grew from half a million tons per annum in 2017 to just under 5 million p.a. in 2020.
Over the last 2 years, SOCAR Trading has begun trading natural gas in Western Europe to complement its LNG trading capabilities.
At the same time, we continue to nurture our established partnerships and business relationships worldwide, working with a vast diversity of first-class European and global banks and with other state-owned entities. And SOCAR Trading has invested in several physical infrastructure projects to enable us to generate trading flows, while remaining a logistics hub for Caspian barrels.
Here at SOCAR Trading, we’re prepared for the changing dynamics in the global energy markets.
Conclusion
Thank you once again for inviting me to speak at this important forum. I am excited by the role the SOCAR Trading might play in extending the long-lasting cooperation between Azerbaijan and Turkmenistan. /// nCa, 29 October 2021