Oil’s endgame could be highly disruptive

livemint.com:

oil markets have been largely quiescent. In fact, however, a new phase is beginning—one in which oil demand, not supply, will be the primary influence on energy markets. This shift will bring with it profound geopolitical consequences.

Governments everywhere are designing policies to reduce the demand for oil and boost alternative sources of energy, as they seek to fight climate change. Technologies such as those behind electric vehicles are only becoming cheaper and more advanced. As our special report argues this week, the coming peak and subsequent decline of global demand for oil will determine prices and production over the decades to come.

Perversely, this shift will grant some producers more market power. The biggest, least carbon-intensive and cheapest reserves of petroleum by far are found in Saudi Arabia and its immediate OPEC neighbours in the Persian Gulf. As the market for oil shrinks, their share of production will soar.

Depending on the pace of the energy transition, this cabal could command a market share of half or even two-thirds of global output by 2050, according to Bp, an oil firm, compared with less than 40% today. Already places such as Kuwait, Saudi Arabia and the United Arab Emirates are home to some of the world’s largest sovereign wealth funds and are busily deploying capital and influence in their neighbourhood and beyond. Their piles of capital, and their desire to project their strength abroad, will only intensify.

Meanwhile, other oil powers will be left behind. Today national oil firms in several dozen countries in Africa, Latin America and Asia are pumping oil that is higher-cost and more carbon-intensive than the oil in the Gulf. By one measure, some $1.2trn of the $1.8trn in investments