Prior to the war in Ukraine, most discussions around energy focused on energy transition—specifically, how the world could meet its growing energy demands while weaning itself off fossil fuels.
Within a matter of weeks, however, investors turned their attention to energy security—as the war drove up oil and gas prices and prompted governments to prioritize immediate energy needs over the longer-term transition to clean energy. Not coincidentally, as energy prices soared to near-record highs, renewable energy shares sank.
“This is a false choice,” says Stephen Byrd, who heads North America Power Utilities and Clean Energy Research. “We think policymakers will continue broad-based support for the adoption of renewables, electric vehicles, carbon capture and other technologies while ensuring secure traditional energy sources.”
In late 2021, when oil was trading around $70 a barrel, Morgan Stanley analysts covering multiple industries did extensive research on the energy transition and its implications. Their initial report, “Turbulence of the Transition,” forecasted significant volatility in energy markets over the next decade as global energy demands outpace supply—until clean energy is available at scale.
“On the other side of the energy transition lies a new, stable system, but the journey between here and there looks to be a turbulent one,” says Martijn Rats, Morgan Stanley’s Commodity Strategist.
For investors, the current geopolitical environment creates an interesting, if somewhat conflicting dynamic. “We think traditional and renewable energy winners can benefit from greater onshoring and higher energy prices, as well as continued support for renewables,” Byrd adds.
Here are some of the longer-term dynamics driving the energy transition and related themes, which include everything from demand outlooks and divestment trends, to the feasibility of energy alternatives and carbon sequestering.
Source: morganstanley.com
