High prices could deepen demand destruction in energy markets: Expert

Singapore has accepted the invitation to work on the Climate Warehouse initiative, which aims to connect the various carbon credit registries in the world. ST PHOTO: KUA CHEE SIONG

SINGAPORE - Energy prices have soared globally this year but could face downside pressure in 2023 as prolonged high prices are expected to deepen demand destruction.

This is the view of Mr Saugata Saha, president of S&P Global Commodity Insights, on the sidelines of the Asia Pacific Petroleum Conference, which kicked off in Singapore on Monday. It welcomes oil traders, producers, refiners, bankers, analysts and brokers back here for the first time since the pandemic erupted in 2020.

The conference is hosted by S&P Global and has been a regular feature in Singapore. This year's event is being held against a backdrop of heightened geopolitical tensions, a severe energy crisis ravaging much of Europe, and aggressive central bank tightening to restrain inflation.

In an interview with The Straits Times, Mr Saha said: "In particular, the supply tightness of major energy commodities in the wake and aftermath of the Russia-Ukraine war has led to soaring prices of oil, transportation fuels, coal and electricity."

"High price volatility, supply disruptions, trade dislocations and demand destruction are the new normal of the global energy market this year with frequent twists and turns," he noted.

Before Russia invaded Ukraine in late February, about half of Russia's crude and petroleum product exports went to Europe, according to the International Energy Agency.

But sanctions imposed by Western powers on Moscow's energy shipments have caused severe supply disruptions. The impact is reverberating globally as European states scour the world for alternative supplies.

The European Union is even considering a mandatory target to cut power use - a step towards rationing - along with other measures like channelling energy company profits to struggling consumers.

Mr Saha said the widening cracks in the geo-economic and geopolitical ecosystem have clouded the outlook for next year, noting that investors and markets are doubling down on the view that inflation is strong and central bank aggressiveness to deal with it creates risks for the global economy.

He added: "An increasingly polarised geopolitical landscape hinders efforts to restore energy demand and supply to its previous balance, though it can also be viewed as a positive change in terms of driving the energy transition."

Mr Saha said that while the near-term focus of governments is to secure energy for their populations and industries, he is encouraged to see that many have not abandoned climate action targets and energy transition plans.

He lauded Singapore's commitment to further accelerate achieving its own net-zero goals by 2050.

Mr Saha said: "We are very glad to know that Singapore is pushing hard for sustainability by adapting to cleaner energy sources, creating a carbon trading hub, and considering the possibility of a net-zero goal by 2050."

Earlier this month, the National Climate Change Secretariat said the Republic is deciding whether to raise its 2030 climate target to support the longer-term goal.

In early September, South-east Asia's largest lender DBS Bank announced its decarbonisation targets for seven sectors - power, oil and gas, automotive, aviation, shipping, steel and real estate.

Minister of State for Trade and Industry Low Yen Ling, the guest of honour at the conference, said in her remarks that the World Bank-initiated Climate Warehouse initiative, which Singapore has been asked to anchor, would help to improve transparency and accountability.

The Republic has accepted the invitation to work on this initiative, which aims to connect the various carbon credit registries in the world.

S&P Global Commodity Insights president Saugata Saha and Minister of State for Trade and Industry Low Yen Ling at the Asia Pacific Petroleum Conference. PHOTO: S&P GLOBAL

Mr Saha said pricing transparency is not just critical in developing an international carbon trading marketplace, but will also provide confidence to companies looking to participate in it.

"This results in higher liquidity, which in turn makes it possible to create hedging tools, such as futures or other derivatives contracts," he noted.

"You can see how price transparency triggers a positive cycle that enables the voluntary carbon markets to scale and grow, which means that more and more financial resources will be allocated to projects that are working to mitigate climate change."

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