For the past century, access to oil and gas has been a major source of national wealth and power. It has also been a key driver of international cooperation and conflict.
Now the climate crisis and geopolitical volatility are driving a new energy transition away from hydrocarbons. This energy transition, like the ones before it, will reshape the world. Australian businesses will be impacted, and will need to prepare for the changes that are coming.
Successfully transitioning to renewable energy sources
The transition from oil and gas to renewables creates challenges for Australian companies, as do the geopolitical impacts that will flow from the transition. Many firms are already thinking about how the energy transition may affect export demand. Leading companies also recognise the critical importance of analysing impacts on other nations and the broader global system.
It is important for companies to consider how the energy transition will affect the relative wealth and power of countries around the world, how global alliances will shift, and conflict will change.
Successfully navigating the transition to renewable energy will depend on whether businesses can manage and respond to these practical and geopolitical changes. Strategic planning is critical. Now is the time for companies to invest in understanding the energy transition, evaluate how it could impact them, manage risks and seize opportunities.
Global geopolitics of oil and gas
Oil and gas resources as a source of geopolitical power
The age of oil and gas has provided hydrocarbon-rich nations with a potential for wealth and power that other countries have lacked. But, as the world transitions to renewables, oil and gas will deliver declining returns and another set of resources – including sun and wind, critical minerals and advanced technology – will provide the potential for energy security and geopolitical power. How well these assets are used to build geopolitical strength will depend on a country’s ability to manage the wealth wisely, through political will and policy settings.
The transition to renewable energy and its geopolitical implications
The necessity of rapidly decarbonising the global economy is driving a move away from hydrocarbons towards renewables. Rising geopolitical volatility is also raising the profile of new energy, as countries look for alternative ways to ensure energy security. This shift will have major implications for how energy security is understood and achieved, which will reshape the global geopolitical map.
How nation-states fare will depend on a range of factors including, of course, what natural resources they have available to them. Other factors, such as their policy and political settings, technological capabilities, international reputation and ability to build partnerships will also be critical to their success. Other geopolitical implications of the shift will be how networks and alliances change, and the way conflict will look in the future.
What could the geopolitical implications of the renewable energy transition mean for Australia?
As countries around the world see their energy security, economic wellbeing and geopolitical status impacted by the energy transition, Australia’s economic opportunities will change. For example, countries with renewable energy advantages will have more money to invest abroad, and to buy the resources, premium agricultural exports and international education that are a mainstay of Australia’s export economy.
Whether Australia wins or loses from the global implications of the energy transition will depend partly on luck, partly on government policy decisions, and partly on the actions of Australian companies.
What can Australian companies do?
The transition to renewables creates a variety of challenges for Australian companies to navigate. They’ll need to be able to manage the transition itself, as well as the geopolitical impacts of that transition.
Australian companies will need to take the following actions:
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Navigate the energy transition
Understand how the shift from hydrocarbons to renewables will affect the overall economy and their sector, and analyse how these impacts could play out for them. -
Navigate the geopolitics of the energy transition
Consider how the geopolitical implications of the energy transition matter to Australia, and the geographies they do business with and within. They will also need to consider how the dynamics of global business will be affected. -
Analyse the impact
Look ahead to consider the implications of different geopolitical developments, supply/demand changes, and security of supply, to help identify material risks and develop comprehensive action plans. -
Manage the risks and seize opportunities
After understanding the geopolitics and analysing the impacts, companies should set strategies to best manage the issues and take advantage of the opportunities that have been identified.
The geopolitics of energy transition – KPMG can help
KPMG has a range of services – from targeted geopolitical briefings and automated data solutions, to broader internal audit and risk support – to help firms survive and thrive throughout the energy transition, and navigate its geopolitical implications.
