The uncertain geopolitical winners of energy transition

The corporate and geopolitical winners in a world that gets serious about cutting carbon emissions aren't easy to predict.

Driving the news: A new Moody's Investors Service report looks at how "energy transition" creates risks and opportunities for state-owned oil-and-gas companies like Saudi Aramco, Russia's Gazprom and China's CNPC.

The big picture: State-owned players' "exposure to carbon transition risk will vary," they find, and overall they're not well prepared and "lag behind" investor-owned oil majors.

• Some will change strategies for business reasons or to align with government climate efforts."[T]he ability of others to make the transition to less carbon-intensive models is constrained by fiscal obligations to or the social objectives of their sponsoring governments."
• If energy transition and lower demand mean lower prices, that's a problem for countries, including Persian Gulf states, reliant on petro-exports. But some of these same players enjoy low production costs and state-protected market positions.

Why it matters: It's part of the wider puzzle covered in a new Foreign Policy essay headlined, "Everything you think about the geopolitics of climate change is wrong."

• Jason Bordoff, head of a Columbia University energy think tank, makes a few points:

1. He cautions against assuming China's huge investments in producing clean energy tech like batteries and solar panels (and harvesting the critical minerals to make them) means they'll be become a Saudi-like force.

• A huge footprint in those markets simply doesn't convey the same influence that petrostates once had and to a degree still do.
• For instance, restricting battery shipments might temporarily raise car prices and delay new EVs.
• But that's not the same thing as cutting off oil-and-gas supplies, which can quickly "stymie mobility, trigger price spikes, or lead to people freezing in their homes."

2. He warns against pre-writing the obit for big Middle Eastern producers.

Yes, they'll eventually face declining crude demand in a CO2-constrained world that they have not prepared for by adequately diversifying their economies.

• But during oil's decades-long exit as a dominant fuel, it's the lowest-cost producers — that also have comparatively low per-barrel emissions — that are best positioned.
• Even as demand shrinks, "OPEC’s share of global production could rise as a result of its members’ lower costs and emissions, strengthening the cartel’s grip on a market that will remain sizable for some time."
• Also, he notes, supply may decline even faster than demand, which would raise prices and boost oil-state coffers.

3. Another dynamic: "[S]ome of today’s petrostates may be tomorrow’s electrostates."

• The essay notes the ability of states like Saudi Arabia and Chile to send clean power and hydrogen across borders.
• Russia's big role as a nuclear tech supplier will also become more important as countries look to electrify transportation and buildings in order to cut CO2 emissions.