The global shortage of hydrocarbon-based fuel supply is not expected to derail international efforts to mitigate climate change and reach net zero carbon emissions by the middle of the century, according to the Bank of Singapore.
Parts of Europe and Asia have faced natural gas and coal shortages, prompted energy prices to surge to multi-year highs.
Concerns are rife that higher prices could spur more investment in hydrocarbons, which could derail efforts taken to wean the global economy off fossil fuels.
However, efforts to switch to clean energy will gain more pace after recent shortages, the lender said.
"Our view is that the disruptions will not derail the energy transition. The pain inflicted by the current energy crisis may spur policy changes that encourage an even more rapid transition to clean energy over the next decade," the Bank of Singapore said in a report on Tuesday.
Oil prices are at three and seven-year highs as a result of the shortages.
Brent, the international benchmark for crude, was down 0.42 per cent to trade at $85.63 a barrel at 2.08pm UAE time. West Texas Intermediate, which tracks US crude grades, was down 0.54 per cent at $83.31 a barrel.
Natural gas prices have also doubled so far this year, with Henry Hub prices climbing 0.64 per cent to $5.936 per million British thermal units at 2.10pm UAE time.
Despite indications of additional oil supply hitting the markets, the momentum towards clean energy, backed by global policy initiatives such as Cop26, is expected to remain uninterrupted.
"Notwithstanding emergency measures taken to ease energy shortages in China and Europe, we expect to see a progressive shift away from new investment in fossil fuels and a significant increase in investment in renewable energy sources," the Bank of Singapore said.
The falling prices of wind and solar energy could further encourage more investment in renewables, the report said.
Wind and solar are already some of the cheapest sources of power and will account for the bulk of electricity generation in countries representing two thirds of the world's population and three-quarters of global gross domestic product, according to BloombergNEF.
Clean energy will also account for 70 per cent of the $530bn spent on all increasing generating capacity, according to the International Energy Agency.
"The energy transition over the coming decade is likely to be highly non-linear," the bank said.
"Increasingly robust climate policies intersect with technological advancements and falling costs to propel low-carbon alternatives to the forefront across a wide range of economic activity," the report said.
The falling costs will prompt a "tipping point" in industry and will lead to rapid shifts in consumer behaviour.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
