The report presents three possible outlooks for the global energy and natural resources industries – trade truce (the most optimistic), trade tensions (the most likely), and trade war (the worst outcome) – each painting a dramatically different picture for global GDP, industrial production and the supply, demand, and price of oil, gas/LNG, renewable power, and metals through 2030.
“The current uncertainty around the tariff landscape is reshaping the energy and natural resources sectors,” said Gavin Thompson, Vice Chairman of Energy at Wood Mackenzie. “Lower economic growth will curb energy demand, prices, and investment, while higher import prices will raise costs in sectors from battery storage to LNG. Energy leaders must now become masters of scenario planning, preparing for everything from continued growth to significant market disruptions.”
Key findings from the report include:
Oil markets: oil demand in 2030 varies by up to 6.9 million bpd between scenarios. In the trade truce scenario, oil demand reaches 108 million bpd by 2030, with Brent averaging US$74/bbl. The trade war scenario sees demand falling in 2026 and Brent plunging to US$50/bbl.
“Trade policies are emerging as a pivotal force in shaping the future of oil markets,” commented Alan Gelder, Senior Vice President of Refining, Chemicals, and Oil Markets. “Falling oil demand results in the global composite gross refining margin collapsing to break-even levels, creating pressure for the rationalisation of weaker sites, particularly in Europe.”
Natural gas and LNG outlook: the trade war scenario could exacerbate the anticipated global LNG oversupply. In the trade truce scenario, LNG prices fall from US$11.2/million Btu in 2024 to US$7.2/million Btu by 2030 as the market absorb a wave of new LNG supply growth. In the trade tension scenario, the impact might be limited. However, in the trade war scenario, prices fall further as Chinese LNG demand falls sharply, meanwhile tariffs force buyers to redirect US LNG cargoes.
“Although tariffs pose downside risks to global LNG supply, it is possible there will be more investments in US LNG,” added Massimo Di Odoardo, Vice President of Gas and LNG Research at Wood Mackenzie. “With President Trump pointing countries towards buying more US energy, including LNG, to reduce their bilateral trade surpluses, more investments in US LNG plants are likely, also contributing to higher gas demand in North America.”
Power sector challenges: trade tensions and potential trade wars pose a dual challenge to the power sector, reducing the pace of electricity consumption while simultaneously disrupting the growth driven by new data centres and reshoring initiatives. These economic headwinds create investment barriers, particularly impacting US manufacturing revival plans. Emerging technologies like battery storage and renewables face greater vulnerability due to their complex global supply chains. Consequently, the US risks losing access to low-cost generation sources and newer technologies, potentially widening the cost gap with other countries.
“With 5- to 10-year planning cycles, unpredictable project costs are disrupting long-term strategies, particularly in battery storage due to China’s supply chain dominance,” said Chris Seiple, Vice Chairman of Power and Renewables at Wood Mackenzie. “As electricity affordability becomes a pressing political issue, the current trade uncertainty is creating unprecedented challenges for the electricity sector.”
Metals and mining implications: the trade war scenario is most disruptive, wiping out projected demand growth through 2026 for key metals. Aluminium demand could fall by almost 4 million t in 2026, with copper down 1.2 million t. China’s manufacturing sector faces severe challenges, potentially flooding global markets. Post-2026 recovery is likely, but permanent demand losses persist.
“Our potential trade scenarios reveal a challenging outlook for metals crucial to the energy transition,” said Julian Kettle, Senior Vice President and Vice Chair, Metals and Mining at Wood Mackenzie. “Even in a trade truce scenario, we foresee supply issues, while a tariff war could wipe out all projected growth through 2026. This could pose a critical challenge to the energy transition just as demand for these metals accelerates.”
The report concludes that while recent trade agreements have encouraged optimism, planning for divergent trade outcomes is prudent.
Thompson concluded: “Despite recent trade agreements, the global trade landscape remains fraught with uncertainty. In a scenario of escalating tariffs, we anticipate significant impacts on manufacturing and industrial production, which could slow the momentum of low-carbon energy investments. Energy companies must be prepared to adapt swiftly to mitigate risks and navigate supply chain disruptions. With major economies potentially facing prolonged recovery periods, agility in strategy and operations will be crucial for the energy sector in this unpredictable trade environment.”
However the trade dispute evolves, Wood Mackenzie will be regularly updating their analysis to support clients through the uncertainty.
Read the entire report here: https://www.woodmac.com/horizons/tariff-scenarios-taxing-times/