WoodMac: Three tariff scenarios reshape energy future

Wood Mackenzie outlines three potential futures for the global energy landscape, emphasizing the significant effects of ongoing trade tensions on the energy and natural resources sectors. The scenarios, part of its "Trading Cases: Tariff Scenarios for Taxing Times" report, include:

1. Trade Truce (the most optimistic scenario, with a return to 2024 tariff levels) – projecting global GDP growth at 2.7% annually to 2030.
2. Trade Tensions (the most probable outcome, involving a moderate rise in tariffs) – forecasting GDP to be 1.1 percentage points lower compared to the truce scenario, while the US, EU, and China continue to experience growth.
3. Trade War (the worst-case situation, marked by extensive tariff escalation and retaliation) – predicting a 2.9% reduction in GDP by 2030, with the decoupling of the US and China leading to a recession.

Each scenario presents a vastly different outlook for global GDP, industrial production, and the supply, demand, and pricing of oil, gas/LNG, renewable energy, 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.”

Oil markets

Oil demand in 2030 varies by up to 6.9 million b/d between scenarios. In the Trade Truce scenario, oil demand reaches 108 million b/d by 2030, with Brent averaging $74/bbl. In this scenario, currently low refining margins are the sectoral trough. With oil demand growth outpacing capacity additions beyond second-half 2026, refining margins recover before plateauing in the late 2020s. The global composite gross refining margin reaches almost $10/bbl in 2030, up almost $4/bbl from 2025 levels.

In the Trade Tensions scenario, the pace of oil demand growth is slower, but not dramatically so. Global demand still rises by 3.5 million b/d by 2030, almost 1 million b/d less than in the trade truce scenario. Slower demand growth means lower prices: Brent averages $68/bbl in 2030 in real terms, $6/bbl less than in the trade truce scenario. Lower prices curtail drilling and completion activity in the US Lower 48, reducing a key source of non-OPEC supply growth. Global refinery utilization still improves in this scenario, but at a slower pace.

The Trade War scenario sees demand falling in 2026 and Brent plunging to $50/bbl. Oil at $50/bbl is a gamechanger. Wood Mackenzie analysis shows that the economics of Lower 48 drilling won’t support production growth with crude at $50/bbl, despite corporate ambitions to keep pushing down break-evens. A significant fall in oil demand in 2026 results in the global composite gross refining margins collapsing to breakeven levels.

“Trade policies are emerging as a pivotal force in shaping the future of oil markets," said Alan Gelder, SVP 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, LNG 

The Trade War scenario could exacerbate the anticipated global LNG oversupply. In the Trade Truce scenario, LNG prices fall from US$11.20/MMbtu in 2024 to US$7.20/MMbtu 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" said 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."