Global relations have changed significantly over the last few years, but storage terminals will find business opportunities, says FETSA’s executive director Ravi Bhatiani
It feels as though we have crossed the Rubicon when it comes to stability of the global order at the moment. Notably, we’re experiencing a shift from unipolarity to multipolarity. For the first time since World War Two, the US is arguably no longer a singular dominant entity defining the global order and institutions – and instead, there are challenges coming from other jurisdictions and regions. This multipolarity involves several centres of competing interests, requiring dialogue, negotiation, pragmatism and compromise to address era-defining issues such as climate change, emerging disruptive technologies and great power competition.
A number of issues exemplify the changes we are living through. One is the change in the role of the US dollar and emergence of competing payment methods. USD has traditionally been the dominant currency for global trade – and particularly for energy transactions giving sanctions leverage and economic dependencies for the USA. Another change is the challenge to the US military pre-eminence with the potential challenge to the global balance of power this brings with the US having to address the cumulative effect of Chinese and Russian military modernisation. The third aspect is that the US seems to be rowing back support for many of the multi-lateral institutions it designed and built in partnership with allies – such as the UN, the WTO and the WHO to name a few.
In this context, you have many consequences – including ones that will impact the storage terminals sector. For example, the current US administration has lowered its climate ambitions and is much more focused on supporting the fossil fuel industry and its domestic producers.
This is partly driven by the geopolitical shifts because it doesn’t want to be dependent on other powers for energy and wishes to exert itself also through energy dominance in the in the global order. But this does impact policies here in the EU. The rollback on climate targets, for example, leads to more hesitation in Europe as to how far we can push our own climate ambitions when continued ambition may have other consequences related to diminished US support for European security or trade.
Shifting Climate Commitments
With those things in mind, it’s difficult for the EU to have completely different policies to the US, including on things like climate. The more Europe pushes on climate ambitions, the more antagonized the US may get and the more risk there is to continuity of essential inputs and security to Europe.
The European commitment to climate ambitions is less clear than it has been in the past. Although you have the EU introducing tough new climate targets for 2040, a 90% emission reduction, maintaining net zero by 2050 and so on, the way in which these climate targets are being reached gives much more room for businesses to manoeuvre. Pre-2025, the main investment thrust may have been towards hydrogen infrastructure as a completely new fuel to replace natural gas for example. But since 2025, Europe has shifted towards greater support for biofuels, carbon capture possibilities etc. We’re beginning to see a new willingness to consider renewable fuels of non-biological origin (RFNBOs), to consider biofuels or to consider carbon capture, utilisation and storage (CCUS) as mainstream transition technologies.
This may change the strategic decision making of terminals in Europe. There’s now more scope for biofuel storage and for building CO2 infrastructure, and maybe there’s less urgency when it comes to the forecasted hydrogen build out.
This is further reinforced by the deindustrialisation trend, leading to a lack of certainty over who will offtake the hydrogen production in Europe, which impacts storage requirements.
Military Consequences
In a contested world, where we are more prone to sanctions and conflict, countries are looking for ways to reinforce their own security. In Europe this has led to a preparedness agenda developing. The preparedness agenda covers many areas. For example, it relates to the build out of a military industrial complex.
This requires chemicals, fuels and raw materials. The preparedness agenda also factors in military preparedness, military mobility and military logistics. FETSA released a report with the Hague Centre of Strategic Studies on this issue last year, looking at NATO, future fuels and security. One of the clear conclusions from this report is that in a contested world where security is a paramount concern, militaries need to have sufficient fuel access. For import dependent countries, this may create a need for increased fuel stockpiles for use in emergency situations. This is of key relevance to storage terminals as we go through the energy transition. As storage facilities adapt to handle new products, they may also consider the continued need for legacy fuel storage for military customers.
There is also a civilian angle to the preparedness agenda, to ensure there are accessible stockpiles of fuel, medicines, critical raw materials, etc. For storage terminals, this has two consequences. Firstly, they can be part of the fuel stockpiling agenda defined by regulation. Secondly, for dry bulk, there are also opportunities when it comes to critical raw material stockpiles.
Global Collaboration
Despite this potentially gloomy global outlook (though with plenty of positive opportunities for storage terminals), there is a silver lining. Even in historic contested scenarios, adversaries often had energy relationships, sometimes even when they were in conflict with one another.
Even where countries may have disagreement, disputes and tensions, there is still likely to be trade and commercial relationships between those countries.
And, we should also recall that in most of the world, there is not conflict – even though it dominates the headlines. So, trade routes generally remain open globally, although they may shift. Equally, energy flows continue globally, and these also tend to shift. For example, new trade routes will be developed for new energies being imported to Europe.
Europe’s Place In A Multipolar World
Europe wants to have an influence in its own unique way. I would see it as a role exporting gold standards of regulation, whether it’s protecting citizens through consumer protection legislation, climate protection regulation or safety regulation. This is why Europe continues to be a leader, although with more limited ambitions with regards to the climate agenda. It also wants to export its social market democratic model, such as high levels of social protections.
The challenge is that Europe is quite isolated in this. There are not that many like-minded partners, although the G7 is still an influential group. There are now rising factions like the BRICS that are increasing in global influence when it comes to use of currency energy transactions and even different governance models. So the question for Europe is how to manage good relations with these growing blocs such as BRICS, ASEAN etc, without being in the situation where they are imposing standards on them that antagonise them and prevent commercial relationships from developing. It’s a fine balance – and the introduction of initiatives like CBAM may do more harm than good in this regard.
Due to structural issues like high energy costs and high compliance costs, prices in Europe suffer from inflation – and citizens already face an affordability crisis. Policymakers have attempted to tackle deindustrialisation and offshoring with this tariff approach, but it creates frictions with potential trade partners. Mario Draghi’s seminal report of European competitiveness takes the position that things like CBAM are a potential drag on European prosperity – but it remains to be seen to what extent the EU will go forward with his reforms.
The Bright Side
For storage terminals, though, there is a positive outlook – certainly in the short to-medium term. In Europe’s current deindustrialisation pathway, we’re seeing the offshoring of chemicals production and refining due to high associated costs. This leads to more dependence on imports. This is potentially of interest to storage terminals – commercial entities have to take into account their own supply chain security and need to consider buffer stocks. Governments, too, as mentioned earlier.
But over the longer term, the danger is that instead of importing the chemicals needed to produce products, we may end up simply importing those physical end products. This would represents a much more negative future for the storage sector. Depending on how you want to position your company, there are plenty of opportunities. Your terminal could be a leader in energy transition related products, building out new infrastructure for things like carbon capture.
There are clearly opportunities when it comes to biofuels adaptation, but equally there may still be opportunities for the storage of legacy fuels – in all climate scenarios in Europe, there is growing jet demand in the coming decade, as well as stability or slow declines in other legacy products. A lot will depend on what are the shareholder views on storing different products, including legacy products, as well as finance provider views.
