Planet

ENERGY MIX

As the world transitions to lower-carbon energy, it is clear that sustainability is not the only factor to consider for future energy systems. Energy security and affordability are also important, and policymakers and energy stakeholders must work together to find solutions that balance all three priorities.

Solving the energy trilemma requires a holistic approach. A suitable transition pathway in one geography may not be workable in another. Solutions are likely to be found in both the supply side, such as renewable energy and energy storage technology, as well as the demand side, such as improved energy efficiency.

There is urgent need for both the provision of low carbon energy, and the protection and restoration of nature. Both are critical if the world is to achieve net zero. Policy and technology will also need to play a part to ensure that everyone in the world has access to affordable, reliable, and sustainable energy. Mercuria is committed to helping solve the energy trilemma, reducing carbon emissions and advancing the energy transition. We are doing this in three ways:

  1. We are well ahead of our commitment that over 50% of our investment capital will go into the low carbon sector by 2025 to help advance the energy transition. Read more about this on the investments page.
  2. We are working hard to manage and reduce the carbon footprint of our operations. To become carbon neutral, we have offset our Scope 1 & 2 carbon emissions in 2022. Read more about this on the planet in 2022 page.
  3. We have established Silvania, a $500 million nature investment vehicle to restore and protect land and forests. It will have an initial focus on areas totalling 10 million hectares. Read more about nature restoration and biodiversity on the focus on our world page.

We believe that these efforts will help to ensure that the world has access to the energy it needs, and in a more sustainable way.

The energy trilemma

Nick Lawson, Global Head of Carbon Strategy

The trilemma is the balancing of three dimensions of energy supply so that it is secure, equitable and environmentally sustainable.

  • Energy security requires energy supplies, which are reliable, withstand, and bounce back from significant shocks.
  • Energy equity is access to reliable, affordable, and abundant energy.
  • Environmental sustainability – a system that minimizes potential environmental harm and climate change impacts.

Achieving and keeping each of these in balance is what constitutes a healthy energy system.

The past few years have thrust the energy trilemma into sharp focus. Prior to the COVID-19 pandemic, the focus was primarily on energy sustainability. But recent events have caused energy markets to contend with huge swings in demand, supply and prices. The pandemic saw global energy demand decline by 4% in 2020[1] leading to oversupply and negative prices in some markets as suppliers had to pay for product to be taken away. In 2022, the dynamics swung the other way with post pandemic economic demand recovery being stymied by supply shortages causing dramatic price spikes.

The future is no less straight forward as we face growing geopolitical fractures, increasing levels of nationalism and an urgent need to decarbonize energy systems.

In this context, attaining the delicate balance requires all energy market actors to play their part. Producers to unlock more supply, consumers to change behaviours, governments to provide the right frameworks and incentives and trading companies to bring market participants together.

The role of the trading company is often overlooked or at best misunderstood, despite having a key role across all dimensions of the energy trilemma from:

  • Security: identifying new energy sources (e.g. Liquid Natural Gas) and ensuring it arrives where it is needed. Working with partners around the globe to develop these new sources through financing, off-take agreements, hedging, risk management and then deliver them to market.
  • Equitability: providing pricing transparency and helping to create a market so prices are set at a fair market value and extending financing that might not otherwise be available.
  • Sustainability: investing in and developing new forms of low carbon energy (e.g. renewables), establishing and stimulating carbon markets, and innovating to encourage lower carbon energy production and product shipping, and increasing the traceability of products to ensure they are responsibly sourced.

Sustainability must be at the heart of a healthy energy system, as low carbon energy will provide secure and equitable supply. However, for this to happen, managing the energy system will need innovation and imagination – as well as short-term fixes – and this is where trading companies play a crucial role in helping guide the energy system toward a sustainable future.

[1] https://www.iea.org/topics/covid-19

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