McKinsey’s Roland Rechtsteiner on the energy transition and commodities markets

Commodities markets have seen rapid growth over recent years, attracting new players and creating new opportunities for a transitioning energy sector in need of investment.

It is “a positive development”, according to a new report by strategy and management consultancy McKinsey, which suggests that vibrant markets are good news for value pools, as well as developing transitional technologies.

McKinsey partner Roland Rechtsteiner leads the company’s commodity risk and trading work. He spoke to Energy Monitor to explain the implications of the increasing interconnectedness of the commodities and energy markets, as well as the significance of the increasing volatility.

Eve Thomas (ET): The report notes that the commodities market has experienced “rapid growth”. Why is this?

Roland Reichtsteiner (RR): There are multiple key drivers for the growth we have seen over the past years. There are short-term events: Covid, the supply chain crisis and the Russian invasion of Ukraine. These drive a lot of volatility, but the larger underlying volatility driver is the energy transition.

The energy transition across all commodities is having two key impacts. Firstly, it’s connecting all the different asset classes to each other, and the players within these asset classes. Secondly, it’s constantly changing supply and demand balances across commodities, which is also driving volatility. The higher the volatility, the more that is required in terms of global trade and balancing, and that’s ultimately what drives the commodity trading value pools.

The predominant factor is the energy transition. The resulting shifts in supply and demand means that volatility is here to stay. Whilst we can already see some of the extreme volatility stabilising, we certainly see that volatility driven by the energy transition is here to stay. We anticipate a ‘new normal’, which will be somewhere lower than what we have seen over the past two years but considerably higher than what we’ve seen in the last decade.