Industries

Demand for fossil fuels has returned to pre-pandemic levels

by Noah Browning and Bozorgmehr Sharafedin

LONDON, Oct. 4 (Reuters) – Demand for coal and natural gas has surpassed pre-pandemic record highs, and oil is not far behind, undermining hopes that the pandemic will accelerate the transition from fossil fuels. to clean energy.

The global shortage of natural gas, record gas and coal prices, electricity shortages in China, and three-year highs for oil show the same thing: energy demand has returned to normal. It is increasing and the world still needs fossil fuels to meet most of these needs. .

“The drop in demand during the pandemic was totally linked to the governments ‘decision to restrict movement and had nothing to do with the energy transition,” Cuneyt Kazokoglu, Reuters’ head of demand analysis, told Reuters.

“The energy transition and decarbonisation are strategies that span a decade and do not happen overnight,” according to the analyst.

More than three-quarters of the world’s energy demand is still met by fossil fuels and less than a fifth by non-nuclear renewable energy, according to the International Energy Agency (IEA).

Energy transition policies have been criticized for driving up energy prices. In some places, like Europe, governments are reluctant to turn on coal-fired power plants to make up for shortages due to high prices.

In China, emission reduction policies have contributed to the government’s decision to ration energy for heavy industry.

But much of the rise in energy prices is due simply to the fact that producers had to reduce their production capacities last year, when the pandemic caused an unprecedented drop in demand.

RENEWABLE ENERGIES, A SOLUTION TO THE CRISIS

Producers of gas, coal and, to a lesser extent, oil, have been baffled by the economic recovery, driven in large part by the stimulus of public spending in energy-intensive industries.

National policies have also influenced power supply problems. In China, state control over the price of electricity makes it uneconomical for companies to sell their electricity due to the high cost of coal.

Chinese companies are producing below capacity to avoid losing money, not because they cannot produce more.

Additionally, most gas projects take several years to design and build, so the current shortage reflects investment decisions made before the pandemic and before the implementation of current energy transition policies.

IEA Executive Director Fatih Birol said energy transition policies were not responsible for the crisis.

“The well-managed clean energy transition is a solution to the problems we see today in the gas and electricity markets, and not its cause,” Fatih Birol said in a statement.

LOSS ELIMINATION BY 2020

IEA data shows that global demand for coal, the main source of CO2 emissions, exceeded pre-pandemic levels late last year.

Global coal reserves are limited because China, responsible for about half of world production, tightened mining safety rules after a series of accidents, slowing supply.

Therefore, China imports more coal from Indonesia, leaving less room for other importers, such as India.

Global demand for coal is expected to grow 4.5% this year, exceeding 2019 levels.

For its part, global demand for natural gas fell 1.9% last year, a smaller drop than other energy sources, as power companies increased their electricity production to meet the demand for heating in winter.

But the IEA predicts gas demand will rise 3.2 percent in 2021 to more than 4 trillion cubic meters, eliminating 2020 losses and pushing demand above 2019 levels.

According to the Oslo-based consultancy Rystad Energy, cold weather conditions in the northern hemisphere “have led to increased demand for coal, liquefied natural gas (LNG), electricity and even a little oil (which) is here to stay. “. .

LNG accounts for just over 10% of the world’s supply, but it is easier to market globally and can therefore be more easily deployed to cope with short-term supply shortages.

“Price spikes and their difference between summer and winter will widen, especially for gas, both natural and liquefied,” added Rystad, as prices are higher in winter than in summer.

SUPPLY DIFFERENCES

The latest to catch up, oil demand is expected to return to pre-pandemic levels and exceed 100 million barrels per day next year, according to four of the major monitoring groups.

The high prices in the oil markets are explained by the fact that OPEC and its allies are still under the drastic supply constraints imposed during the pandemic to meet the drop in demand for transportation fuel.

According to OPEC oil producers, the pickup in demand is expected to occur in the second quarter of 2022.

In the more distant future, when most forecasters expect demand for fossil fuels to peak in the next two decades and the IEA recommends not launching new projects to ensure net zero emissions, the largest supply gaps could lead to more price shocks.

“Fossil fuel prices will remain volatile,” said Nikos Tsafos, a researcher at the Center for Strategic and International Studies (CSIS).

“The risk of an imbalance between supply and demand is greater in a contracting market where the case for new investments is weak, which could produce short-term recoveries.”

Sources:

– Timeline of recovery of global oil demand from the pandemic https://tmsnrt.rs/3AhtQGo

– FGE Oil Demand https://tmsnrt.rs/3iieZV1

– McKinsey Fossil Fuel Peak https://tmsnrt.rs/2YetsKG

– McKinsey Natural Gas https://tmsnrt.rs/3kNK1FY

– IEA Coal Consumption https://tmsnrt.rs/3m6q8tf

– Rystad LNG demand https://tmsnrt.rs/3uv9N5a (Noah Browning Report; French version Anait Miridzhanian, edited by Blandine Hénault)

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