Fossil fuel demand drops in 2020 with a limited rebound in 2021, IEA says

Energize Weekly, October 21, 2020

The global pandemic will cut worldwide energy demand 5 percent in 2020 and result in an 18 percent decline in energy investment, according to International Energy Agency (IEA) forecasts.

If the novel coronavirus is brought under control in 2021, energy demand will return to its pre-crisis level by the end of the year – if not, recovery is pushed to 2023, the agency said in its World Energy Outlook.

Yet, even with a rebound, the pandemic will create some structural changes in demand and hastening some trends, such as the decline in coal as an energy source.

“The COVID-19 pandemic has caused more disruption to the energy sector than any other event in recent history, leaving scars that will be felt for years to come,” the IEA said.

In 2020, oil demand is expected to be down 8.5 percent, natural gas demand down 3 percent and coal down 7 percent. The decline in energy demand will result in a nearly 7 percent decline in carbon dioxide emissions, bringing them down to 2010 levels.

With a recovery, natural gas demand is projected to grow by 30 percent between now and 2040, oil demand returns to pre-pandemic levels, but plateaus around 2030, and coal never returns to its previous level of demand.

“The era of global oil demand growth will come to an end in the next decade,” Fatih Birol, IEA executive director, said in a statement. “But without a large shift in government policies, there is no sign of a rapid decline.”

Coal remains under pressure as about 275 gigawatts of coal-fired generation is retired worldwide by 2025. Coal’s share of the energy mix falls to 20 percent by 2040, the lowest since the Industrial Revolution began in the 19th century, the agency said.

The big winner in 2020 – despite the pandemic – has been renewable electricity generation, whose share of energy demand increased 1 percent.

Renewables are projected to supply 90 percent of the growth in global electricity demand over the next 20 years, led by solar, which is now cheaper than new coal or gas plants in most countries.

While hydropower is currently the main renewable generator of electricity, solar and wind are poised to overtake it.

“I see solar becoming the new king of the world’s electricity markets,” Birol said. “Based on today’s policy settings, it is on track to set new records for deployment every year after 2022.”

By 2040, IEA projects, based on existing government policies, solar will provide 34 percent of global electricity demand – equal to 8,135 terawatt-hours – and wind supplying about 28 percent of demand. Other low-carbon technologies provide another 24 percent of demand and natural gas 14 percent.

The one stumbling block to the rapid penetration of renewable generation technologies could be the electric grid, which needs to be upgraded, expanded and modernized.

In the last decade, about 9 million kilometers of transmission line was added to grids, but over the coming decade, 16 million kilometers will be needed. “Electricity grid could prove to be the weak link in the transformation of the power sector,” the agency said.

The question of what kinds of structural changes the pandemic has wrought in energy consumption remains to be seen.

“Changes in behavior resulting from the pandemic cut both ways,” the IEA analysis said. “The longer the disruption, the more some changes that eat into oil consumption become engrained, such as working from home or avoiding air travel. However, not all the shifts in consumer behavior disadvantage oil. It benefits from a near-term aversion to public transport, the continued popularity of SUVs and the delayed replacement of older, inefficient vehicles.”

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