The COVID-19 pandemic has wrought substantial changes throughout the world, driving changes to the way we work, interact with each other and how we prepare for the next pandemic.
It has brought lockdown and social distancing into our collective consciousness and just might have improved our hygiene practices for good – we hope.
COVID-19 has also caused massive disruptions to the global economy and, according to the International Energy Agency (IEA), is forging a substantially different energy industry.
It noted that with travel, trade and mobility restricted by various lockdown measures, demand for fossil fuels was falling across the board.
Indeed, the agency’s recent Global Energy Review found that the fall in energy demand this year is expected to be seven times steeper than during the 2008 global financial crisis.
Incidentally the fall in energy demand will also cut carbon emissions by a record of almost 8 per cent, though the IEA says that this will be short-lived if the aftermath of the GFC is any indication.
Thermal coal has been hit the hardest, with the IEA estimating that global demand in the first quarter of 2020 has fallen by almost 8 per cent compared with the first quarter of 2019.
This was due to China’s lockdown restrictions early in the year as it was attempting to bring the virus outbreak under control, while cheap gas and continued growth in renewable use challenged coal elsewhere.
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The IEA added that coal demand for 2020 was forecast to drop by 8 per cent as Chinese demand offset larger declines elsewhere.
Oil demand has also fallen nearly 5 per cent in the same period due to the curtailment in mobility and aviation, while gas demand was trimmed by 2 per cent as gas-based economies were not strongly affected in the first quarter.
Over the course of the year, the IEA believes that oil demand could drop by 9 per cent, returning consumption to 2012 levels, while gas demand could fall further.
Ausbil Global Resources Fund portfolio manager James Stewart says the biggest oil users, the US, China, India, Japan and Russia, have all experienced material demand destruction from the impact of COVID-19.
“As a result, some commentators are suggesting this will translate to a 35 per cent (about 35 million barrels per day) fall in oil demand in the second quarter,” he added.
Stewart also believes the recent agreement by the world’s biggest oil producers to curtail production would not be enough to halt further corrections in the market in the short-term, though it has improved the medium-term outlook for the commodity.
The big shift?
Where the big change might come is the IEA’s observation that a major shift is underway towards low-carbon sources of electricity including wind, solar, hydropower and nuclear.
The IEA says low-carbon technologies are now set to extend their lead as the largest source of global electricity generation, reaching 40 per cent of the power mix in 2020.
“This is a historic shock to the entire energy world. Amid today’s unparalleled health and economic crises, the plunge in demand for nearly all major fuels is staggering, especially for coal, oil and gas. Only renewables are holding up during the previously unheard-of slump in electricity use,” IEA executive director Dr Fatih Birol said.
“It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”
That oil supermajors Shell and BP have both left their capital spending on renewable energy largely untouched lends some credence to this stance.
However, the IEA believes that renewables will not be sufficient to put the world on track to meet climate goals and other sustainability objectives.
Rather a broad portfolio of clean energy technologies such as hydrogen and battery storage would be required to decarbonise all parts of the economy.
It noted that that clean energy stimulus packages should include both battery and electrolyser (used to extract hydrogen from water) manufacturing to take advantage of the spill-over benefits between the two technologies.
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The IEA added that both industries had the potential to create many jobs across their entire supply chains as the use of batteries and hydrogen picked up.
Energy efficiency is also expected to play a bigger role, with the IEA saying that a recent virtual meeting of ministers, political and thought leaders and business executives from Asia, Africa, Europe and the Americas had discussed its potential to create jobs and provide economic stimulus while also ensuring long-term improvements in energy systems.