Governments must adopt well-designed energy policies to decide the way forward after the “disruption” caused by the Covid-19 pandemic, as consumer behaviour has barely changed despite immense public pressure to address climate change, according to the International Energy Agency (IEA).
In its flagship World Energy Outlook, released this week, the Paris-based agency said global energy demand in 2020 is set to drop by 5%, energy-related carbon dioxide emissions by 7%, and energy investment by 18%.
Coal is on its way out, oil might follow but some gas and renewables — with solar as "king" — are here to stay, the IEA said.
However, in a world that needs to recover from a pandemic and push for economic growth and job creation — all while reducing emissions — the IEA warned that the clean energy transition has to be taken “seriously”.
“Covid-19 has caused more disruption to the energy world than any other event in history... These scars will be with the energy world for many years to come,” said IEA executive director Fatih Birol.
“The duration and the severity of this pandemic is a huge uncertainty hanging over the energy world, but another one is the response of governments to the pandemic,” Birol said during a press conference presenting the outlook.
Last month, French giant Total joined fellow supermajor BP in anticipating a potential peak for oil in the coming decade, but said gas “remains key” for the energy transition.
Oil demand could plateau by 2030 or sooner, Total said, depending on the speed of the energy transition.
Earlier this summer, BP said oil demand has already peaked in two of its three main scenarios.
However, the IEA’s outlook suggests the era of global oil demand growth will come to an end in the next 10 years, only if policies support this.
“In the absence of major shifts in government policies, I don’t see clear signs of a global oil demand peak... With the economic rebound of the world, we will see oil demand rebound again — it depends on government policies,” Birol said.
In its monthly Oil Market report released on Wednesday, the IEA said global oil supply fell 600,000 barrels per day to 91.1 million bpd in September, down 8.7 million bpd on 2019, as the UAE slashed output and maintenance cut flows in the North Sea and Brazil, more than offsetting a US rebound from August’s hurricane shut-ins.
However, it warned that in the fourth quarter of this year, world supply may rise towards 92 million bpd from 91.3 million bpd in the third quarter if Libyan output continues to recover and assuming Opec+ produces to its target.
Total non-Opec supply is set to drop by 2.6 million bpd in 2020 before recovering by 400,000 bpd in 2021.
Meanwhile, global oil demand rose 3.4 million bpd month-on-month, as coronavirus restrictions eased and summer holidays in the northern hemisphere supported a rise in transport fuel demand.
However, a second wave of Covid-19 cases and new movement restrictions are now slowing demand growth.
IEA’s 2020 forecast in October is unchanged at 91.7 million bpd, down 8.4 million bpd from 2019. The 2021 forecast is also largely unchanged at 97.2 million bpd, showing a gain of 5.5 million bpd from 2020.
Have we changed our behaviours?
According to Birol, there have not been any big game-changers that could impact oil demand — travel restrictions included.
While there is less demand for aviation fuel because of the pandemic, other changes to consumer behaviour, like the increase in private cars, keep impacts “limited”.
“Rising incomes in emerging markets and developing economies create strong underlying demand for mobility, offsetting reductions in oil use elsewhere,” according to the outlook.
“Upward pressure on oil demand increasingly depends on its rising use as a feedstock in the petrochemical sector. Despite an anticipated rise in recycling rates, there is still plenty of scope for demand for plastics to rise, especially in developing economies.
“However, since oil used to make plastics is not combusted, our scenarios see a peak in total oil-related CO2 emissions,” the IEA said.
Last year, there were more than 200 million sports utility vehicles (SUVs) in world, up from 35 million in 2010.
The IEA previously noted that the growth was responsible for all of the 3.3 million barrels per day of growth in oil demand from passenger cars between 2010 and 2018.
“This year 2.5% of all cars sold in the world were electric cars compared to about 42% of all cars that were SUVs,” Birol said.
Nevertheless, putting the world on track to meet climate goals amid growing uncertainties over the coronavirus pandemic’s duration and impacts opens up many possibilities for the energy sector.
“To reach net-zero emissions, governments, energy companies, investors and citizens all need to be on board — and will all have unprecedented contributions to make... The changes that deliver the emissions reduction are far greater than many realise, and need to happen at a time when the world is trying to recover from Covid-19,” the IEA said.
According to the outlook, for any pathway to net zero, “companies will need clear, long-term strategies backed by investment commitments and measurable impact”.
Meanwhile, the finance sector will need to facilitate “a dramatic scale-up of clean technologies, aid the transitions of fossil fuel companies and energy-intensive businesses, and bring low-cost capital to the countries and communities that need it most”.
In addition, engagement and choices made by citizens will also be crucial, for example in the way they heat or cool their homes, or how they travel, the IEA said.
“Our secure and sustainable energy future is a choice — for consumers, investors and industries, but most of all, for governments,” the outlook noted.
Update includes figures on oil supply and demand from the IEA's Oil Market Report in October.