Demand for coal and natural gas has exceeded pre-COVID-19 highs with oil not far behind, dealing a setback to hopes the pandemic would spur a faster transition to clean energy from fossil fuels.
Global natural gas shortages, record gas and coal prices, a power crunch in China and a three-year high on oil prices all tell one story — demand for energy has roared back and the world still needs fossil fuels to meet most of those energy needs.
“The demand fall during the pandemic was entirely linked to governments’ decision to restrict movements and had nothing to do with the energy transition,” said Cuneyt Kazokoglu, head of oil demand analysis at FGE.
“The energy transition and decarbonization are decade-long strategies and do not happen overnight,” he added.
More than three-quarters of global energy demand is still met by fossil fuels, with less than one-fifth by non-nuclear renewables, the International Energy Agency said.
Energy transition policies have come under fire for the run-up in energy prices. In some places, they are having an impact, such as in Europe, where high carbon prices aimed at reducing emissions have made utilities reluctant to switch on coal-fired plants to alleviate the shortage.
In China, policies to reduce emissions have contributed to the government’s decision to ration energy to heavy industry.
However, much of the rise in energy prices is simply because producers took enormous amounts of capacity offline last year, when the COVID-19 pandemic led to an unprecedented fall in demand.
Producers of gas, coal and to a lesser extent, oil, have been caught flat-footed by the economic recovery, much of it sparked by government stimulus spending in energy-intensive industries.
National policies have also played a role in the power supply problems. In China, state mandated power prices mean utilities simply cannot afford to burn coal and sell the power, because the cost of coal is too high to make a profit.
Chinese utilities are producing below capacity to avoid losing money, not because they cannot produce more.
Meanwhile, most gas projects take several years to design and build, so the shortage now reflects investment decisions taken before the pandemic — and before the energy transition gathered political momentum.
IEA Executive Director Fatih Birol said energy transition policies were not to blame for the crisis.
“Well-managed clean energy transitions are a solution to the issues that we are seeing in gas and electricity markets today — not the cause of them,” Birol said in a statement.
Still, the IEA’s data show global demand for coal, the single largest source of carbon emissions, surpassed pre-pandemic levels late last year.
Global coal supplies are tight because China, responsible for about half of global output, has tightened safety regulations at mines after a spate of accidents, sapping supply.
That has left China importing more coal from Indonesia, in turn leaving less for other importers, such as India.
Global coal demand is set for a 4.5 percent increase this year, pushing beyond 2019 levels.
Global natural gas demand fell 1.9 percent last year, a smaller drop than other energy sources, as utilities cranked up power production to meet heating needs during winter.
However, the IEA projects gas demand would rise 3.2 percent this year to more than 4 trillion cubic meters, erasing last year’s losses, and pushing demand above 2019 levels.
Cold weather patterns in the northern hemisphere “caused a rise in demand for coal, liquefied natural gas [LNG], electricity and even a bit of oil [that] is here to stay,” Oslo-based consultancy Rystad Energy said.
LNG accounts for just over 10 percent of the global supply but is more readily traded globally so can be deployed more easily to cover short-term supply crunches.
“Eye-popping price spikes and their spread between summer and winter will widen, especially for gas, both natural and liquefied,” Rystad added, as prices are higher amid cold winter weather than in summer.
Last to catch up, oil demand is set to rebound toward its levels before the pandemic at above 100 million barrels per day sometime next year, four of the major tracking groups said.
High prices on oil markets are because OPEC and allied producers still have millions of barrels per day of oil production offline after they made record cuts to supply during the pandemic to match plummeting demand for transport fuel.
Producer club OPEC offers the most robust prediction for a demand rebound, putting the recovery date at the second quarter of next year.
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