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What has Been the Impact of the COVID-19 Pandemic on Global Energy Consumption and Production?

Editor, TRANSFIN.
Sep 17, 2021 1:09 PM 4 min read
Editorial

For the global energy industry, 2020 was the most disruptive year since the Second World War.

  • Last year witnessed the sharpest decline in global energy demand (-4.5%) since 1945, according to BP’s Statistical Review of World Energy 2021 (link to pdf). 
  • The IEA’s Global Energy Review 2020 found that countries in full lockdown experienced an average -25% decline in energy demand per week while those in partial lockdown saw an -18% decline.
  • Primary energy consumption fell by -4.5% (“primary” = energy from raw fuels). 
  • Electricity generation climbed down by -0.9% (2020 resembled a “prolonged Sunday” i.e. like typical weekends which see lower energy consumption as some analysts put it).
  • These numbers were accompanied by steep drops in the production of oil (-6.9%), natural gas (-3.3%) and coal (-5.2%).
  • The estimates for global fossil fuel trade and energy investments were also in the red. 
  • These trends were similar across countries and regions (with China being a notable exception).

However, things at the clean energy side of the table have been largely positive. In fact, 2020 was a banner year for low-carbon sources.

  • Renewable energy generation as a whole rose by +9.7%.
  • Energy-related CO2 emissions fell dramatically through the year (-6.3%), taking emissions to 2011 levels. (Interestingly, if this rate of emission reduction could be maintained for the next 30 years, global carbon emissions would decline by around 85% by 2050...enough to achieve the Paris Climate Agreement's <2°C temperature target.)

Of course, the clearer skies and cleaner waters were not the result of a progressive policy pivot or proactive international action. They were the consequence of a global pandemic and were accompanied by the worst global economic contraction since WW2.

Across the world, while the energy industry suffered the brunt of COVID-19 and the ensuing lockdowns, the tide began turning towards the end of 2020. As lockdowns began to be lifted and consumers embraced some level of pre-pandemic normalcy, energy demand naturally climbed up. The momentum of recovery accelerated with the beginning of the global vaccination campaign. Here's the global YoY change in weekly electricity demand (source: IEA):

What has Been the Impact of the COVID-19 Pandemic on Global Energy Consumption and Production?Today, despite the uncertain nature of the pandemic, with new variants and vaccine inequality, the global energy outlook is largely positive. Demand is rising again, fuel consumption is already surpassing pre-pandemic levels in many economies, and the ongoing energy transition to clean and green sources is picking up pace.

That said, some energy sources are staring at tenuous territory. Natural gas is slated for strong growth in the near-term, but this may taper off within this decade as it is replaced by greener fuels. Nuclear's outlook is difficult to predict, given the still-unresolved public debate about its safety. Hydrogen is often pitched as the "fuel of the future", but a growing body of research is questioning its environmental credentials.

Oil, the most widely used fuel in the world, was hit the hardest by the coronavirus. Crude prices, already hurting from the Saudi-Russia price war, touched historically low levels on the back of the demand dip. By April 2020, Brent had plummeted to below $20 per barrel. WTI even went negative. The ensuing OPEC+ deal to cut production managed to stabilise prices to an extent, and in 2021 prices have climbed up. So much so that the cartel has agreed to gradually boost production.

But oil’s outlook remains negative. The governmental and organizational push towards EVs and green energy means that oil’s role atop the energy hierarchy is challenged. However, it is likely to remain a force to reckon with well into the 2050s (unless we reach peak oil well before that).

Which brings us to renewables. The pandemic was good news for the global energy transition. The share of renewables in global electricity generation jumped to 29% last year with wind and solar capacity increasing by 238 GW - 50% larger than at any time in history. Between 2015 and 2020, global wind and solar capacities doubled (+800 GW), averaging an annual increase of 18%. If such a strong pace is maintained for the current decade then, ceteris paribus, it would be in tandem with the pace required to meet even the Paris Agreement’s <1.5°C goal!

These numbers reflect the nature of such energy infrastructures - you can’t abruptly shut down a solar or wind farm the way you can an oil or gas-fired power plant. But they also highlight the significance of the revolution gripping the energy industry. Fossil fuels are on their way out. We’re headed to a brave new world of renewables and clean energy. This future is no longer a question of if, but when.

But a swift and successful green transition - one demanded by the climate crisis - is dependent on several other factors, like energy efficiency, substantial investment in new energy vectors to help decarbonise sectors, public education and incentives to encourage widespread adoption, and the build-out of carbon capture, use and storage (CCUS) technologies.

Unless such measures are adopted and implemented in earnest, the world’s best shot at avoiding climate catastrophe would involve waiting for another once-in-a-century pandemic to accelerate the energy transition. That’s hardly practical!

FIN.
 

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