It’s not just oil demand that is being whacked by COVID-19 and the lockdowns imposed to slow the spread of the virus and finally eradicate it, coal, nuclear power, and electricity face an “unprecedented” slump in demand thanks to weakening economic activity according to an update by the International Energy Agency of its 2020 forecast issued last November.
A spate of growth reports this week have underlined the damage being done to demand around the world – we know China’s first-quarter GDP fell at an annual rate of 6.8%, we learned this week that US GDP dropped at an annual rate of 4.8% in the first of three estimates.
Preliminary data on eurozone growth showed the largest ever fall of 3.8% from the December quarter, the French economy contracted by 5.8%, pushing the country into a deep recession after the fall in the three months to December. Spanish GDP sank a record 5.2%.
In every case, business demand and investment fell, as did consumer demand, some by as much as more than 6% in Spain, France, and the US.
We know this has already spilled over into the oil market with the International Energy Agency (IEA) forecasting a 29 million barrels a day slump in demand for April alone.
Yesterday the IEA forecast global energy demand will fall 6% this year, the largest percentage decline in 70 years. The IEA said oil demand could drop by 9%, returning oil consumption to 2012 levels, and coal demand could decline by 8%. Global electricity demand is forecast to fall by 5%.
“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,” said Dr. Fatih Birol, the IEA Executive Director.
“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.”
The IEA projects that energy demand will fall 6% in 2020 – seven times the decline after the 2008 global financial crisis. In absolute terms, the decline is unprecedented – the equivalent of losing the entire energy demand of India, the world’s third-largest energy consumer.
“Advanced economies are expected to see the biggest declines, with demand set to fall by 9% in the United States and by 11% in the European Union,” the IEA said.
The impact of the crisis on energy demand is heavily dependent on the duration and stringency of measures to curb the spread of the virus. For instance, the IEA found that each month of worldwide lockdown at the levels seen in early April reduces annual global energy demand by about 1.5%.
Full lockdowns have pushed down electricity demand by 20% or more, with lesser impacts from partial lockdowns. Electricity demand is set to decline by 5% in 2020, the largest drop since the Great Depression in the 1930s, the IEA forecast.
“At the same time, lockdown measures are driving a major shift towards low-carbon sources of electricity including wind, solar PV, hydropower, and nuclear.
“After overtaking coal for the first time ever in 2019, low-carbon sources are set to extend their lead this year to reach 40% of global electricity generation – 6 percentage points ahead of coal. Electricity generation from wind and solar PV continues to increase in 2020, lifted by new projects that were completed in 2019 and early 2020.
“This trend is affecting demand for electricity from coal and natural gas, which are finding themselves increasingly squeezed between low overall power demand and increasing output from renewables. As a result, the combined share of gas and coal in the global power mix is set to drop by 3 percentage points in 2020 to a level not seen since 2001.”
The IEA said coal is particularly hard hit, with global demand projected to fall by 8% this year, the largest decline since the Second World War. Following its 2018 peak, coal-fired power generation is set to fall by more than 10% this year. This is for thermal and brown coal types, not the higher quality coking coals used to make steel.
“After 10 years of uninterrupted growth, natural gas demand is on track to decline by 5% in 2020. This would be the largest recorded year-on-year drop in consumption since natural gas demand developed at scale during the second half of the 20th century,” the IEA said.
In its update, the IEA said that renewables “are set to be the only energy source that will grow in 2020, with their share of global electricity generation projected to jump thanks to their priority access to grids and low operating costs.”
“This crisis has underlined the deep reliance of modern societies on reliable electricity supplies for supporting healthcare systems, businesses, and the basic amenities of daily life,” said Dr. Birol. “But nobody should take any of this for granted – greater investments and smarter policies are needed to keep electricity supplies secure.”
“Despite the resilience of renewables in electricity generation in 2020, their growth is set to be lower than in previous years. Nuclear power, another major source of low-carbon electricity, is on track to drop by 3% this year from the all-time high it reached in 2019.
“And renewables outside the power sector are faring less well. Global demand for biofuels is set to fall substantially in 2020 as restrictions on transport and travel reduce road transport fuel demand, including for blended fuels.” the IEA said.
