Broad geopolitical trends and forces are impacting the energy sector and the clean energy transition – and vice versa – and this turbulence is occurring as the realities of climate change unfold.
During the 2023 Global Energy Forum in Paris, participants – including CGEP’s Jason Bordoff, Anne-Sophie Corbeau, Tatiana Mitrova, Philippe Benoit, and Andrew Kamau – discussed the recent global energy crisis. The Aspen Institute Energy & Environment Program (EEP) report delves deeply into these topics.
As bad as the energy crisis was in Europe, it has been felt most acutely in developing and emerging economies, many of which have struggled with high costs, energy shortages, and other impacts. Broad geopolitical trends and forces are impacting the energy sector and the clean energy transition – and vice versa – and this turbulence is occurring as the realities of climate change unfold.
Upstream oil and gas investment has not yet returned to pre-pandemic levels (though technological change, capital efficiency, and declines in demand in key markets may avoid a deficit in supply). In addition, a new clean energy economy is emerging quickly, though there is unevenness in the pace of change across geographies and in levels of investment across technologies.
The global energy crisis affected world actors in vastly different ways. In Europe, there were some initial supply disruptions and higher prices, but the European energy system proved to be more adaptable than anticipated. The crisis posed challenges for Europe’s energy transition, but it also increased Europe’s level of ambition on technologies seen as key pillars of the transition.
European energy security going forward will be enhanced by more (not less) interconnectedness and a diversified import base. As bad as the energy crisis was in Europe, it has been felt most acutely in developing and emerging economies, many of which have struggled with high costs, energy shortages, and other impacts. Some countries priced out of expensive natural gas imports are moving away from gas, while others are not, and there are countries working to increase their uptake of energy efficiency technologies and renewable energy. Developing and emerging economies that are fossil fuel producers, meanwhile, have been benefiting from the crisis, particularly Gulf state producers, which are investing a lot of capital in both clean and fossil energy. A critical issue is what is happening in fossil fuel demand. Demand projections from the Organization of the Petroleum Exporting Countries (OPEC) may be inflated.
Gas demand in Europe has declined and will not rebound because of efficiency gains and migration of industry out of the continent. Diesel demand is either peaking or has already peaked, depending on which jurisdiction one is considering. China had a brief spurt of oil demand for mobility, but looking forward, electric vehicle (EV) penetration is rising, gasoline demand is expected to peak soon, and fossil demand has been coming down rapidly. That leaves demand growth from petrochemical projects (which do not have to be based on oil) and from jet fuel. Demand from key markets does not seem to be there, and supply from non-OPEC countries looks to be higher than demand growth. Even with OPEC’s efforts, prices are relatively low because the supply-demand balance warrants it. There may be some deficit in summer, but supply may well outweigh demand by the end of the year.
That said, China’s exposure to global markets for oil and gas is not shrinking, even as its demand growth slows. China seems to be building more energy inventory than it will need, which could impact global balances of fossil and clean energy.
Looking further ahead and aggregating all the elements, fossil fuel demand is likely to peak before the end of the 2020s. Coal is projected to head downhill in the mid-2020s, gas demand is expected to plateau by the end of the decade, and oil demand is projected to flatten in the early 2030s.
/Aspen Institute, Center on Global Energy Policy/