BP: Global Humanitarian Crisis

Statistical Review Of World Energy 2021.

Since it was first published in 1952, the Statistical Review has provided a constant source of objective, comprehensive – and, most importantly – trusted data to help industry, governments and commentators make sense of developments in global energy markets. “This is the 70th anniversary of the bp Statistical Review – something we are incredibly proud of. Over those 70 years, the Statistical Review has borne witness to some of the most dramatic episodes in the history of the global energy system: the Suez Canal crisis in 1956; the oil embargo of 1973, soon followed by the Iranian revolution in 1979; more recently, the Fukushima disaster in 2011. All moments of great turmoil in global energy. But all pale in comparison to the events of last year” – Spencer Dale, bp’s chief economist said. 

2020 was one of the most tumultuous years for global energy in modern history. COVID-19 has brought an unprecedented humanitarian crisis and, at the same time, has had a massive impact on the global economy. With energy demand so closely linked to human activity, this sector has been one of the hardest hit by the effects of the pandemic. “Most importantly, the pandemic that engulfed the world last year is a humanitarian tragedy. As of last week, around 4 million people were reported to have died as a result of COVID-19. The true number is likely to be far higher, and it continues to rise. The pandemic also led to huge economic loss” – Spencer Dale said.

Global GDP is estimated to have fallen by over 3.5% last year – the largest peacetime recession since the Great Depression. The IMF estimate that around 100 million people have been pushed into poverty as a result of the virus. And the economic scarring from the pandemic – especially for the world’s poorest and least-developed economies – is expected to persist for many years after the virus is brought under control. “Long COVID can take many different forms. For the global energy system, the combination of the pandemic, together with efforts to mitigate its impact, led to developments and outturns unmatched in modern peacetime. For energy, 2020 was a year like no other” – Spencer Dale noted.

 The headline numbers are dramatic: world energy demand is estimated to have fallen by 4.5% and global carbon emissions from energy use by 6.3%. These falls are huge by historical standards – the largest falls in both energy demand and carbon emissions since WWII. Indeed, the fall of over 2 Gt of CO2 means that carbon emissions last year were back to levels last seen in 2011. 

From a historical perspective, the falls in energy demand and carbon emissions are obviously dramatic. But from a forward-looking perspective, the rate of decline in carbon emissions observed last year is similar to what the world needs to average each and every year for the next 30 years to be on track to meet the Paris climate goals. Put more concretely, if carbon emissions declined at the same average rate as last year for the next 30 years, global carbon emissions would decline by around 85% by 2050. 

 The lockdowns detracted from oil demand in a completely different way to a normal economic downturn, crushing transport-related demand.  Mobility metrics fell across the board. Use of jet fuel and kerosene is estimated to have plunged by 40% (3.2 Mb/d) as aviation across much of the world was grounded. Similarly, gasoline demand fell by around 13% (3.1 Mb/d) as road mobility measures crashed. In contrast, products most closely related to the petrochemicals sector (naphtha, ethane and LPG) were broadly flat, supported in part by increasing demand for PPE and other medical- and hygiene-related supplies.

 In comparison, natural gas showed far greater resilience. Gas demand is estimated to have fallen by 2.3% (81 Bcm) in 2020, a broadly similar decline to that seen in 2009 in the aftermath of the financial crisis. Consumption fell in most regions, with the notable exception of China, where gas demand grew by almost 7%. The relative immunity of natural gas was helped by sharp falls in gas prices, which allowed gas generation to gain share in the US power market and hold its own in the EU. 

The gas-on-gas competition in Europe takes the form of pipeline imports – predominantly from Russia – competing against LNG imports – largely from the US as the marginal source of LNG. As LNG imports have increased in recent years it has raised the question of the extent to which Russia and other pipeline gas exporters will compete against LNG to maintain their market share or instead forgo some of that share to avoid driving prices too low. US LNG exports still increased by around 30% in 2020 helped by three new LNG trains coming on stream and several others ramping up. But had it not been for the cancelling of cargoes, the growth in US exports would have been closer to 80%.

This issue could become more acute in a transition, in which Europe moves away from natural gas and competition between different gas supplies intensifies. Although there is lots of complicating detail, it appears that Russian exporters were prepared to forgo some market share last year. Pipeline imports from Russia as a share of European gas demand fell from 35% in 2019 to 31% in 2020, with much of the reduction happening in the first half of last year. Some of that reduction initially reflected the record storage levels which had been built up towards the end of 2019. But Russian volumes remained low through the second quarter when the impact of the pandemic on European gas demand was at its height.  In contrast, LNG imports were up year-on-year in the first half of 2020 and their share of European demand for the year as a whole was broadly unchanged at 21%. However, as to whether this provides a guide to the future behaviour of Russian pipeline exports is less clear.

Electricity consumption is estimated to have experienced the smallest fall across the main components of final energy demand, declining by just 0.9% in 2020. The relative resilience of electricity usage was aided by the nature of the lockdowns, with falling power demand in industry and commercial buildings partially offset by increased domestic use by home-based workers and locked-down families. The relative resilience of overall power generation disguises a more significant shift in the generation mix. In particular, despite the fall in overall power demand, generation from renewables (wind, solar, bioenergy and geothermal energy, and excluding hydroelectricity) recorded its largest ever increase (358 TWh). This growth was driven by strong increases in both wind (173 TWh) and solar (148 TWh) generation. 

Encouragingly, the share of renewables in global generation recorded its fastest ever increase. That continues the strong growth seen in recent years. Over the past five years, renewable generation has accounted for around 60% of the growth in global power generation, with wind and solar power more than doubling. “But it’s important to remember this pace of progress on renewable energy needs to be matched by the many other dimensions of the energy transition energy efficiency; the growth of new energy vectors, such as hydrogen, to help decarbonize hard-to-abate sectors; and the build-out of carbon capture use and storage (CCUS)” – Spencer Dale, bp’s chief economist said. 

Despite the huge disruptions associated with the global pandemic and the collapse in GDP, wind and solar capacity increased by a colossal 238 GW in 2020 – 50% larger than at any time in history. The main driver was China, which accounted for roughly half of the global increase in wind and solar capacity. The expansion in Chinese wind capacity (72 GW) is particularly striking and it’s likely that some of the reported increase reflects various changes to Chinese subsidy and accounting practices.

Wind and solar capacity more than doubled between 2015 and 2020, increasing by around 800 GW, which equates to an average annual increase of 18%. The costs of onshore wind and solar power have fallen by around 40% and 55% respectively over the past five years.

The number of people without access to electricity has fallen from close to 1 billion in 2015, to a little over 750 million by 2019. Around 10% of the world’s population, down from 15% in 2015. The improvements have been uneven, with three-quarters of the global population without access to electricity situated in sub-Saharan Africa. Moreover, the impact of COVID has reversed some of that progress. The World Bank estimate that the pandemic has made basic electricity services unaffordable for 30 million more people, the first time the number of people without access to electricity has increased for six years. Importantly, the Energy for Growth Hub estimates that more than 3.5 billion people – close to half the world’s population – are living below the Modern Energy Minimum. Half the world’s population…

One manifestation of those changing societal expectations is the explosion in ESG-related investments. Inflows into ESG-related funds have increased from less than $30 billion in 2015 to over $330 billion in 2020 – an 11-fold increase in just five-years. Despite the substantial increase in net zero aims and intentions at national and regional levels, the UN NDC Synthesis Report, published last December, concluded that ‘the current levels of climate ambition are not on track to meet our Paris Agreement goals’.