The International Energy Agency (IEA) has released the World Energy Outlook 2020, its flagship annual publication. The report provides a comprehensive view of how the global energy system could develop in the coming decades under a number of scenarios.
According to the report, the pandemic has intensified uncertainties facing the oil and natural gas industry. However, the IEA’s ‘Stated Policies Scenario’ suggests a rebound in energy demand to pre-COVID levels by early 2023 if COVID is brought under control in 2021.
The Stated Policies Scenario (STEPS), which takes into account current policies by governments aimed at greenhouse gas emissions reduction, total global primary energy demand increases by nine per cent by 2030 and 19 per cent by 2040. World oil demand increases five per cent by 2030 and six per cent by 2040 — reaching 104 million barrels per day (b/d). Demand for natural gas is also strong, increasing 15 per cent by 2030 and 30 per cent by 2040 — reaching 5,221 billion cubic metres (bcm). Together, oil and natural gas meet 53 percent of global energy demand in 2040.
The IEA report also recognizes Canada as a leader in climate action and predicts strong growth in Canadian oil production and natural gas production to meet global energy security needs through 2040.
The need for stable and affordable energy was emphasized by the fact that COVID and a rise in global poverty may have resulted in 100 million people no longer being able to afford electricity. This reverses a trend in poverty reduction and energy availability, pushing people back to reliance on more inefficient and polluting sources of energy.
“IEA data shows the world reaching record levels of demand for natural gas and oil, and needing these sources of energy for decades to come,” says Tim McMillan, president and CEO, Canadian Association of Petroleum Producers (CAPP). “The 2020 report also projects record production in Canada’s upstream energy sector, which is an opportunity for our industry to provide responsibly produced natural gas and oil to world markets — but the industry must overcome challenges like market access and inefficient policies and regulations in order to attract investment and leverage the opportunity to be a global supplier of choice.”
Typically, the IEA’s World Energy Outlook (WEO) offers projections for energy demand over a 30-year period. The 2020 report retains this long-term modelling horizon but with an additional focus on the next 10 years, exploring the impacts of the pandemic on the energy sector. The analysis targets key uncertainties facing the energy sector in relation to the duration of the pandemic and its implications, while mapping out the choices that would pave the way toward a sustainable recovery.
The WEO 2020 uses four scenarios to guide projections for energy demand and production:
- Stated Policies Scenario (STEPS) assumes the pandemic is brought under control in 2021, allowing for a steady recovery in economic activity. This scenario incorporates countries’ current policies and targets, including the energy components of announced stimulus and recovery packages.
- Delayed Recovery Scenario (DRS) retains the policy assumptions of STEPS but takes a more pessimistic outlook, based on a prolonged pandemic recovery with deeper and longer-lasting impacts.
- Sustainable Development Scenario (SDS) is based on the same economic and public health outlook as STEPS, but examines what actions would be necessary to achieve long-term climate and energy access goals.
- Net Zero Emissions by 2050 case supplements the SDS analysis and includes the first detailed IEA modelling of what would be needed over the next 10 years to put global carbon dioxide (CO2) emissions on a path to net-zero by 2050.
While the STEPS scenario is the one aligned with current policies and targets, it’s worth noting that more aspirational scenarios like the SDS continue to project critical reliance on fossil fuels through to 2040. Under SDS, oil demand remains greater than 66 million b/d in 2040 — more than 10 times all the oil currently produced in Canada.
The COVID effect: lower demand, recovery uncertainties
The pandemic has introduced major new uncertainties for the energy sector. Key questions include the duration of the pandemic, the shape of the recovery, and whether energy and sustainability are built into the strategies adopted by governments to restart their economies.
The IEA’s assessment of the immediate effects of the pandemic on the world’s energy system shows an expected five-per-cent decline in global energy demand in 2020, a seven-per-cent decrease in energy-related CO2 emissions and 18-per-cent decline in energy investment. Oil consumption is anticipated to decline by eight per cent in 2020.
However, even during the height of global shutdowns the world still consumed an average of 85 million barrels per day (b/d) of petroleum and liquid fuels, which recovered to 95.3 million b/d in September 2020 even without fully opened economies and limited air travel. The EIA projects global consumption of petroleum and liquid fuels will average 92.8 million b/d for all of 2020 — down by 8.6 million b/d from 2019 — before increasing by 6.3 million b/d in 2021 to approach 100 million b/d.
Other impacts: progress toward universal access to electricity and clean cooking fuels and facilities risks being slowed or reversed, notably in sub-Saharan Africa. While many major economies are set for an extended period of very low borrowing costs, access to finance in many developing economies could be more constrained, especially in the DRS, complicating the outlook for energy investment.
Global oil and natural gas demand
According to this year’s STEPS scenario, oil demand recovers from its historic drop in 2020, edging ahead of pre-crisis levels by 2023. Compared to the same projection in 2019, demand is two million b/d lower in 2030 and plateaus thereafter. Vehicle turnover slows in 2020 but sales of electric vehicles remain resilient. While road transport accounted for 60 per cent of oil demand growth in the past decade, petrochemicals account for 60 per cent of oil’s projected growth in the next decade. The dramatic changes in consumer behaviour in 2020 have a limited overall effect on oil demand in the long run, although aviation takes a while to recover to pre-crisis levels.
Natural gas recovers quickly from a drop in demand in 2020. Demand rebounds by almost three per cent in 2021, then rises to 14 per cent above 2019 levels by 2030, with growth concentrated in Asia. In established markets, coal-to-gas switching is largely exhausted by the mid-2020s, after which growth prospects for natural gas may decline as a result of several factors such as increasing competition from renewables, efficiency gains, and improving demand for alternative low-carbon gases, including hydrogen.