IEA warns of slowest decade of energy demand growth since 1930s
Global body says delayed recovery will leave ‘deep scars’ into the 2030s
A prolonged battle with the pandemic and a weaker global economy will usher in the slowest decade of worldwide energy demand growth since the 1930s, the International Energy Agency said on Tuesday.
“The Covid-19 pandemic has caused more disruption to the energy sector than any other event in recent history, leaving impacts that will be felt for years to come,” the Paris-based body said in its long-term outlook
In its “stated policies” or base-case scenario, which assumes coronavirus is controlled and the global economy returns to pre-pandemic levels in 2021, consumption rebounds to its pre-crisis level in early 2023.
Yet government officials and business executives increasingly warn of the persistent effects of the virus. The IEA acknowledged that “hopes for a rapid halt to the global spread of the coronavirus and its economic fallout have dissipated”.
In the IEA’s “delayed recovery” scenario, energy demand does not return to pre-pandemic levels until at least 2025, after which the impact of the virus continues to be felt for years to come.
“Much of the damage sustained during a decade of subdued recovery from the pandemic leaves deep scars in the 2030s,” the IEA said in the report, which is published annually. “The longer-term energy impacts of a delayed recovery from Covid-19 are still visible in 2040.”
Before the crisis, energy demand — across oil, gas, coal and renewables — was projected to grow by 12 per cent between 2019 and 2030. Growth over this period weakens to 9 per cent in the base-case scenario, and 4 per cent in the delayed recovery model.
The latter scenario implies further outbreaks of coronavirus and government measures to curb the spread. It also assumes that longer-term economic growth is “impaired” and that there are lasting changes in consumer behaviour.
“A prolonged recovery means a permanent downward revision to energy production and consumption for most regions,” the IEA added.
Coal takes the largest hit. Oil and natural gas eventually return to growth, but the recovery in oil demand takes until 2027, after which global consumption levels out at just under 100m b/d — roughly in line with 2019 consumption levels.
“We think the era of global oil demand growth will come to an end in the next 10 years,” Fatih Birol, head of the IEA, told the Financial Times. The energy body had previously said oil demand would level out in the mid-2030s.
Demand stemming from the transport sector would bear the brunt of the initial shock from coronavirus, said the IEA, adding that long-haul travel — particularly aviation — faced longer-term distress. Power generation and industrial energy use would also suffer “lasting damage” in a prolonged recovery.
Opec producer nations expect oil demand to keep growing for the next two decades, in contrast to a growing proportion of the energy sector that believes a peak in consumption is nearing.
Oil major BP has modelled three scenarios that all suggest oil demand will fall over the next 30 years. Two of them imply consumption will never fully recover to pre-pandemic levels.
In the IEA’s delayed recovery scenario, alongside lower than anticipated demand, prices are expected to remain volatile. This, the energy body said, would increase the economic and social pressures on big producer countries that relied on hydrocarbon revenues.
Despite weaker energy demand that is expected to lead to a drop in carbon dioxide emissions, this was still “far from sufficient” to meet the Paris climate goals of limiting temperature rises to well below 2C, the IEA added.