By John Plassard, senior investment specialist at Mirabaud Group
To say here that “life was good” during the COVID-19 crisis would be shocking, even provocative.
However, it is true that during the pandemic CO2 emissions reached an “all-time” low. That has changed since, however, and travel has resumed at a rate equal to or greater than 2019. As a direct result, the unthinkable is set to happen next year: global demand for fossil fuels is (unfortunately) set to hit a record high in 2024.
- The facts
Emissions of carbon dioxide and other greenhouse gases fell by 4.6% in 2020, as the shutdown in the first half of the year restricted global mobility and hampered economic activity. Global fossil CO2 emissions then rose by 5.3% in 2021 compared to 2020, almost reaching pre-pandemic levels in 2019. Many hoped that this would mark the beginning of a more sustained reduction in emissions.
- New record demand on the horizon
According to a brand-new study just published by the Economist Intelligence Unit, global energy consumption will increase by 1.8% in 2024, driven largely by strong demand in Asia. Despite still-high prices and unresolved supply chain disruptions, demand for fossil fuels will reach record levels. According to the report, oil demand alone is expected to grow by 1.7% next year. Demand for natural gas is expected to grow by 2.2%, driven by Asia and the Middle East, while Europe will continue to see its demand fall as it seeks to save gas and energy.
Renewable capacity additions are expected to reach a record high this year, at around 400 gigawatts (GW), and will continue to rise in 2024, according to the report.
World oil demand is set to rise by 2.4 million barrels per day (bpd) to a new record this year and a further 2.2 million bpd next year thanks to an improving Chinese economy, OPEC said in its latest monthly report earlier in October, leaving its demand forecasts for 2023 and 2024 unchanged despite fears of slowing economies and demand destruction.
World oil demand is expected to reach a record average of 102.1 million bpd in 2023, driven by a 2.3 million bpd increase in demand in the non-OECD region, OPEC noted. Global demand for coal is also set to remain at a record high this year, according to the International Energy Agency (IEA) earlier this year.
- Demand for LNG in Europe is set to “explode”
According to preliminary estimates from LSEG, given the expected increase in demand at the start of the heating season, LNG (liquefied natural gas) imports into north-west Europe are set to rise by 30% in November compared with October.
With winter heating demand starting to pick up, LNG imports are expected to rise significantly in November, although they will be lower than in the same month in 2022, when Europe was scrambling to get its hands on LNG cargoes to replace Russian pipeline gas.
This month, north-western Europe is expected to import around 243 mcm/day, destined for the Netherlands, France, Germany and the UK, according to LSEG projections.
“The heating demand kicks in and there are forecasts of colder weather”, Wayne Bryan, European Gas Manager at LSEG, told Montel.
The weather, and weather forecasts, from November onwards will be the driving force behind LNG imports into Europe, and also the biggest unknowns for gas consumption in Europe this winter. Europe has reduced its gas consumption over the past year, thanks to energy savings and lower industrial demand due to high prices and demand destruction. Gas demand in the EU will be 12% lower in 2022 than the 2019-2021 average, due to lower demand for industrial and domestic gas, wrote researchers at the Brussels-based Bruegel think tank earlier this month.
- US production also at a new record high
There is record demand, but there is also record production. According to new data from the EIA, US crude oil production reached 404.6 million barrels in August, an average of 13.05 million barrels a day, beating the previous record set by US drillers in July, which was 401.73 million barrels.
Compared with the same period last year, US production rose by 33 million barrels for the month. It is remarkable that production has reached unprecedented levels at a time when the number of US rotary oil rigs has plummeted over the past year.
One reason for this is that US supply has grown faster than expected. According to Goldman Sachs, US liquids supply is on track to exceed IEA expectations for the 13th consecutive year, except for 2016 and 2020. That said, forecast errors for 2022 and 2023 are likely to be smaller than before the pandemic, and total US liquids supply has remained roughly stable since June.
In addition, the United States remains the main marginal producer of oil in the short term, where flexible short-cycle private producers are at the top of the world cost curve.
- Any hope on the horizon?
2024 may well be remembered as a pivotal moment in China’s fight against climate change. In its annual World Energy Outlook report, published recently, the IEA forecasts that China’s consumption of fossil fuels will peak next year and begin to decline in 2025.
“We are at the turning point for China’s energy future”, said Laura Cozzi, Director of Sustainability, Technology and Outlook at the IEA, who co-led the project.
China is responsible for almost a third of annual carbon dioxide emissions in recent years, so a turning point for China is also a turning point for the world. The IEA predicts that China’s fossil fuel peak in 2024 will be followed by a peak in its carbon emissions the following year, allowing global emissions to peak at around the same time.
The IEA’s projections are based on the fate of coal, China’s biggest energy source. The IEA predicts that natural gas consumption in China will probably continue to rise until 2040, and that oil consumption will also increase for a few more years, but that coal will quickly reach its peak.
This is the trajectory that would lead to the global peak in the use of fossil fuels in 2024.
- Conclusion
The expected record global demand for fossil fuels in 2024 is a tragedy for our planet. However, there is a light at the end of the tunnel, and it comes from the world’s biggest coal consumer: China. The country’s use of coal should start to decline over the next few years. This inflection point (which has been expected for many years) could bring a little hope regarding future CO2 emissions…
