The world’s demand for fossil fuels has plunged amid the coronavirus lockdown and many energy economists believe it may fail to recover from the crisis. In a recent article published in Forbes magazine, it’s mentioned that the fossil fuel industry has faced serious headwinds for several years, but the rise of renewables combined with the fall in consumption as a consequence of the global COVID-19 pandemic is pushing it over the edge and into “terminal decline”.
In the US, more energy was consumed from renewables than from coal for the first time ever this year. According to the 2020 BP Statistical Review of World Energy, U.S. coal consumption fell by more than 40% in the past decade, while in the EU it has seen a nearly 27% drop. By contrast, only a decade ago, almost half of US electricity came from coal.
The primary culprits behind coal’s decline are competition from cheap natural gas brought on by the shale gas boom in the U.S., as well as a surge of renewable capacity aided by legislation aimed at curbing carbon dioxide emissions. In less than 10 weeks, the USA increased its renewable energy consumption by nearly 40% and India by 45%. Italy, Germany, and Spain set new records for variable renewable energy integration to the grid.
Victims of Their Own Success
But the natural gas and subsequent oil boom were victims of their own success. The fact is that renewables are now often cheaper to build than new coal, and every year they are getting cheaper. The coal industry has suffered immense financial stress over the past decade, the same holds true for the oil and gas industry. Falling costs of production and a pipeline of new renewable energy projects will see the sector increase its share of electricity generation throughout the year, says the International Energy Agency IEA. Nevertheless, it seemed likely that fossil fuels would suffer another decade of dominance before renewables and electric vehicles combined to put them into permanent decline.
Covid-19 Rapidly Changed the Outlook
The industry look has changed amid COVID-19. In the early stage of pandemic, China’s business activity had slowed dramatically with the spread of coronavirus. This slowdown had a negative impact on fossil fuel demand. As COVID-19 spread to other countries and quarantines were implemented, power demand fell as businesses closed and people stopped travelling or commuting. Global oil supply has declined to its lowest level in nine years due to massive production cuts by OPEC nations. It fell by as much as 30 million BPD, followed by gas and coal demand including liquefied natural gas (LNG).
Further, the investment climate for fossil fuels will continue to worsen over time as the move toward green energy may gain momentum as the COVID-19 threat fades.
A Place for Nuclear Power
However, existing infrastructure of fossil fuels will create some headwinds for renewables, as well as nuclear power, the backbone of low-carbon electricity generation. The industry will hardly give up its primacy without a fight. Five years ago, to reduce its dependence on Russian fuel, Lithuania built a liquefied natural gas terminal. However, the Klaipėda terminal was never profitable and to curb its losses, Klaipėda now receives LNG cargoes from Russia too. Part of the problem is that the LNG market price was already depressed before the COVID-19 crisis.
The decision to bank on LNG under these circumstances is seen as one of the factors leading Lithuania to campaign against a nuclear power plant in Astravets in neighboring Belarus. Furthermore, Lithuania is aggressively lobbying Brussels and other capitals in the region for a full boycott of electricity imports from Belarus. If implemented, this could lead to millions of additional CO2 emissions in the region.
The New Energy Order?
The International Energy Agency estimates that in order to meet the world’s sustainability targets, the current rate of nuclear capacity additions, which is about 10-12 gigawatts of electricity per year, must at least be doubled. With the current crisis impacting the fossil fuel sector, capital budgets are being slashed. It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before. But it’s important to focus on the overall system performance and ensure that the transition to a low carbon future is sustainable itself.
