The COVID-19 pandemic is expected to hit long-term global oil demand by 2.5 million barrels per day but this would have little material impact on the timing of peak demand for the fuel, S&P Global Platts Analytics and S&P Global Ratings said in joint research published to coincide with Climate Week NYC.
The impacts of the virus have been far-reaching in terms of drawing increased attention to climate policy and economic resilience, but huge efforts would be needed beyond renewable energy deployment and fossil fuel demand destruction in order to meet global climate protection goals, the multi-report research said Sept. 25.
“COVID-19 has reduced long-term world oil demand by 2.5 million barrels per day. That decline is, however, not enough to substantively bring forward the year of peak oil demand that S&P Global Platts Analytics projects for the late 2030s,” it said.
Under its sensitivity analysis, oil demand could peak in 2025 if policies and business and consumer behaviors change drastically, including near total adoption of working from home, reshoring of supply chains, widespread electrification of road transportation, and a halving of growth in air traffic, it said.
The pandemic’s effects will cumulatively reduce energy sector CO2 combustion emissions by 27.5 gigatons (billion mt) over 2020-2050 – equivalent to almost one full year of emissions, it said.
But this only a minor step in the direction needed to meet an international goal to limit global warming to no more than 2 degrees Celsius above pre-industrial levels, it said.
Getting on track for that objective would require greenhouse gas emissions cuts an order of magnitude larger than those caused by the virus.
“More than 10 times the emission reductions resulting from COVID-19 will be needed to meet the 2 degree target through 2050,” it said.
“A mosaic of solutions beyond just renewables and fossil fuel demand destruction will be needed. Hydrogen, carbon capture, utilization and storage, and biofuels will all likely play roles in transforming and decarbonizing the interconnected global energy system,” the research said.
S&P Global Ratings continues to expect global GDP to contract 3.8% in 2020, in line with its latest forecast in June, and worse than the 2.4% contraction forecast in April.
The magnitude and orientation of recovery and stimulus policies will shape GDP growth, but also the relative growth and type of energy consumption.
Regionally, there are stark differences in the “greenness” of stimulus packages, with the US facing a “pivotal moment” in November’s Presidential election.
“The EU is clearly skewing stimulus policies to reinforce its wider commitment to work against climate change. While US stimulus policies have been agnostic about clean energy to date, the US presidential election represents a drastic change in course if former Vice President Joe Biden wins,” S&P Global said.
China’s energy security
Meanwhile economic giant China’s new stimulus package is reliant on debt-financed infrastructure investment, which will be energy intensive to construct and to operate for decades to come.
“China also loosened restrictions on new coal-fired power plants, partly due to a greater focus on energy security, but this should also be seen alongside a recent bold commitment by President Xi for China to become carbon neutral by 2060,” it said.
Of all sources of primary energy, COVID-19 is having the greatest impact on oil so far in 2020 due to its pre-eminence as a feedstock for land, air and sea transport fuels.
However, lower global energy demand threatens natural gas more than other fuel sources over the next 10-20 years because gas is a transition fuel – squeezed between the decline in primary energy demand, the increasing penetration of renewables and the stickiness of coal demand, particularly in Asia.
“We believe the global growth outlook for renewables generally remains intact, but not all lights are green,” S&P Global said.
“Notwithstanding the increased cost competitiveness of renewables and supportive policies, we also see important headwinds: decreasing subsidies and tax credits, lower power prices, and competing traditional fossil fuels, as well as rising merchant risks and ongoing integration needs with storage,” it said.