Energy

Global demand is set to drop by 5%, investment by 20%

Global demand is set to drop by 5%, investment by 20%

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 International Energy Agency, in its World Energy Outlook (WEO) noted that global energy demand is set to drop by 5 percent in 2020, energy-related CO2 emissions by 7 percent, and energy investment by 18 percent.

This outlook explores different pathways out of the Covid-19 crisis, with a particular focus on a pivotal next ten years to 2030. “The impacts vary by fuel. The estimated falls of 8 percent in oil demand and 7 percent in coal use stand in sharp contrast to a slight rise in the contribution of renewables. The reduction in natural gas demand is around 3 percent, while global electricity demand looks set to be down by a relatively modest 2 percent for the year,” IEA said.

Global energy demand rebounds to its pre-crisis level in early 2023 in the Stated Policies Scenario (STEPS), but this is delayed until 2025 in the event of a prolonged pandemic and deeper slump, as in the Delayed Recovery Scenario (DRS).

While STEPS is the scenario in which COVID-19 is gradually brought under control in 2021 and the global economy returns to pre-crisis levels the same year, DRS is designed with the same policy assumptions as in the STEPS, but a prolonged pandemic causes lasting damage to economic prospects.

Prior to the crisis, energy demand was projected to grow by 12 percent between 2019 and 2030. Growth over this period is now 9 percent in the STEPS, and only 4 percent in the Delayed Recovery Scenario (DRS), IEA said. With demand in advanced economies on a declining trend, all of the increase comes from emerging market and developing economies, led by India.

The slower pace of energy demand growth puts downward pressure on oil and gas prices compared with pre-crisis trajectories, although the large falls in investment in 2020 also increase the possibility of future market volatility.

Lower growth in incomes cuts into construction activities and reduces purchases of new appliances and cars, with the effects on livelihoods concentrated in developing economies. In the DRS, residential floor space is 5 percent lower by 2040, 150 million fewer refrigerators are in use, and there are 50 million fewer cars on the road than in the STEPS, the WEO report noted.

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