McKinsey and Co.: Coronavirus to have lasting impact on energy supply
BAKU, Azerbaijan, July 6
By Leman Zeynalova – Trend:
Coronavirus pandemic will have a dramatic impact on energy supply and demand in the short term and will have lasting impacts once the pandemic dissipates, Trend reports with reference to the article published by McKinsey and Company headquartered in the US.
However, that will in itself does little to advance the world’s progress towards the Paris climate ambitions, according to the company.
The company said that energy use is strongly linked to economic activity, which has, and will continue to be, significantly impacted by the novel coronavirus pandemic.
“Before the pandemic, we predicted total global energy demand in 2050 at 456 exajoules (EJ), (Global energy demand using the latest historical figures was at 424 EJ in 2018.) Our modelling now shows that the pandemic will reduce energy demand through to 2050 by 8 percent, resulting in energy demand in 2050 at almost exactly the level it was in 2018,” reads the article.
McKinsey and Company expect that improvements in energy intensity will remain the most important factor in reducing energy demand in the coming decades, and the contraction due to COVID-19 comes on top of this.
“That is as a result of the brakes applied to an economic activity generally by the pandemic, as well as some specific sectoral impacts. Lasting changes linked to COVID-19 are mainly behavioural in nature and include the impact of the pandemic on the transport sector, especially aviation, but also on less office work and changed commuting habits, which will result in transport energy use never again reaching 2019 levels. Demand for manufactured goods globally will need almost four years to recover to 2019 levels, and the energy-intensive iron & steel industry, impacted inter alia by lower demand for new office space, may never reach its pre-pandemic heights,” reads the article.
On the face of it, this appears to be good news for decarbonization – transport remains heavily oil-dependent
and iron & steel is one of the key so-called ‘hard to abate’ sectors, relying as it does to a large degree on hydrocarbons to supply high-heat processes, said the company.
“Declining demand in these sectors is one of the main reasons for the price weakness in hydrocarbons, with widespread write-downs in oil and gas assets. It appears likely that oil has already reached a supply plateau that we forecast to occur in 2022, prior to factoring in the effects of the pandemic,” reads the article.
“It is certainly not game over for hydrocarbons, and especially not so for natural gas, which we forecast to take over from oil as the largest energy source in this decade. However, the reduced return on capital and the increased volatility in fossil fuel prices is making many investors look at these assets in the post-COVID world with a greater degree of caution; they may also now regard renewables assets more favourably, even though the pandemic is placing a temporary check on the expansion of renewable sources of energy,” said McKinsey and Company.
Renewables have first place in the merit order of the power mix due to their very low operating costs, and short design and construction times, said the company.
These assets are therefore more robust, and we predict a slightly faster recovery of the non-fossil capital expenditure in the next couple of years than will be the case for fossil energy, reads the article.
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