Salon - Michael T. Klare
Energy in a post-pandemic world
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Pump jacks are seen on the Bakken Shale Formation, near Williston, North Dakota, September 6, 2016. (Robyn Beck/AFP/Getty Images)
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Energy analysts have long assumed that, given time, growing
international concern over climate change would result in a vast
restructuring of the global energy enterprise. The result: a greener,
less climate-degrading system. In this future, fossil fuels would be
overtaken by renewables, while oil, gas, and coal would be relegated to
an increasingly marginal role in the global energy equation.
In its
World Energy Outlook 2019, for
example, the International Energy Agency (IEA) predicted that, by 2040,
renewables would finally supersede petroleum as the planet's number one
source of energy and coal would largely disappear from the fuel mix. As
a result of Covid-19, however, we may no longer have to wait another 20
years for such a cosmic transition to occur — it's happening right now.
So take a breath and, amid all the bad news pouring in about a deadly
global pandemic, consider this: when it comes to energy, what was
expected to take at least two decades in the IEA's most optimistic
scenario may now occur in just a few years. It turns out that the impact
of Covid-19 is reshaping the world energy equation, along with so much
else, in unexpected ways.
That energy would be strongly affected by the pandemic should come as
no surprise. After all, fuel use is closely aligned with economic
activity and Covid-19 has shut down much of the world economy. With
factories, offices, and other businesses closed or barely functioning,
there's naturally less demand for energy of all types. But the impacts
of the pandemic go far beyond that, as our principal coping mechanisms
— social distancing and stay-at-home requirements — have particular
implications for energy consumption.
Among the first and most dramatic of these has been a shockingly deep
decline in flying, automobile commuting, and leisure travel
' activities that account for a large share of daily petroleum use.
Airline travel in the United States, for example, is
down by 95% from
a year ago. At the same time, the personal consumption of electricity
for telework, distance learning, group conversations, and entertainment
has soared. In hard-hit Italy, for instance, Microsoft
reports that the use of its cloud services for team meetings — a voracious consumer of electricity — has increased by 775%.
These are all meant to be temporary responses to the pandemic. As
government officials and their scientific advisers begin to talk about
returning to some semblance of "normalcy," however, it's becoming
increasingly clear that many such pandemic-related practices will
persist in some fashion for a long time to come and, in some cases, may
prove permanent.
Social distancing is likely to remain the norm in
public spaces for many months, if not years, curtailing attendance at
theme parks and
major sports events that
also typically involve lots of driving. Many of us are also becoming
more accustomed to working from home and may be in no rush to resume a
harried 30-, 60-, or 90-minute commute to work each day. Some colleges
and universities, already under financial pressure of various sorts,
may
abandon in-person classes for many subjects and rely far more on distance learning.
No matter how this pandemic finally plays out, the post-Covid-19
world is bound to have a very different look from the pre-pandemic one
and energy use is likely to be among the areas most affected by the
transformations underway. It would be distinctly premature to make
sweeping predictions about the energy profile of a post-coronavirus
planet, but one thing certainly seems possible: the grand transition,
crucial for averting the worst outcomes of climate change and originally
projected to occur decades from now, could end up happening
significantly more swiftly, even if at the price of widespread
bankruptcies and prolonged unemployment for millions.
Oil's dominance in jeopardy
As 2019 drew to a close, most energy analysts assumed that petroleum
would continue to dominate the global landscape through the 2020s, as it
had in recent decades, resulting in ever greater amounts of carbon
emissions being sent into the atmosphere. For example, in its
International Energy Outlook 2019, the Energy Information Administration (EIA) of the U.S. Department of Energy
projected that
global petroleum use in 2020 would amount to 102.2 million barrels per
day.
That would be up 1.1 million barrels from 2019 and represent the
second year in a row in which global consumption would have exceeded the
notable threshold of 100 million barrels per day. Grimly enough, the
EIA further projected that world demand would continue to climb,
reaching 104 million barrels per day by 2025 and 106 million barrels in
2030.
In arriving at such projections, energy analysts assumed that the
factors responsible for driving petroleum use upward in recent years
would persist well into the future: growing automobile ownership in
China, India, and other developing nations; ever-increasing commutes as
soaring real-estate prices forced people to live ever farther from city
centers; and an exponential increase in airline travel, especially in
Asia.
Such factors, it was widely assumed, would more than compensate
for any drop in demand caused by a greater preference for electric cars
in Europe and a few other places. As
suggested by oil giant BP in its
Energy Outlook for
2019, "All of the demand growth comes from developing economies, driven
by the burgeoning middle class in developing Asian economies."
Even in January, as the coronavirus began to spread from China to
other countries, energy analysts imagined little change in such
predictions. Reporting "continued strong momentum" in oil use among the
major developing economies, the IEA typically
reaffirmed its belief that global consumption would grow by more than one million barrels daily in 2020.
Only now has that agency begun to change its tune. In its most recent
Oil Market Report, it
projected that
global petroleum consumption in April would fall by an astonishing 29
million barrels per day compared to the same month the previous year.
That drop, by the way, is the equivalent of total 2019 oil usage by the
United States, Canada, and Mexico.
Still, the IEA analysts assumed that
all of this would just be a passing phenomenon. In that same report, it
also predicted that global economic activity would rebound in the second
half of this year and, by December, oil usage would already be within a
few million barrels of pre-coronavirus consumption levels.
Other indicators, however, suggest that such rosy predictions will
prove highly fanciful. The likelihood that oil consumption will approach
2018 or 2019 levels by year's end or even in early 2021 now appears
remarkably unrealistic. It is, in fact, doubtful that those earlier
projections about sustained future growth in the demand for oil will
ever materialize.
A shattered world economy
As a start, a return to pre-Covid-19 consumption levels assumes a
reasonably rapid restoration of the world economy as it was, with Asia
taking the lead. At this moment, however, there's no evidence that such
an outcome is likely.
In its April
World Economic Outlook report, the International Monetary Fund
predicted that
global economic output would fall by 3% in 2020 (which may prove a
distinct underestimate) and that the pandemic's harsh impacts, including
widespread unemployment and business failures, will persist well into
2021 or beyond.
All told, it suggested, the cumulative loss to global
gross domestic product in 2020 and 2021, thanks to the pandemic, will
amount to some $9 trillion, a sum greater than the economies of Japan
and Germany combined (and that assumes the coronavirus will not come
back yet more fiercely in late 2020 or 2021, as the "
Spanish Flu" did in 1918).
This and other recent data suggest that any notion China, India, and
other developing nations will soon resume their upward oil-consumption
trajectory and save the global petroleum industry appears wildly
far-fetched. Indeed, on April 17th, China's National Bureau of
Statistics
reported that
the country's GDP shrank by 6.8% in the first three months of 2020, the
first such decline in 40 years and a staggering blow to that country's
growth model.
Even though government officials are slowly opening
factories and other key businesses again, most observers
believe that
spurring significant growth will prove exceedingly difficult given that
Chinese consumers, traumatized by the pandemic and accompanying
lockdown measures, seem loath to make new purchases or engage in travel,
tourism, and the like.
And keep in mind that a slowdown in China will have staggering
consequences for the economies of numerous other developing nations that
rely on that country's tourism or its imports of their oil, copper,
iron ore, and other raw materials. China, after all, is the leading
destination for the exports of many Asian, African, and Latin American
countries. With Chinese factories closed or operating at a reduced
tempo, the demand for their products has already plummeted, causing
widespread economic hardship for their populations.
Add all this up, along with a rising tide of unemployment in the
United States and elsewhere, and it would appear that the possibility of
global oil consumption returning to pre-pandemic levels any time soon
— or even at all — is modest at best. Indeed, the major oil-exporting
nations have evidently reached this conclusion on their own, as
demonstrated by the extraordinary April 12th
agreement that
the Saudis, the Russians, and other major exporting countries reached
to cut global production by nearly 10 million barrels per day.
It was a
desperate bid to bolster oil prices, which had fallen by
more than 50% since the beginning of the year. And keep in mind that even this reduction — unprecedented in scale — is
unlikely to prevent a further decline in those prices, as oil purchases continue to fall and fall again.
Doing things differently
Energy analysts are likely to argue that, while the downturn will
undoubtedly last longer than the IEA's optimistic forecast, sooner or
later petroleum use will return to its earlier patterns, once again
cresting at the 100-million-barrels-per-day level. But this appears
highly unlikely, given the way the pandemic is reshaping the global
economy and everyday human behavior.
After all, IEA and oil-industry forecasts assume a fully
interconnected world in which the sort of dynamic growth we've come to
expect from Asia in the twenty-first century will sooner or later fuel
economic vigor globally. Extended supply lines will once again carry raw
materials and other inputs to China's factories, while Chinese parts
and finished products will be transported to markets on every continent.
But whether or not that country's economy starts to grow again, such a
globalized economic model is unlikely to remain the prevailing one in
the post-pandemic era. Many countries and companies are, in fact,
beginning to restructure their supply lines to avoid a full-scale
reliance on foreign suppliers by seeking alternatives closer to home — a
trend likely to persist after pandemic-related restrictions are lifted
(especially in a world in which Trumpian-style "nationalism" still seems
to be on the rise).
"There will be a rethink of how much any country wants to be reliant on any other country,"
suggests the
aptly named Elizabeth Economy, a senior fellow at the Council on
Foreign Relations. "I don't think fundamentally this is the end of
globalization. But this does accelerate the type of thinking that has
been going on in the Trump administration, that there are critical
technologies, critical resources, reserve manufacturing capacity that we
want here in the U.S. in case of crisis."
Other countries are bound to begin planning along similar lines,
leading to a significant decline in transcontinental commerce. Local and
regional trade will, of course, have to increase to make up for this
decline, but the net impact on petroleum demand is likely to be negative
as long-distance trade and travel diminishes. For China and other
rising Asian powers, this could also mean a slower growth rate,
squeezing those "burgeoning middle classes" that were, in turn, expected
to be the major local drivers (quite literally, in the case of the car
cultures in those countries) of petroleum consumption.
A shift toward electricity — and a greater reliance on renewables
Another trend the coronavirus is likely to accelerate: greater
reliance on telework by corporations, governments, universities, and
other institutions. Even before the pandemic broke out, many companies
and organizations were beginning to rely more on teleconferencing and
work-from-home operations to reduce travel costs, commuting headaches,
and even, in some cases, greenhouse gas emissions. In our new world, the
use of these techniques is likely to become far more common.
"The COVID-19 pandemic is, among other things, a massive experiment in telecommuting,"
observed Katherine
Guyot and Isabel Sawhill of the Brookings Institution in a recent
report. "Up to half of American workers are currently working from home,
more than double the fraction who worked from home (at least
occasionally) in 2017-2018."
Many such workers, they also noted, had been largely unfamiliar with
telecommuting technology when this grand experiment began, but have
quickly mastered the necessary skills. Given little choice in the
matter, high school and college students are also becoming more adept at
telework as their schools shift to remote learning. Meanwhile,
companies and colleges are investing massively in the necessary hardware
and software for such communications and teaching. As a result, Guyot
and Sawhill suggest, "The outbreak is accelerating the trend toward
telecommuting, possibly for the long term."
Any large increase in teleworking is bound to have a dramatic dual
impact on energy use: people will drive less, reducing their oil
consumption, while relying more on teleconferencing and cloud computing,
and so increasing their use of electricity. "The coronavirus reminds us
that electricity is more indispensable than ever,"
says Fatih
Birol, executive director of the IEA. "Millions of people are now
confined to their homes, resorting to teleworking to do their jobs."
Increased reliance on electricity, in turn, will have a significant
impact on the very nature of primary fuel consumption, as coal begins to
lose its dominant role in the generation of electrical power and is
replaced at an ever-accellerating pace by renewables. In 2018, according
to the IEA's
World Energy Outlook 2019, a distressing 38% of
world electricity generation was still provided by coal, another 26% by
oil and natural gas, and only 26% by renewables; the remaining 10% came
from nuclear and other sources of energy.
This was expected to change
dramatically over time as climate-conscious policies began to have a
significant impact — but, even in the IEA's most hopeful scenarios, it
was only after 2030 that renewables would reach the 50% level in
electricity generation. With Covid-19, however, that process is now
likely to speed up, as power utilities adjust to the global economic
slowdown and seek to minimize their costs.
With many businesses shut down, net electricity use in the United States has
actually declined somewhat
in these months — although not nearly as much as the drop in petroleum
use, given the way home electricity consumption has compensated for a
plunge in business demand. As utilities adapt to this challenging
environment, they are finding that wind and solar power are often the
least costly sources of primary energy, with natural gas just behind
them and coal the most expensive of all.
Insofar as they are investing
in the future, then, they appear to be
favoring large
solar and wind projects, which can, in fact, be brought online
relatively quickly, assuring needed revenue. New natural gas plants take
longer to install and coal offers no advantages whatsoever.
In the depths of global disaster, it's way too early to make detailed
predictions about the energy landscape of future decades. Nonetheless,
it does appear that the present still-raging pandemic is forcing
dramatic shifts in
the way we consume energy and that many of these changes are likely to
persist in some fashion long after the virus has been tamed.
Given the
already extreme nature of the
heating of
this planet, such shifts are likely to prove catastrophic for the oil
and coal industries but beneficial for the environment — and so for the
rest of us. Deadly, disruptive, and economically devastating as Covid-19
has proved to be, in retrospect it may turn out to have had at least
this one silver lining.
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