Skip to main content

Editorial comment

The International Energy Agency’s (IEA) annual ‘World Energy Outlook’ (WEO) always makes for an interesting read, but this year’s report is particularly fascinating given the tumultuous events of the past year. The WEO-2020 focuses on the next 10 years, and explores in detail the impacts of the COVID-19 pandemic on the energy sector, and the near-term actions that could accelerate clean energy transitions.1

Register for free »
Get started now for absolutely FREE, no credit card required.

The IEA notes a drop in global energy demand by 5% in 2020, energy-related CO2 emissions by 7%, and energy investment by 18%. The results vary by fuel, with falls in demand for both oil (approximately 8%) and natural gas (3%), while there has been a slight rise in the use of renewables. All this has contributed to annual CO2 emissions falling to levels last seen a decade ago. However, the report is quick to warn that it is too soon to evaluate whether the global pandemic will be a catalyst for accelerating the transition to a more sustainable energy system, or whether it will ultimately represent a setback.

Interestingly, the WEO notes that the pandemic creates a double-edged sword for the oil sector: “The longer the disruption, the more some changes that eat into oil consumption become engrained, such as working from home or avoiding air travel.” However, oil will benefit from “a near-term aversion to public transport, the continued popularity of SUVs and the delayed replacement of older, inefficient vehicles.” The outlook also notes that upward pressure on oil demand will increasingly depend on its rising use as a feedstock in the petrochemicals sector over the next 10 years.

This view seems to be shared by a number of experts at Wood Mackenzie. Speaking recently at the company’s 2020 Energy and Commodities Summit Asia Pacific edition, Research Analyst Qiaoling Chen said: “In the long run, global GDP might not return to pre-crisis levels and this causes a permanent loss in jet fuel and diesel/gasoil demand through to 2040.” Wood Mackenzie estimates that transport demand will decline by more than 7 million bpd this year. However, Chen notes that the petrochemical sector has shown resilience during the pandemic, with demand expected to increase by 1 million bpd in 2020, supported by capacity expansions in China. “In the longer term, the petrochemical feedstock sector will take over as the leading growth sector globally,” Chen concludes.

At the same summit, Wood Mackenzie’s Research Director, Sushant Gupta, predicted that refining margins this year will be at their weakest in the last 20 – 25 years. While this is, of course, largely due to the shock of the COVID-19 pandemic, Gupta also points towards the mid to long-term challenges facing the sector, including overcapacity, lower margins, refinery closures, a need to reconfigure refineries to align with changing demand, and the additional cost of refinery carbon emissions. He said: “Given all these challenges, the only way to survive during this transition is to make sites more competitive and create a differentiation from peers. Integration with petrochemicals and upgrading will provide optionality to maximise margins.”

The current pandemic is clearly far from over. As much of the world readies itself for a tough winter and a seemingly inevitable second wave of coronavirus infections, many uncertainties remain. However, in a year when short-term firefighting has undoubtedly been the order of the day, it is more important than ever to continue to keep a keen eye on the future.

  1. ‘World Energy Outlook’, International Energy Agency (IEA), (2020).

View profile