The stunning reductions in global energy usage in 2020 represent more than a simple pandemic-related aberration, BP said July 8 in its annual “Statistical Review of World Energy.” They also illustrate how the world is not on track to meet goals set by the Paris Agreement.

The study showed that:

  • Primary energy usage fell 4.5%, the largest decline since 1945;
  • Oil consumption was down 9.1 million bbl/d or 9.3%;
  • Natural gas consumption dipped 2.3%; and
  • Coal consumption dropped 4.2%.

The decreased consumption resulted in a 6.3% reduction in carbon emissions, also the largest decline since World War II, which brought the output back to the level of 2011.

“The key feature of last year’s fall in energy demand is that it was surprisingly big,” Spencer Dale, BP’s chief economist, said in his analysis. “Even after controlling for the collapse in economic activity, the decline in energy demand was close to twice the size of the ‘predicted’ fall: 4.5% compared with a predicted fall of around 2.5%.”

Broken down, the decrease in oil demand accounted for about three-quarters of overall global demand decline, BP said. It was also the key factor in the drop-off of carbon intensity of the energy mix.

2020 x 30

From a forward perspective, these sharp reductions represent what the world would need to average on an annual basis for the next 30 years to achieve the goals of the Paris Accords. With the world in post-pandemic recovery, “There is a good chance that much of that dip proves transitory,” Dale said.

“Last year’s fall in carbon emissions was obviously driven by a huge loss in economic output and activity,” he said. “A simple calculation comparing the fall in emissions with the decline in world output equates to an implied carbon price of almost $1,400 per tonne. Scarily high.”

The challenge, he said, is to reduce emissions without causing massive disruption and damage to everyday lives and livelihoods. And that, of course, is an enormous challenge.

“I think if you have one takeaway from this year’s report, it’s that energy systems are sticky and it takes time to transition them,” said Paul Bodnar, global head of sustainable investing at BlackRock Inc., during a roundtable following presentation of the study. “The question is pace. People can disagree reasonably about how fast this will unfold in practice, obviously benchmarking against how fast it should unfold depending on what public policy goal you’re focused on.”

BlackRock, with $9 trillion under management, has made net-zero commitments by corporations a key metric of its investment decision. Bodnar said he looks for evidence that companies are taking climate issues seriously and that they have a plan for thriving in a world that is moving to net-zero.

“That is what will determine their long-term financial performance, which is what investors are focused on,” he said.

Don’t Forget Natural Gas

It also must be done while meeting growing demand from an energy-hungry world. One of the positives to come out of last year, Dale said, was the fastest-ever increase in share of renewables in the energy mix. Renewables have accounted for 60% of the growth in electricity generation over the past five years. Coal, however, has suffered, particularly in the U.S. and European markets.

“These trends are exactly what the world needs to see as it transitions to net zero: strong growth in renewable generation crowding out coal,” he said. Coal isn’t going anywhere, though; the level of coal-fired generation in 2020 was essentially the same as it was in 2015.

However, natural gas showed some staying power in 2020 despite a drop in consumption in most regions. China was the exception, with its gas demand rising by 7%.

“The relative immunity of natural gas was helped by sharp falls in gas prices, which allowed gas generation to gain share in the U.S. power market and hold its own in the EU,” Dale said.

The fall in prices, particularly in Europe, hampered growth in the U.S. LNG industry. Utilization rates at U.S. facilities fell to 30%-35% by summer. Exports still increased by 30%, owing to three new trains coming online and other facilities ramping up. Had cargoes not been canceled, Dale said, U.S. exports would have shot up by 80%.

Plenty of Promises

The road to net-zero, at least at this stage of the journey, is paved with ambition from governments and corporations. So far, the EU and 44 other countries have either passed or proposed legislation to achieve net-zero goals. Those countries account for about 70% of global carbon emissions, the International Energy Agency has said.

Dale sees it happening at the corporate level, too, noting that 3,000 companies have announced they are pursuing net-zero goals.

“This rise in corporate ambition has coincided with growing societal expectations for companies to both increase further their transparency about climate-related risks and demonstrate their strategies and actions are consistent with Paris,” he said.

For all the announcements, there is a mismatch between ambitions and outcomes. Countries’ pledges are insufficient to meet Paris goals and a marked improvement has yet to show up in emissions data, Dale said.

Investors may not show patience for companies that make net-zero promises and fail to follow up, BlackRock’s Bodnar said.

“It is for companies that are currently dominant in the energy space to figure out where they can apply their comparative advantage in terms of talent, in terms of engineering, in terms of experience with how they currently manage energy systems, and bring that across to the energy economy of the future,” he said.

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