Russia crisis heralds turning point for global energy, says IEA

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(Bloomberg) — Russia’s invasion of Ukraine heralds a tipping point for global energy markets that will shrink Moscow’s influence and hasten the transition to renewables, the International Energy Agency said.

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Demand for all fossil fuels is expected to plateau from the middle of this decade as governments seek to hedge against the crisis by diversifying into clean energy, the Paris-based agency said in its World Energy Outlook. . Russia’s share of world oil and gas markets will halve by 2030, he predicted.

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« Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for now, but for decades to come, » said IEA executive director Fatih Birol. « The world of energy is changing dramatically before our eyes. »

Global energy markets were already under pressure at the start of this year, with prices soaring as supplies failed to keep pace with the post-Covid consumption rebound. But President Vladimir Putin’s attack on his neighbor in February amplified the turmoil, sending natural gas prices to record highs and permanently redrawing the map of energy flows.

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The Kremlin restricted and then halted gas flows through its Nord Stream gas pipeline to Europe. Disruption in energy markets is set to worsen this winter as EU sanctions take effect on Russian oil shipments – so far resilient despite widespread condemnation from Putin.

IEA members, which include most large consumers, have twice tapped seldom-used emergency oil stocks since the Russian invasion, and last week President Joe Biden deployed more American reserves to control fuel costs.

As countries seek alternatives to Russian energy, the lasting consequences can be profound.

The rapid growth in demand for natural gas – often seen as a bridge fuel in the transition to low-carbon energy – will come to a halt. Consumption will increase by less than 5% until the end of this decade and then stagnate until the middle of the century. Even China’s gas demand growth will slow to 2% this decade, from 12% since 2010, as it embraces electrification and renewables.

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Global oil demand will peak at 103 million barrels a day in the middle of the next decade – slightly later than suggested in the IEA’s recent outlook – and then decline « very gently » until 2050, according to the report. report.

Russia, the world’s largest exporter of fossil fuels before the current crisis, has so far shared in the $2 trillion windfall enjoyed by producers. Yet its centrality in world markets is set to recede dramatically, with hydrocarbon exports never again reaching the levels seen last year.

Moscow’s share of international gas trade will halve to 15% by the end of the decade, the IEA predicts. The country has so far managed to reroute oil shipments from Europe to Asia, but this kind of substitution has its limits, and exports are likely to drop 25% from the current level of 7 million barrels. per day by the end of the decade.

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Difficult predictions

Global energy markets have experienced unprecedented turmoil this year and the IEA’s forecasts have sometimes been off the mark.

Weeks after the invasion of Ukraine, the agency predicted that Russian oil exports would fall rapidly by a quarter as buyers shunned the country. It’s a forecast that Moscow has managed to defy, largely by redirecting shipments to buyers in Asia.

The reconfiguration of energy markets predicted by the IEA would mean a global peak in carbon emissions in 2025, about five years earlier than expected. But that would not be enough to turn the world off its current trajectory towards environmental disaster.

While annual carbon dioxide emissions are set to slow by 2050 – from 37 billion tonnes to 32 billion tonnes – global temperatures remain on track to rise by 2.5°C this century, enough to cause « serious climate change impacts », the IEA warned. Investment in clean energy will only reach half of the required $4 trillion per year.

Meanwhile, the crisis is hitting the most vulnerable the hardest. The inflationary shock from rising prices means that 70 million people who only recently had access to electricity will not be able to afford it, the IEA said. An additional 100 million people may not be able to afford clean cooking fuels.

The fallout from this crisis only reinforces the urgency of the energy transition, according to the agency.

“This can be a historic turning point towards a cleaner and more secure energy system,” he said. « The current crisis clearly shows why we need to move forward. »