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Under the weather

Under the weather thumbnail
Energy demand destruction from the coronavirus has brought forward a nagging problem for efforts to deal with climate change – the prospect of permanently cheap fossil fuels.
By Nathan Witkop

The coronavirus pandemic has pummelled energy use. Lockdowns and travel restrictions around the world have cut consumption of both electricity and the fuels used to make it, propelling a leap in the share of renewable energy in the power mix. In Germany, which aims to make wind and solar the backbone of the country’s energy supply by mid-century, renewables delivered a record 52% of demand in the first quarter – up eight percentage points year on year.

As might be expected, carbon dioxide emissions have tumbled. In April, at the peak of government efforts to keep people isolated and indoors, CO2 released by the European power sector may have fallen 39%, according to climate think tank Ember. The International Energy Agency (IEA) expects global emissions to fall 8% this year as the consequences of the pandemic dwarf the impact of the 2008 economic crisis.

Yet as welcome as such developments may be for efforts to halt climate change, the coronavirus is hardly a blessing for the energy transition. It appears fossil fuel supply will take significantly longer to adjust to lower demand – with some unwelcome consequences for cleaner energy sources. Global investments in clean energy, according to the IEA, will fall 13% this year. It estimates the world will install 167 GW of renewable energy capacity, the first annual decline in new constructions in two decades.

So why the shift? Sudden halts in road and air traffic have made oil the most obvious casualty of Covid-19 among the energy commodities. Brent crude, the international benchmark, hit a two-decade low of just under USD 16/bbl in April. This was 75% below where it began the year. US oil even spectacularly turned negatively for the first time as storage possibilities evaporated ahead of physical delivery for May. The world may be staring at the arrival of peak oil demand – a decade ahead of IEA expectations. “We are looking at a major demand destruction,” Shell CEO Ben van Beurden told a recent earnings call. “We don’t even know that will come back.”

Though radical cuts by producer countries and gradually rising congestion had propelled Brent back to around USD 35/bbl by late May, few expect to see the return of pre-Covid-19 prices soon. As prices rise, an abundance of unconventional US supply stands poised to re-enter the market – perhaps even at prices below USD 30/bbl. And it has a history of cutting costs. “If you look at gasoline prices, you see it will undo a lot of the policy we have created in recent years,” says Andreas Loeschel, head of a commission tasked with monitoring German progress in its energy transition.

Germany has introduced a carbon price in the transport and heating sectors that will start at EUR 25/t from next year. This is expected to make petrol more expensive by 7.5 cents per litre. By comparison, the pandemic shaved 20 cents per litre off petrol prices between the space of January and April. These kinds of declines make the prospect of decarbonising transport or heating more daunting – not least because the more successfully fossil fuels are substituted, the cheaper and more attractive they will become. Nor is the development likely to remain restricted to oil, says Loeschel. “In real prices, even before corona, fossil fuel use was getting cheaper and cheaper in Germany for more than a decade.”

Consultancy McKinsey already saw the world potentially oversupplied with natural gas for at least the next ten years before coronavirus burst into 2020. Gas prices have completed a process of global convergence underway since late 2018: European and Asian hubs became cheaper than their main US counterpart, the Henry Hub, for the first time in April.

The boom in unconventional US oil has effectively linked the world’s gas markets by fostering a burgeoning export industry for liquefied natural gas (LNG). “The producers are looking for oil and finding…gas, and that is making its way to market,” says McKinsey partner Johann Raunig. “We still expect significant volumes to be available for export, even if margins are thin.”

Producers in the US and Qatar have redirected vessels to Europe as spot prices for LNG in Asia have tumbled around 80% over the past 15 months. With Europe already adequately supplied with pipelines from Russia and Norway, and well-stocked after another mild winter, spot prices on the continent have pushed out record lows below EUR 5/MWh (USD 1.60/MMbtu). Cheap gas has in turn displaced coal-fired power generation. This fell by a quarter across Europe over the first three months of the year, swelling oversupply of that fuel and depressing prices across international coal markets back to levels last seen during the commodities slump of 2016. Swiss investment bank UBS expects the glut to expand into next year.

The global seaborne trade for thermal coal could see an imbalance climb to 90m tonnes by 2022, or nearly 9% of demand. These outlooks pose an obstacle for the Paris climate agreement goal to limit global warming, says Christoph Maurer, head of Berlin-based energy consultancy Consentec, a frequent advisor to German governments. “Obviously we have more fossil fuels available than we could be allowed to burn to stay under 2C,” Maurer says. “It will be hard to outcompete fossil fuels.”

Cheap oil, coal and gas have two implications for renewable energy. For one, they pressure power prices lower by cutting input costs for the power plants that tend to deliver the marginal amount of electricity needed on any given day. Solar and wind remain the cheapest sources of new generation in Europe’s biggest economy. They continue to get built under auctions that are settling between EUR 55-61/MWh. Yet wholesale power prices also continue to trade lower. By late May, the benchmark front year German power contract stood at just over EUR 37/MWh – down by 17% on where it began the year. Lower power prices cut the share of revenues renewable energy projects can raise from the market. The difference needs to be met via support schemes.

The fund used to finance Germany’s clean energy investments looks set to fall back into deficit for the first time since 2013. The surplus has been trending lower since hitting a peak of EUR 6bn in March 2019. It stood at EUR 1.1bn in April, having plunged by more than half since February. Stefan Kapferer, head of eastern German network operator 50Hertz, expects the levy on consumers’ power bills that is used to finance the pot will need to be increased from next year. At 6.76 euro cents/kWh (EUR 67.56/MWh), it already accounts for around 22% of a typical German retail power bill.

Lower revenues for renewables – absent support schemes – also shake confidence in the outlook for non-subsided projects, just as market-driven Power Purchase Agreements (PPAs) were starting to take off around Europe. UK-based Aurora Energy Research sees 34 GW of renewable energy projects at risk of cancellation across seven European countries it investigated. Almost half the projects likely to come into question are in Spain where most of the pipeline for clean energy is being driven by commercial partners rather than state support schemes.

Carbon prices also play a key role for giving renewable sources a competitive edge to fossil fuels.  Stiffer carbon costs can support overall power prices by making the use of coal or gas a lot more expensive. This is turn can guarantee clean energy providers better margins via wholesale electricity prices and reduce burdens on the public to make up the difference. It also makes electricity from renewables a potentially more attractive source of energy for heating or transportation – facilitating electrification of parts of the economy that have proved stubbornly difficult to decarbonise so far. “Obviously having a [carbon] price, and one that escalates, is quite important,” says Consentec’s Maurer.

The European Commission plans to tighten climate policy and is considering raising the EU’s 2030 emissions reduction target from a 40% cut on 1990 levels to a 50-55% cut. The decision will have profound implications for prices on the bloc’s emissions trading scheme (EU ETS). Yet analysis firm Refinitiv sees prices falling again following a peak in the coming years unless a temporary reform is made permanent. The Market Stability Reserve is presently withdrawing 24% of the market’s surplus allowances over a certain threshold every year. From 2024 that will return to 12%, though some have suggested retaining the higher rate. It could spell the difference between a tight and a loose market this decade that keeps carbon prices below EUR 30/t.

Panic over the coronavirus’s impact on economic growth briefly sent carbon prices below 15/t in April and analysts say the market is only holding up above EUR 18/t due to speculation. These levels remain significantly short of the kinds needed to prompt markets to replace dirty technologies. Energy economist Felix Matthes, who sat on a commission in Germany that recommended a path for exiting coal generation, says carbon prices ranging from EUR 20-60/t will replace the country’s coal-fired generation with gas. Germany’s oldest hard coal units are already out of the money, but its newest lignite plants still make margins high enough to deter early closures. Yet the challenge is less so much the future of German coal, which Berlin already plans to buy out by 2038 at the latest, as much as it is the difficulty of encouraging technologies like hydrogen that will eventually be needed to supplant natural gas. “The easy bit is up to EUR 60/t,” Matthes says. “Then the hard phase starts.”

But green hydrogen production is likely to need triple digit carbon prices for markets to embrace it without state support, he says.

Chancellor Angela Merkel’s Christian Union remains wary of price interventions in the EU ETS. It also welcomes the recent fall in carbon prices as a kind of industrial relief in the face of economic difficulty. Without a rising price floor, however, there will be little incentive to rapidly replace technologies in the few decades left to avert the worst consequences of climate change. Right now, politicians are absorbed with managing the coronavirus crisis. But as they shift into the recovery phase, they should look at a profound energy price reform, says Andreas Loeschel. It should focus on making electricity cheaper by eliminating levies on power consumption while taxing C02 to help close the funding gap. Small businesses and people on lower incomes would especially benefit from such a reform, which would simultaneously make clean power more attractive and fossil fuels less so, says Loeschel. “This would be a perfect time to get serious about it.”

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36 Comments on "Under the weather"

  1. Herr Von Leichstein of the 5th Reich on Mon, 15th Jun 2020 10:46 am 

    If Angela Merkel was in Harry Potter movie she would be ‘Moaning Merkel’ the ‘ Fat Lesbian White Guilt Commie Bitch ‘, the character even the children would love to hate !

  2. Mohammad Jihad III on Mon, 15th Jun 2020 10:49 am 

    Yeh yeh Bakala Derka derka detka!
    Derka oil and fas bakala bakal!
    Mohammad Jihad derka derka bakala

    bakala!

  3. Sharter Johnson on Mon, 15th Jun 2020 11:27 am 

    In the wee small hours of this morning I awoke to an almight shart!, the covid has hit me bad!

    the peak oil covid sharts!

  4. Jock McAngus of the Slaughtered Lamb Inn on Mon, 15th Jun 2020 11:33 am 

    Aye lad it twas the same wi’ me aye!
    The liquid farts have hit me harder than a bottle of the water o’ life!
    oh I dunny believe it!
    oh I dunny ken if I will recover from this!

  5. CONVICT-19 nuke world muzzies now on Mon, 15th Jun 2020 11:56 am 

    two muzzies were roasted today in syria

    they’re muzzies but they’re not muzzies

    facepalm

    let me repeat in another way

    these two roasted muzzies are not muzies but they’re muzzies

    us navy working hard to retrieve muzzies carcasses for burial at sea as muzzies according to muzzie custom but they’re not muzzies

    facepalm

  6. makati1 on Mon, 15th Jun 2020 5:40 pm 

    Renewables are facing the covid headwinds of financial decline and the collapse of the world economy, which has and will lower energy consumption. Millions have learned that many things are NOT necessities and they will be dumped/not resumed when ‘normalcy’ returns. Working/schooling from home, empty schools and malls, factories shut down, never to reopen, extended families returning to one house, not many, etc.

    Most Western countries are broke and deep in debt so renewable subsidies will be deleted. Without the money from the tax donkeys, renewables will not grow, but shrink, as old towers and panels wear out and are abandoned or torn down. Even hydro and nuclear wear out and will be too expensive to replace. Interesting times.

  7. Richard Guenette on Tue, 16th Jun 2020 3:05 pm 

    We are already living in a dystopia. Things are only going to get worst.

  8. Richard Guenette on Tue, 16th Jun 2020 3:38 pm 

    There is a lot of racism spreading across the West. Not just hate groups but mafia gangs that are causing trouble. Where are the police and other law enforcement agencies to “serve and protect” the public?

  9. Richard Guenette on Tue, 16th Jun 2020 3:41 pm 

    Organized crime still exists and it is one of the biggest threats to society.

  10. zero juan on Tue, 16th Jun 2020 4:00 pm 

    sombody please kick this asshole of this form

    Richard Guenette said Organized crime still exists and it is one of the…

    Richard Guenette said There is a lot of racism spreading across the West…

    Richard Guenette said We are already living in a dystopia. Things are on…

    Richard Guenette said The coronavirus is still spreading across the glob…

    CONVICT-19 said they won’t amputate their muzzies starting w…

    CONVICT-19 said 100 million menacing muzzies in india the extereml…

    SocialRevolutionComing said I will make one comment regarding the situation in…
    Deport and ban said The fucker

    Silence is an admission of guilt said More from Davy the Lunatic – AKA Pink Poodle…

    CONVICT-19 said shoe company trusted muzie accountant got fleeced

    CONVICT-19 said braking news CONVICT-19 cases now numbered 25,000,…

  11. makati1 on Tue, 16th Jun 2020 5:28 pm 

    “An insult is like a drink.
    It only affects one only if accepted”

    — Robert Heinlein -“Glory Road” 1963

  12. makati1 on Tue, 16th Jun 2020 5:29 pm 

    Richard, you are correct. The largest crime organization in the world is the US Government.

  13. More JuanP Derangement from the board Lunatic Davy AKA The Pink Poodle on Tue, 16th Jun 2020 5:52 pm 

    zero juan on Tue, 16th Jun 2020 4:00 pm

  14. Duncan Idaho on Tue, 16th Jun 2020 5:58 pm 

    1992 — US: Beloved & Respected Comrade Acting President Ronnie Reagan’s Sec. of Defense Weinberger is indicted in Iran-contra affair. Trying to best Nixon’s Guinness World Book of Records for the most crooks in an American Administration.

  15. JuanP on Tue, 16th Jun 2020 6:16 pm 

    Duncan, got any poop on Obamagate? That blows Casper out of the water

  16. JuanP on Tue, 16th Jun 2020 6:21 pm 

    “Richard, you are correct. The largest crime organization in the world is the US Government.”

    Mak, Richard is my personality from Quebec

  17. JuanP on Tue, 16th Jun 2020 6:23 pm 

    “An insult is like a drink.
    It only affects one only if accepted”
    — Robert Heinlein -“Glory Road” 1963

    Mak, I was born in 63!

  18. More JuanP Derangement from Davy the Lunatic AKA Pink Poodle on Tue, 16th Jun 2020 6:30 pm 

    JuanP on Tue, 16th Jun 2020 6:16 pm

    JuanP on Tue, 16th Jun 2020 6:21 pm

    JuanP on Tue, 16th Jun 2020 6:23 pm

  19. Project humanity 2020 on Tue, 16th Jun 2020 6:34 pm 

    RENEWABLES 2019 GLOBAL STATUS REPORT
    https://www.ren21.net/gsr-2019/
    https://www.ren21.net/gsr-2019/chapters/chapter_01/chapter_01/

    https://peakoil.com/forums/viewtopic.php?p=1452050#p1452050
    “The Renewables 2020 Global Status Report for 2019 is out today. Despite the massive growth rates in installed capacity by renewables, fossil fuels increased their share of the overall energy pie from 79.7% in 2018 to 79.9% in 2019. Wind and solar PV decreased their capture of new shares in the energy pie from .3% in 2018, to just .1% in 2019, garnering less than 2.1% of the pie.”

  20. JuanP on Tue, 16th Jun 2020 6:35 pm 

    That’s not me so it must be a new person on this stale sock infested forum

  21. makati1 on Tue, 16th Jun 2020 6:49 pm 

    JuanP, it is probably the demented Misery Jackass, Davy. It would be interesting to see how many “people” disappeared if the Jackass was banned. But then, the $$$ kliks would shrink also. Not going to happen. It’s ALL about money and/or power as is the fake flu and all this police state lock-down bullshit.

  22. makati1 on Tue, 16th Jun 2020 6:50 pm 

    I was 19 in 1963, and going to college at Dickinson. Long ago and far away. lol

  23. Theedrich on Tue, 16th Jun 2020 6:56 pm 

    “COON LIVES MATTER” means “kill White cops.”  That is what the White genosuicidists actually want.  Their home is the Democrat Party, which masks itself as American.  With global overpopulation now reaching an extreme, we are witnessing a civilizational drive to return the planet to the jungle, leaving all money and power in the hands of self-appointed elites.  Europe and America will dissolve into subhuman chaos, in which truth becomes falsehood, war becomes peace, and White becomes Black.

    The most recent measure to keep the U.S. on life support was a $3 trillion injection into the economy of Monopoly money, some of which has already been stolen by clandestine domestic and foreign operators.  Various observers believe the effects of this charade will last until the end of June 2020, after which another trillion or so will be needed.  But not long after the “dog days” of summer (ca. mid-July – early Sept.), unless there is yet another shower of fake money, the collapse will begin in earnest.

    At that point, the dream of the Communist Dems will come true:  Trump and the Republicans will be toast, the masses will demand that the government “do something,” and there may be yet further riots, all justified and “explained” by the anarcho-nihilist media.  The Sinistrals, aiming for a repeat of the French Revolution, will demand for a figurative return to the guillotine as the economy sinks.  Narcotics will fill the void for multitudes of the unemployed.

    Historically, such conditions have been followed by wars as the “solution” to depressions.  One can only hope that the powers that be do not follow that traditional path.

  24. Duncan Idaho on Tue, 16th Jun 2020 7:01 pm 

    Bob Dylan – Ballad of a Thin Man
    https://www.youtube.com/watch?v=we37yX3zpKA

  25. JuanP on Tue, 16th Jun 2020 7:09 pm 

    Duncan, Bob Dylan is my favorite. When I did acid I listened to him.

  26. More JuanP Derangement from Davy the Lunatic AKA Pink Poodle on Tue, 16th Jun 2020 7:12 pm 

    JuanP on Tue, 16th Jun 2020 7:09 pm

  27. More JuanP Derangement from Davy the Lunatic AKA The Widdle Pink Poodle on Tue, 16th Jun 2020 7:14 pm 

    JuanP on Tue, 16th Jun 2020 7:12 pm

  28. FamousDrScanlon on Tue, 16th Jun 2020 7:23 pm 

    Theedrich, great example of what happens when information is run through the brain filters of a paranoid, white trash, yankee exceptionalist.

    “De-fund the police” gets converted to “kill White cops.”

    Along the same lines as a 20-25 % drop in whitey population demographics over the last 50 years gets converted to a “white genocide!!!” And part of the shift is because whites chose to have less kids, so they could have more consumer goodies. That part is self inflicted.

    Poor you. Victimized yet again and you’re just as much of a hyper offend hysterical snowflake as any over privileged humanities student blubbering away in a bean bag chair safe space.

    Consider changing your expectations, it’ll make you less of a feminized cry baby.

  29. Davy on Tue, 16th Jun 2020 7:43 pm 

    Duncan, notice how fucked up the fly-over redneck basket case states are:

    Missouri named in top 10 places in the world not to visit.

    https://www.kmov.com/news/missouri-named-in-top-10-places-in-the-world-not-to-visit/article_adf69cac-fddd-5cdc-b790-9ad8c7ceac0e.html

  30. Hello on Tue, 16th Jun 2020 9:56 pm 

    >>> And part of the shift is because whites chose to have less kids

    the bigger part is enforced white-guilt with associated mass immigration of negro/raghead/slit-eye sludge

  31. Duncan Idaho on Tue, 16th Jun 2020 10:19 pm 

    Poll: Americans are the unhappiest they’ve been in 50 years
    https://apnews.com/0f6b9be04fa0d3194401821a72665a50

  32. Duncan Idaho on Tue, 16th Jun 2020 10:28 pm 

    ‘Rambling like an idiot’
    https://www.alternet.org/2020/06/rambling-like-an-idiot-americans-slam-trump-for-turning-address-on-police-reform-into-tone-deaf-campaign-rally/
    Lets not insult the idiots by comparing them with the Fat Boy

  33. Davy on Tue, 16th Jun 2020 10:30 pm 

    Duncan, I am the happiest Ive been in 50 years. Why, because Ive nurtured all the extremists like you and juanpee and all the other dumbasess that have run away from my intelligence and moderating. You haven’t run away yet, but you will. Soon, just like all the other lefty liberal assholes I have sent packing over the years.

    Victory!!!!!

  34. Duncan Idaho on Tue, 16th Jun 2020 10:40 pm 

    It shows that at least when it comes to right wing militia types, the police are perfectly capable of capturing even highly dangerous and armed suspects without kneeling on their necks for 9 minutes or shooting them in the back.

    https://digbysblog.net/2020/06/looks-like-they-can-arrest-even-armed-suspects-when-the-far-right-conditions-are-met/

  35. REALLY Green Hypocrite on Wed, 17th Jun 2020 5:53 am 

    Dearest Davy,

    Please, give the fake happy talk a rest. You and your hero, Fat Orange, are the definition of FAKE. Everybody knows we were banned to the nation’s armpit in lovely Deplorable, MO due to our inability to play nice with the public.

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