Yet another curveball
While many were hoping for November to be a transition month towards virus control and more stability in energy markets, the World Health Organization noted on 26 November that the Omicron mutant discovered in South Africa was ‘of concern’ and could turn into the next global Covid infection wave. Since then, the number of new cases has skyrocketed in South Africa, the UK, France, Denmark, Norway and many other countries, effectively setting us back to the square one as we again face months of uncertainty and lockdowns.
The market responded by sending Brent crude prices down by $10 per barrel, reflecting expectations of lower global petroleum consumption. After briefly dipping below $70 per barrel – in part triggered by pledges from several governments that they would release crude from their Strategic Petroleum Reserves – oil prices are now back at around $75 a barrel. Furthermore, European gas prices remain near record-high levels, with a relatively cold winter so far coupled with uncertainties in the market, many of which are related to Russia’s ability to provide secure supply.
2021 has been a year with important negotiations and discussions related to the energy transition, along with the scope and the speed in the growth of renewables and increased electrification. The COP26 climate summit in Glasgow produced significant agreements and pledges by world leaders, just as news emerged that global sales of electric vehicles grew to 11% in October and the world’s top four solar PV providers will double their collective capacity from 2020 to 2022. What’s up and what’s next?
By analyzing the results of COP26 using rigorous scenario methodology – combined with our own data-driven forecasts for energy supply – we conclude that a global temperature rise of 1.6°C versus pre-industrial levels stands as a likely trajectory, while the pre-summit target of limiting global warming to 1.5°C is still within reach. Rystad Energy will not, however, change its base case for oil and gas demand, which currently assumes a 1.8°C temperature rise, until further evidence supports such an adjustment.
In all our scenarios, carbon capture and storage (CCS) of almost 8 Gt per year by 2050 is assumed. This CCS target will require widely implemented carbon pricing and thousands of CO2 injection wells. However, both in terms of policy-making and technical scope, these targets are far from unsurmountable. Current policy and technology trends give us confidence that these ambitions are within reach.
I hope you will join us for the next Rystad Talks Energy on Thursday 16 December, when several of our specialists and some select external guests will comment on these trends and review what happened in 2021, while also discussing the outlook for 2022. Please register here to watch all or part of the webinar, which will be streamed on LinkedIn Live.