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The Top 10 Energy Market Trends to Watch in 2021

We are nearing the end of what has been a difficult year, with COVID-19 disrupting lives and economies across the globe. The energy market was greatly affected by the pandemic, and because lockdowns may need to extend into 2022, disruptions are likely to continue.

Forecasting energy market trends, even in the short term, is never easy. Coronavirus has made the future of both the renewable and fossil fuel energy markets even more murky. For instance, the price of oil fell to -$37.63/barrel in April, and although it has since bounced back to $40/barrel, it’s difficult to predict exactly what will happen to the oil business. Meanwhile, the renewables industry faced challenges of its own, with projects, production, and installation put on hold.

So, what can we expect to see next year?  We’ve compiled a lists of the top renewable and nonrenewable energy trends to watch in 2021, based on research by the Energy Information Administration (EIA) and the International Energy Agency (IEA).

Factors Effecting Energy (and Energy Demand)

Before we get into the energy trends, let’s take a look at some of the variables that will affect the energy market in the coming year:

  • Pandemic control measures, e.g. lockdowns, and how much they prolong working from home, online shopping, and other “new normal” behaviors
  • Speed/amount of economic recovery, including employment rates, disposable income, and new vehicle purchases
  • Effects of government stimulus plans
  • Shifts in travel, trade, etc.
  • Changes in U.S. energy import/exports, e.g. petroleum, natural gas, electric power, coal
  • Capital investments and production trends for oil and natural gas
  • Changes in refinery product demand and response
  • Electric power system operations, e.g. changes in timing, demand, and rates
  • Fuel prices

 

Energy Trends: Renewables

Despite the global pandemic, our climate continues to change, and the need for clean energy sources remains high.

1. Expect Green Hydrogen to Grow

Green hydrogen has long been hailed as one of the keys to drastically reducing global CO2 emissions. Green hydrogen is produced by electrolysis powered by renewable energy sources. As the price of renewable electricity continues to fall, we can expect to see green hydrogen become cost competitive and play a greater roll in our energy industry.

2. Renewables Will Rebound

Many renewable energy projects, e.g. solar and wind, that were postponed by the pandemic are expected to come online in 2021 and lead to a rebound in renewable energy capacity. As a result, we can expect 2021 capacity levels to come close to those of 2019, before the pandemic struck. That being said, the combined renewables growth of 2020 and 2021 will be nearly 10% lower than the IEA had previously forecast. New PV installations are expected to experience a partial comeback in 2021, although distributed PV has been hit more severely and will not fully recover. Onshore wind installations have also been affected by commissioning delays, although they were lucky – most projects were in the pipeline pre-coronavirus and are already financed and under construction. Finally, the commissioning of two enormous hydropower projects in China in 2021 drives the overall rebound of renewables.

3. Transport Biofuel Will Follow Gasoline/Diesel Trends

Covid-19 has had a major impact on the global biofuels market, with lockdown measures reducing economic activity and the need for transport fuel. As demand for gasoline and diesel falls, biofuel consumption falls as well. The reason for this is that many policies require a predetermined amount of biofuel to be combined with gas and diesel. If coronavirus cases fall and lockdown measures are rescinded worldwide, biofuel will recover alongside its fossil fuel counterparts. The EIA generously predicts that, in such a case, biofuel production may return to 2019 levels. However, those levels are 5% lower than the 2021 output they had forecast before Covid-19 struck.

Energy Trends: Fossil Fuels

1. Electric Power Generation Will Remain Low

In their July STEO, the EIA found that total electric power generation would decline 6% in 2020 before rising by less than 1% in 2021. This decline in power generation is partly due to the uncertainty of the economic situation and post-pandemic demand. In addition to this, the state of component supply chains and the wellbeing and size of the construction workforce will affect the construction of new generating capacity in many parts of the United States.

2. Oil Production Will Decline into 2021

For oil, the effects of COVID-19 lockdowns and restricts have been mostly a demand-side shock. However, as with electricity, uncertainty surrounding post-pandemic demand for oil has translated into supply uncertainties. Prior to the pandemic, the oil industry was already experiencing rough times and was headed towards relying on capital from cash flow instead of debt and equity. (A large reason for this was the growing pressure to shift towards renewable sources.) The pandemic has made the situation for oil producers even more dire, with oil prices plummeting (see introduction). The EIA expects oil production to continue slowly declining through March 2021, with production bottoming out at 10.7 million b/d. Production may rise modestly through the end of 2021 as crude oil prices rise (annual average crude oil production at is expected to be at 10.9 million b/d in 2021). Due to this decline, the EIA estimates the U.S. will go back to being to being a net importer of crude oil.

3. Liquefied Natural Gas Will Suffer from Lasting Market Effects

While the EIA expects U.S. Liquefied Natural Gas (LNG) exports to return to pre-pandemic levels by the second half of 2021, be on the lookout for lasting market effects which may lower LNG exports. For example, the EIA July STEO estimates that lower global natural gas demand as a result of lockdown measures and a poor pricing environment will reduce U.S. LNG exports. The EIA predicts that the effects of COVID-19 on natural gas demand will be felt mainly in the industrial sector. Industrial demand for natural gas is very sensitive to macroeconomic conditions, and the economic disruption caused by the pandemic greatly impacted industrial demand for natural gas.

4. Coal Consumption Will Depend on Natural Gas Prices

U.S. coal production has continued to drop, mostly because of reduced demand. In fact, several large producers have closed their mines permanently. That being said, the EIA expects coal consumption to rise slightly in 2021 due to general economic recovery, increased electricity generation, and an increase in natural gas prices. Coal prices are expected to increase in 2021 to $2.04/MMBtu. U.S. coal prices are linked to the natural gas market – if natural gas prices return to pre-pandemic levels (or close to them) American coal consumption will increase, strengthening prices. However, if natural gas prices stay low, we can bet on lower U.S. coal consumption.

3 Long-Term Global Energy Predictions

1. Global Energy Demand Will Rise 20% by 2040

In developing countries, growing populations, greater access to energy sources, and higher standards of living will ramp up energy usage. This is likely to cause a 20% rise in global energy demand by 2040. China and India are expected to be the source of approximately half of this growth.

2. Global Electricity Demand Will Rise by 60%

The same factors driving energy demand will also drive electricity demand worldwide. Expect natural gas, solar and wind to be the fastest-growing energy sources helping to meet this demand – natural gas is already the he number one source of electricity in the United States.

3. Global CO2Emissions Will Peak, but Stay Above 2°C

Due to increased energy efficiency and greater renewables use, we can expect to see a drop in CO2 emissions, albeit not enough to reach the 2°C goal. That being said, companies like ExxonMobil are working to develop new technologies which will help lower global CO2 emissions, e.g. new carbon capture techniques.

Key Takeaway

Clearly, it will be a long road back to normal for many energy sources. Meanwhile, we can expect to see greater energy use and CO2 emissions as countries around the world develop and gain access to new technologies. In the U.S., this is resulting in many states and cities implementing emissions standards and requiring companies to report and/or reduce their energy use and emissions. You can ensure your portfolio emission reductions are properly tracked and your progress is reported through watchwire and our integrations with ESPM, LEED Arc, GRESB, CDP, and more. EnergyWatch also offers numerous resources to help you stay informed on the best emissions conservation and reporting practices for your company. Head over to our resource library or blog for the latest content.

Sources:

https://www.eia.gov/outlooks/aeo/pdf/trends_and_expectations_2020.pdf

https://www.iea.org/reports/renewable-energy-market-update/2020-and-2021-forecast-overview