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Coal demand to remain flat to 2022, resulting in a decade of stagnation

MD Staff

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Global demand for coal should remain nearly flat between 2017 and 2022, resulting in a decade of stagnation for coal consumption, according to the International Energy Agency’s annual coal market report.

Global coal consumption fell 1.9% to 5,357 million tonnes of coal equivalent (Mtce) last year, the second year of decline, because of lower gas prices, a surge in renewables and improvements in energy efficiency, according to Coal 2017. Coal demand is down 4.2% over the last two years, nearly matching the two-year decline in the early 1990s, which remains the biggest recorded drop since the IEA started compiling statistics more than 40 years ago.

By 2022, global coal demand is expected to reach 5,530 Mtce, the same as the average of the last five-year period, and meaning that coal use will have had a decade-long period of stagnation.

The share of coal in the global energy mix is forecast to decline to 26% in 2022, from 27% in 2016 because of sluggish demand compared with other fuels. Although coal-fired power generation increases by 1.2% per year through 2016-22, its share of the power mix falls to just below 36% by 2022, which would be the lowest level since IEA statistics began.

“The energy system is evolving at a rapid pace all around us, with a more diversifying fuel mix, and the cost of technologies going down,” said Keisuke Sadamori, the International Energy Agency’s director for energy markets and security. “But while everything else is changing, global coal demand remains the same.”

Coal demand dropped in China, the United States and the European Union in 2016, but increased in India and across many parts of Southeast Asia, and shows no signs of slowing down. For instance, despite the rapid growth in renewables, Indian coal-fired power generation is expected to grow almost 4% a year through 2022.

While India will be increasingly important to global coal markets, China will remain the key driver. The potential for coal demand growth in China is limited, but the country’s supply-side reforms will be critical factors for coal prices in the coming years. Meanwhile, the European Union, accounting today for just 6% of global demand, is set to become an increasingly marginal player.

The IEA highlights that urgent action is needed to support Carbon Capture, Utilisation and Storage (CCUS) technologies, which made important strides last year but still lags far behind other low-carbon technologies. There is a broad agreement among energy leaders from both government and the industry that urgent action is needed to support CCUS, without which the climate challenge will be much more difficult to tackle.

This is why the IEA is working to give a new momentum to this essential technology, and is committed to pushing the global dialogue forward. In November 2017, it organised a global CCUS summit in Paris that was co-chaired by US Secretary of Energy Rick Perry and IEA Executive Director Dr Fatih Birol, bringing together more than 20 countries and CEOs of the world’s top energy companies to focus on this technology.

“This serves as a critical reminder why technologies like CCUS are so important, and why governments and companies need to step up their policy support and investments in that sector in order to meet global climate goals,” said Mr. Sadamori. “Indeed, without CCUS, coal use will be seriously constrained in the future.”

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Five Reasons Why Countries in the Arabian Gulf are Turning to Renewables

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photo: IRENA

As global leaders look to renewables as a way address the growing and multi-dimensional threat of climate change, traditional energy countries in the Gulf Cooperation Council (GCC) are embracing renewables faster than ever before. Led by efforts in the United Arab Emirates and Saudi Arabia, the GCC has become crucial to global efforts in support of the energy transformation.

As the IRENA Director-General Francesco La Camera said recently at the International Energy Forum in Riyadh, Saudi Arabia: “It is perfectly possible to generate sufficient cheap, reliable energy from renewable sources. Not only is it possible, but it is also our best option, as it would bring higher socio-economic benefits than business as usual, and it would allow us to effectively address climate change.”

For the Gulf, renewables bolster energy security and support economic diversification whilst offering nations rich in renewable energy resources, an opportunity to explore their full economic potential. They also offer a second chance at energy leadership. Today, much of the global cost reductions witnessed in renewables have come from the Gulf. And by driving down the price of renewables and investing abroad, the Gulf is also shaping the energy transformation in other regions.

Here are five reasons why GCC countries are turning to renewables:

Renewables are the most practical and readily available climate solution

According to an IRENA analysis, the accelerated deployment of renewable energy in the GCC region can reduce emissions of C02 by 136 million tonnes. As nations are being urged to step up their renewable energy targets to keep the world well below 2° Celsius of warming, the UAE has more than doubled its existing pledge, committing to 50 per cent clean energy by 2050 at the UN Climate Action Summit in New York, resulting in even more C02 reductions than predicted.

Renewable energy is the most competitive form of power generation in the region

The business case for renewables is a central motivating factor for the Gulf’s transition towards renewables. Today, renewable energy is the most cost-competitive source of new power generation in the GCC, replacing traditional energy sources as the answer to the region’s fast-growing domestic energy demand. Recently, the 900 megawatt (MW) fifth phase of the Mohammed Bin Rashid Al Maktoum Solar Park in the UAE received one of the lowest bids for a solar PV project in the world at 1.7 cents per kilowatt hour (kWh).

Renewable energy creates jobs

Long-term policy objectives seen in the GCC region, including private enterprise, education, training and investment in local skills and human resources, can facilitate the rise in the number of jobs in the renewable energy sector. IRENA’s data suggests that renewable energy can create more than 207,000 jobs in the region by 2030 with solar technologies accounting for 89 per cent of them. The proliferation of rooftop solutions alone could employ 23,000 people by 2030 in the region.

The GCC region is endowed with considerable renewable energy potential – and not just solar

The suitability analysis for solar PV technology in the GCC reveals strong potential for deployment in all GCC countries, with Oman, Saudi Arabia, and UAE as leaders. Furthermore, areas in Kuwait, Oman and Saudi Arabia also boast good wind resources. Technologies such as biomass and geothermal power may hold additional potential but remain underexplored. According to IRENA analysis, based on targets in 2018, which, if met, could result in about 72 GW of renewable energy capacity in GCC by 2030.

Renewables save water

Water scarcity is an acute challenge in the region, with four of the six GCC countries ranking within the top 10 most water challenged on earth according to the World Resources Institute. And with one of the fastest-growing populations in the world, the region’s demand for water is expected to increase fivefold by 2050. If the GCC countries were to realise their renewable energy targets, this would lead to an estimated overall reduction of 17% and 12% in water withdrawal and consumption, respectively, in the power sectors of the region. Much of this reduction would be in Saudi Arabia and UAE, due to their plans to add significant shares of renewable energy in the power sector.

IRENA

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“Oil for development” budget, challenges and opportunities

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Iran has recently announced that its next fiscal year’s budget is going to be set with less reliance on oil revenues.

Last week, Head of the Country’s Budget and Planning Organization (BPO) Mohammad Baqer Nobakht said “In the next year’s budget – it starts on March 19, 2020 – oil revenues will be only spent for development projects and acquisition of capital asset, and not even one rial is going to go to government expenditures and other areas.”

At first glance, the idea is very appealing and it seems if the government manages to pull it off, it will be a significant step for Iran in its movement toward an oil-independent economy. However, it seems that cutting oil revenues from the budget and allocating them only to a specific part of the country’s expenditures is not going to be an easy task.

Although, BPO has already suggested various substitute sources of revenue to replace those of oil, some experts believe that the offered alternatives are not practical in the short-term.

So, how successful will the government be in executing this plan? What are the challenges in the way of this program? What are the chances for it to become fully practical next year?

To answer such questions and to have a clearer idea of the notion, let’s take a more detailed look into this [so called] ambitious program. 

The history of “oil for development”

It is not the first time that such a program is being offered in Iran. Removing oil revenues from the budget and allocating it to development projects goes way back in Iran’s modern history.

In 1927, the Iranian government at the time, decided to go through with a plan for removing oil revenues from the budget, so a bill was approved based on which oil incomes were merely allocated to the country’s development projects.

This law was executed until the year 1939 in which the plan was once again overruled due to what was claimed to be “financial difficulties”.

Since then up until recently, Iran has been heavily reliant on its oil revenues for managing the country’s expenses. However, in the past few years, and in the face of the U.S. sanctions, the issue of oil being used as a political weapon, made the Iranian authorities to, once again, think about reducing the country’s reliance on oil revenues.

In the past few years, Iran’s Supreme Leader Ayatollah Seyed Ali Khamenei has repeatedly emphasized the need for reducing reliance on oil and has tasked the government to find ways to move toward an oil-independent economy.

Now that Iran has once again decided to try the “oil for development” plan, the question is, what can be changed in a program that was aborted 80 years ago to make it more compatible with the country’s current economic needs and conditions.

The substitute sources of income

Shortly after BPO announced its decision for cutting the oil revenues from the next year’s budget, the Head of the organization Mohammad-Baqer Nobakht listed three alternative sources of income to offset oil revenues in the budget planning.

According to the official, elimination of hidden energy subsidies, using government assets to generate revenue and increasing tax incomes would be the main sources of revenues to compensate for the cut oil incomes.

In theory, the mentioned replacements for oil revenues, not only can generate a significant amount of income, but they could, in fact, be huge contributors to the stability of the country’s economy in the long run. 

For instance, considering the energy subsidies, it is obvious that allocating huge amounts of energy and fuel subsidies is not a good strategy to follow.

In 2018, Iran ranked first among the world’s top countries in terms of the number of subsidies which is allocated to energy consumption with $69 billion of subsidies allocated for various types of energy consumption including oil, natural gas, and electricity.

Based on data from the International Energy Agency (IEA), the total amount of allocated subsidies in Iran equals 15 percent of the country’s total GDP.

The budget that is allocated for subsidies every year could be spent in a variety of more purposeful, more fruitful areas. The country’s industry should compete in order to grow, people must learn to use more wisely and to protect the environment.

However, practically speaking, all the above-mentioned alternatives are in fact long term programs that take time to become fully operational. A huge step like eliminating hidden subsidiaries cannot be taken over a one or event two-year period.

The development aspect

One big aspect of the government’s current decision is the “development” part of the equation.

A big chunk of the country’s revenues is going to be spent on this part and so the government is obliged to make sure to choose such “development” projects very wisely.

Deciding to allocate a huge part of the country’s income on a specific sector, makes it more prone to corruption, and therefore, a plan which is aimed to help the country’s economy could become a deteriorating factor in itself if not wisely executed.

The question here is, “Is the government going to spend oil money on all the projects which are labeled as ‘development’ even if they lack the technical, economic and environmental justification?”

So, the government needs to screen development projects meticulously and eliminate the less vital ones and then plan according to the remaining truly-important projects.

Final thoughts

Even if the “oil-free” budget is a notion that seems a little ambitious at the moment, and even if there are great challenges in the way of its realization, but the decision itself is a huge step toward a better future for Iran’s economy. Although realizing this plan seems fairly impossible in the short-term, it surely can be realized with proper planning and consideration in the long term.

Sooner or later Iran has to cut off the ties of reliance on oil incomes and start moving toward a vibrant, dynamic and oil-free economy; a journey of which the first step has been already taken.

From our partner Tehran Times

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Growing preference for SUVs challenges emissions reductions in passenger car market

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Authors: Laura Cozzi and Apostolos Petropoulos*

With major automakers announcing new electric car models at a regular pace, there has been growing interest in recent years about the impact of electric vehicles on the overall car market, as well as global oil demand, carbon emissions, and air pollution.

Carmakers plan more than 350 electric models by 2025, mostly small-to-medium variants. Plans from the top 20 car manufacturers suggest a tenfold increase in annual electric car sales, to 20 million vehicles a year by 2030, from 2 million in 2018. Starting from a low base, less than 0.5% of the total car stock, this growth in electric vehicles means that nearly 7% of the car fleet will be electric by 2030.

Meanwhile, the conventional car market has been showing signs of fatigue, with sales declining in 2018 and 2019, due to slowing economies. Global sales of internal combustion engine (ICE) cars fell by around 2% to under 87 million in 2018, the first drop since the 2008 recession. Data for 2019 points to a continuation of this trend, led by China, where sales in the first half of the year fell nearly 14%, and India where they declined by 10%.

These trends have created a narrative of an imminent peak in passenger car oil demand, and related CO2 emissions, and the beginning of the end for the “ICE age.” As passenger cars consume nearly one-quarter of global oil demand today, does this signal the approaching erosion of a pillar of global oil consumption?

A more silent structural change may put this conclusion into question: consumers are buying ever larger and less fuel-efficient cars, known as Sport Utility Vehicles (SUVs).

This dramatic shift towards bigger and heavier cars has led to a doubling of the share of SUVs over the last decade. As a result, there are now over 200 million SUVs around the world, up from about 35 million in 2010, accounting for 60% of the increase in the global car fleet since 2010. Around 40% of annual car sales today are SUVs, compared with less than 20% a decade ago.

This trend is universal. Today, almost half of all cars sold in the United States and one-third of the cars sold in Europe are SUVs. In China, SUVs are considered symbols of wealth and status. In India, sales are currently lower, but consumer preferences are changing as more and more people can afford SUVs. Similarly, in Africa, the rapid pace of urbanisation and economic development means that demand for premium and luxury vehicles is relatively strong.

The impact of its rise on global emissions is nothing short of surprising. The global fleet of SUVs has seen its emissions growing by nearly 0.55 Gt CO2 during the last decade to roughly 0.7 Gt CO2. As a consequence, SUVs were the second-largest contributor to the increase in global CO2 emissions since 2010 after the power sector, but ahead of heavy industry (including iron & steel, cement, aluminium), as well as trucks and aviation.

On average, SUVs consume about a quarter more energy than medium-size cars. As a result, global fuel economy worsened caused in part by the rising SUV demand since the beginning of the decade, even though efficiency improvements in smaller cars saved over 2 million barrels a day, and electric cars displaced less than 100,000 barrels a day.

In fact, SUVs were responsible for all of the 3.3 million barrels a day growth in oil demand from passenger cars between 2010 and 2018, while oil use from other type of cars (excluding SUVs) declined slightly. If consumers’ appetite for SUVs continues to grow at a similar pace seen in the last decade, SUVs would add nearly 2 million barrels a day in global oil demand by 2040, offsetting the savings from nearly 150 million electric cars.

The upcoming World Energy Outlook will focus on this under-appreciated area in the energy debate today, and examines the possible evolution of the global car market, electrification trends, and consumer preferences and provides insights for policy makers.

While discussions today see significant focus on electric vehicles and fuel economy improvements, the analysis highlights the role of the average size of car fleet. Bigger and heavier cars, like SUVs, are harder to electrify and growth in their rising demand may slow down the development of clean and efficient car fleets. The development of SUV sales given its substantial role in oil demand and CO2 emissions would affect the outlook for passenger cars and the evolution of future oil demand and carbon emissions.

*Apostolos Petropoulos, Energy Modeler.

This commentary is derived from analysis that will be published on 13 November 2019 in the forthcoming World Energy Outlook 2019. IEA

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