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Oil price rises in 2019 to be modest as U.S. production constraints ease: World Bank

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Growing global trade tensions are weighing on non-energy commodity prices and are leading to downward revisions to 2019 price forecasts, the World Bank said.

Oil prices are forecast to average $74 a barrel over 2019, only marginally up from a projected average of $72 a barrel in 2018, while metals prices are expected to remain broadly stable in 2019, the World Bank said in its October Commodity Markets Outlook.

Prices for energy commodities – which include oil, natural gas, and coal — are forecast to average 33.3 percent higher in 2018 than the previous year but to broadly stabilize in 2019, the World Bank said. U.S. oil production growth is expected to be robust whereas oil production losses are expected in Iran and Venezuela. Global demand is expected to hold steady.

Prices for agricultural commodities, including food commodities and raw materials, are anticipated to decline marginally in 2018 amid ample supply and trade tensions before rising 1.6 percent in 2019.

The metals index is expected to rise 5.4 percent this year and decline modestly in 2019. Prices could drop more than expected if global trade frictions intensify.

“Further escalation of trade restrictions between major economies could lead to large economic losses and cascading trade costs through global value chains,” said Shanta Devarajan, World Bank Senior Director for Development Economics and acting Chief Economist. “Any setbacks to growth in major economies would have significant negative repercussions for the rest of the world through trade, confidence, financial, and commodity-market channels.”

The imposition of both commodity-specific and broad-based tariffs this year has reduced and diverted trade flows; amplified price differentials between some countries among some commodities including soybeans, steel and aluminum; and more generally led to concerns about weaker global trade and growth prospects, the World Bank said in the report.

“The outlook for commodity prices is highly uncertain given a number of policy-related risks, which include the possibility of additional tariffs or sanctions,” said Ayhan Kose, director of the World Bank’s Development Economics Prospects Group. “In addition, demand for industrial commodities is likely to soften in coming years. A large number of emerging market and developing economies depend on raw materials for government and export revenues and should therefore be strengthening policy frameworks and rebuilding fiscal buffers.”

A special focus section examines changing patterns of demand for industrial commodities – energy and metals – and their implications for developing economies. Over the past 20 years, demand for commodities has surged in large part due to demand from China. As China’s economy matures and shifts toward less commodity-intensive activities, energy and metal demand growth is likely to slow.

“Slower growth in commodity consumption would likely dampen prices,” said John Baffes, Senior Economist and lead author of the Commodity Markets Outlook. “Further, other factors, such as advances in technology, shifts in consumer preferences, environmental concerns, and policies to encourage cleaner fuels could lead to sharper declines in global use of some commodities than current trends indicate.”

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IEA gathers first meeting of network of experts on oil and gas methane regulation

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The IEA held a workshop in January 2020 that brought together more than sixty members of industry, policy and regulatory bodies, technical experts and other knowledgeable stakeholders to exchange views on ways to best step up efforts to regulate methane emissions from the oil and gas sector.

The meeting was hosted in collaboration with the Florence School of Regulation, the United Nations Environmental Programme, and other partners of the Methane Guiding Principles (MGPs), a multi-stakeholder collaborative platform of industry, intergovernmental organizations, academia, and civil society.

The MGPs were created following the in-depth focus on oil and gas methane emissions in the IEA’s World Energy Outlook (WEO) 2017. The activities under the MGPs aim to reduce the environmental impacts associated with oil and gas supply, recognising that – even with ambitious efforts to reduce greenhouse gas emissions – these fuels are set to remain part of the energy system for many years to come.

IEA analysis has highlighted over many years the importance of addressing methane emissions from oil and gas operations, as a powerful and cost-effective way to reduce the environmental footprint of these fuels. One of the key ways to do so, written into the principles, is via “sound methane policies and regulations that incentivise early action, drive performance improvements, facilitate proper enforcement, and support flexibility and innovation.”

The one-day event heard presentations from a diverse set of stakeholders—including principal actors from country regulatory bodies and leading thinkers from civil society groups—sparking discussions on how to carry forward lessons learned from existing regulatory approaches in other jurisdictions to mitigating methane, and opportunities to expand the geographic reach of successful methane regulation. In total, more than thirty countries were represented at the workshop.

According to the IEA’s most recent estimates, annual methane emissions from oil and gas are around 80 million metric tonnes. Despite heightened attention to the topic, the effect of today’s voluntary initiatives and commitments from policymakers is not sufficient to meet global climate goals outlined in the Sustainable Development Scenario.

“The world needs to take every opportunity to reduce methane emissions as an integral part of tackling climate change,” IEA Deputy Executive Director Paul Simons said in his opening to the workshop. “Our aim today is to exchange views and lessons learned on what approaches work and what don’t work; what are the different considerations that have shaped regulation and enforcement in different jurisdictions around the world; and what can be done to support and widen these efforts.”

The importance of taking action on feasible, cost-effective methane abatement opportunities has been underscored in consecutive WEO analyses examining the environmental impacts of fossil fuel consumption and production. It was also a core message of an IEA special report, ‘The Oil and Gas Industry in Energy Transitions,’ released last month. 

Building on its multi-tiered methane analyses, the IEA has launched the Methane Tracker, an online information platform that lays out a coherent set of estimates for global oil and gas methane emissions on a country-by-country basis. In a first-of-its-kind assessment, the Tracker also estimates the abatement potentials and costs of avoiding emissions that are possible by applying methane mitigation technologies across oil and gas value chains.

Since the Tracker’s initial release in July of last year, a number of new features have been added to the online tool, including a new section that covers policy and regulatory approaches to methane and features a database populated with methane regulatory measures from key oil and gas producing jurisdictions.

Over the course of 2020-21, the IEA will make further advancements to the Tracker with the aim of continuing to develop the tool to be useful for governments, industry and other stakeholders working to tackle methane emissions from the oil and gas sector. These advancements will take a particular eye towards policymakers and regulators seeking to improve or create policy for methane reductions, including continued expansion of the policy and regulation database and the coverage of regulatory analysis. The IEA also plans to reconvene the network of experts within this timeline. 

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New Strategy to Help Vietnam Scale Up and Better Utilize Solar Power

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A report based on two years of World Bank support to the Government of Vietnam recommends new approaches to bidding and deployment for solar projects that will help Vietnam substantially boost and effectively manage its abundant solar energy resources.

Such approaches could boost Vietnam’s solar generation capacity from the current 4.5 gigawatts to the tens of gigawatts range in ten years, while creating thousands of new jobs, according to the new World Bank Vietnam Solar Competitive Bidding Strategy and Framework report. The deployment of new solar generation will be a critical factor for the Government of Vietnam to meet its Nationally Determined Contribution (NDC) climate change target and reduce its need for new coal generation.

The report comes as Vietnam is considering moving from a feed-in-tariff (FIT) policy to a competitive bidding scheme for solar projects to reduce the cost of solar generation. The FIT has been successful in recent years, spurring the fast deployment of projects at a time when Vietnam has also become a world leader in solar module manufacturing. However, this success has also given rise to new issues, including curtailment —or underuse of solar generation capacity.

The report, supported by the Global Infrastructure Facility (GIF) and the World Bank’s Energy Sector Management Assistance Program (ESMAP), recommends two new deployment schemes for projects: competitive bidding for solar parks, and ‘substation-based bidding’—competitive bidding based on available capacity at electrical substations. These approaches would address the curtailment issue as well as improve risk allocation between public and private investors.

The first pilot tenders—500 megawatts (MW) for substation-based bidding and another 500 MW for ground-mounted solar parks—are being planned for later in 2020 with the technical and financial support of the World Bank.

“The World Bank is fully committed to helping Vietnam achieve its sustainable energy ambitions,” said Ousmane Dione, World Bank Country Director for Vietnam. “We expect that this new strategy will open up a new chapter in Vietnam’s already successful solar power expansion.”

Beyond the new approaches to competitive bidding, the report recommends setting yearly and medium-term solar deployment targets and revisions to the legal framework covering the competitive selection of independent power producers.  

The report estimates that the expansion in solar generation capacity in Vietnam could generate as many as 25,000 new jobs in project development, services and operations and maintenance annually through 2030 and another 20,000 jobs in manufacturing provided Vietnam maintains its current share of the global solar equipment market.

“We are grateful for World Bank support to promote renewable energy in Vietnam,” said Hoang Tien Dung, General Director of Electricity and Renewable Energy Authority, Ministry of Industry and Trade. “In particular, the World Bank’s support to the Government’s effort in shifting from FIT to a competitive bidding mechanism for solar PV could be applied for other types of renewable energy in the future. It contributes to the sustainable and transparent development of renewable energy in Vietnam by harmonizing the interests of private investors, the government and customers.

The World Bank has been instrumental in supporting the Government of Vietnam’s solar development planning for years. Since 2017, with financing from ESMAP and GIF, the World Bank has provided a large portfolio of technical assistance ranging from solar resource mapping to strategic advice on mobilization of private investment in utility-scale solar projects. 

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Building a “Grand Coalition” to bridge the gap between energy and climate goals

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photo: IEA

Ministers and high-level representatives from COP host countries met at the International Energy Agency on Wednesday to review ways the energy sector can meet climate and other sustainability goals.

The speakers included Kwasi Kwarteng, the Minister for Business, Energy and Clean Growth of the United Kingdom, which holds the Presidency of the upcoming COP26 this year; Michał Kurtyka, Poland’s Minister of Climate and President of COP24; and Joan Groizard Payeras, Director-General of the Energy Agency at the Ministry for the Ecological Transition of Spain, which hosted the COP25.

Held at the IEA headquarters in Paris under the Agency’s “Big Ideas” speaker series, the conference was attended by Ambassadors and senior representatives from about 50 countries, industry executives, and representatives from financial and international organizations.

The conference took place a day after the IEA announced that global carbon emissions had stopped growing last year, defying common expectations that they would increase in 2019. The news provided a positive backdrop for the discussions, which were chaired by Dr Fatih Birol, the IEA’s Executive Director.

As part of its mandate as the leading global energy organization, the IEA is focusing on both energy security and global clean energy transitions, helping governments steer the energy sector towards international climate targets in a secure, sustainable and affordable manner. In his opening remarks, Dr Birol pointed out that the energy sector accounts for most of the global carbon emissions, and has a key role to play in global energy transitions.

“Without solving the challenge of the energy sector, we have no chance of solving our climate challenge,” Dr Birol said in his opening remarks. “We want 2019 to be remembered as the year of peaking global emissions and the 2020s as the decade of the decline in emissions. And the energy sector is ready to be part of the solution.”

As part of its commitment to bridging the gap between the energy sector and the climate goals, the Agency announced it would hold the IEA Clean Energy Transitions Summit on 9 July in Paris. This ministerial-level event will bring together key government ministers, CEOs, investors and other major stakeholders from around the world with the aim of accelerating the pace of change through ambitious and real world solutions.

The immediate aim will be to focus on concrete actions to reverse the growth in carbon emissions this decade, focusing on all the fuels and existing technologies that can help achieve that goal rapidly.

To support these objectives, the IEA will publish two major studies ahead of the summit. The first will be a World Energy Outlook Special Report that will map out how to cut global energy-related carbon emissions by one-third by 2030. The second will be the newest Energy Technology Perspectives report, which will focus on an energy sector pathway for reaching net-zero emissions, looking in detail into all technology opportunities that could help to reduce emissions in hard to abate sectors.

The IEA Clean Energy Transitions Summit will be preceded by the fifth edition of the Agency’s annual energy efficiency ministerial conference, which will also take place in Paris on 8 July, and will be an opportunity to review the findings of the IEA’s Global Commission for Urgent Action on Energy Efficiency.

“The debate around climate change is sometimes too heated and there is too much tension between the energy community and the climate change community,” said Dr Birol. “We think this debate needs to be taken in a cool-headed manner. This calls for a grand coalition that brings together all the stakeholders that have a genuine commitment to reducing emissions – governments, industry, financial institutions, international organizations and civil society. Without this grand coalition, it will be very difficult to address this challenge.”

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