From VZ.RU, unofficial translation
The Coronavirus and OPEC+ are both making tectonic changes to the global energy market. Coal, the cheapest energy source, suddenly became the most expensive fossil in the world. And super-cheap oil and gas threaten to bury renewable energy sources. What will the global energy market look like after the pandemic?
Coal, usually the cheapest energy source, has become the most expensive fossil fuel in the world. The epic collapse of oil has caused the black gold to be priced below the best-selling coal contracts in energy equivalent. Thus, March 20 futures for thermal coal (Newcastle Coal Futures) were trading at 66.85 dollars per ton, which is an equivalent of 27.36 dollars per oil barrel. At the same time, the price of Brent oil futures was at US$ 26.98 per barrel, Bloomberg reported.
In recent years, the coal industry has been going through hard times. The US and EU are getting rid of it due to environmental and climate considerations. In Asian countries, however, coal consumption continued to grow, even despite all strategies to diminish polluting fuels. For Asia, consuming gas in the form of LNG was quite costly, so in terms of economy, abandoning coal for the sake of the environment was not an easy decision to make.
However, cheap gas prices are encouraging countries to abandon coal at a much faster rate, something Greta Tunberg would be extremely happy about. Goldman Sachs analysts believe that even Japan may stop using part of its coal in favor of cheaper LNG this summer (2020).
Even such low prices are not able to destroy oil and gas production. They, however, stimulate faster funerals of the coal industry. On the other hand, coal is going to be replaced not by the sun and wind, but by gas, that is, a traditional source of energy. Moreover, coronavirus and OPEC+ will seriously affect main competitors of oil and gas - renewable energy sources (RES).
"When fossil energy sources become cheaper, it improves their competitiveness and attractiveness in the framework of inter-fuel competition. The cheaper oil and gas are, the more willingness consumers would have to switch to them. It undermines the green energy. Therefore, the current price drop leads to some advantages for the traditional energy," - says Igor Yushkov, the leading expert of the National Energy Security Fund.
As for oil and coal, there is no direct correlation between these two types of fuel. "Saudi Arabia uses oil both for heating and generation of electricity, but the only reason for that is they have plenty of oil, and it is very cheap," - says Yushkov. Unlike them, the rest of the world uses coal and oil in different segments. Coal is utilized to create heat and light, and oil to produce gasoline and masut.
Gas is tied to oil, and gas prices fell to historical levels for a number of reasons; gas goes side by side with coal. Even if the oil remains so cheap for half a year, it is unlikely that countries would switch power plants to it - most likely, the share of gas will increase instead - the industry expert says.
Inside the energy portfolio, gas is already beating coal. "In the European market, they prefer gas to coal, as it is more profitable. In Europe, the same thing is happening now that was seen in the USA thanks to the shale revolution. The cheaper gas will pull coal out from America's energy balance" - predicts Igor Yushkov.
The downward trend in the interest to green energy began in 2014 after the collapse of oil prices and the subsequent decline in gas prices.
"In 2014, a rebound in renewable energy sources was also observed. In general, in recent years, renewable energy sources have not grown as actively as before, when the price of oil was US$120 per barrel, and the price of gas was US$400 per thousand cubic meters " - indicates the expert at the FNES. At such prices, it was easier to introduce renewable energy sources: it was easy to justify the increase in tariffs and the allocation of subsidies for the development of wind and solar generation.
Renewable Energy Sources (RES)
Since then, oil has fallen five times, to a 17-year low of US$ 25 per barrel, and a thousand cubic meters of gas in the EU fell four times, to US$100. Now it is economically unviable to invest in renewable energy sources, even though costs of electricity production using the sun and wind have decreased significantly.
The peak of global renewable energy investments was seen back in 2017. Later in 2018, they fell by almost 12%, to US$289 billion, continuing to fall last year. In the first half of 2019 alone, investments fell by 14%, to US$117.6 billion, compared with the first half of 2018 (BNEF data excluding investments in large hydropower plants and "smart energy technologies"). The reason was that the world's largest renewable energy market, China, has sharply cut investment in the renewable energy sector, by almost 40%, to less than US$29 billion. So scarce the Chinese investments have not been seen since 2013. A drop in the investment was noticed both in the US and Europe too.
As for electric vehicles, the rival of oil, they also lost ground. THe world's sales in such cars slowed down by 10% last year, while in the US, which is believed to be the major market for electric vehicles, the sales fell by 10% for the first time in history.
From an economic point of view, low oil and gas prices leave little incentive for making investments into renewable energy. It is unlikely that green energy development projects come to a halt: there are two factors for contiunation, as Yushkov explains.
The first one is politics. Government officials in China, EU and the US - the three pillars of renewable energy development, made high-profile statements and developed strategies to increase the share of green energy in the energy mix. A refusal to comply with such statements would mean a complete failure.
Secondly, it is about environment. Through the Greta Tunberg project, there was an attempt to revive interest in the renewable energy which faded after 2014, and to spur falling investments in this industry. "RES is already an element of politics, environmental and humanitarian values. You are supposed to have a certain share of renewable energy sources if you consider yourself a civilized country. Although from an economic point of view, this is absurd" says Yushkov.
Clean environment, as you know, is one of the key values of the European Union. "To say the truth, the European values have quickly eroded under the threat of survival in the coronavirus disaster. The EU closed its borders as if there was no union or territorial unity" the expert indicates.
As soon as the situation gets back to normal, however, the Europeans will again recall the environmental agenda.
"Therefore, cheap oil and gas cannot permanently kill the renewable energy sources. The growth in the renewable energy sector will certainly slow down, there will be disruptions in the terms of projects and implementation of plans set by officials" predicts Igor Yushkov. A German think-tank Agora Energiewende also warned of a reduction in investment in green energy after the coronavirus is in the past.
It is noteworthy that the pandemic has already made a beneficial effect on the global environmental situation. In Beijing, for example, you can now see the sun, as well as the seabed in the Venice canals, and even fish and swans are coming back there. Just because the virus has stopped businesses and transportation in China and tourism in Italy. The German center estimates that harmful emissions into the atmosphere this year will be reduced by 50-120 million tons. The coronavirus crisis and the abnormally warm winter will help Germany achieve its climate change plans. "Therefore, in replies to accusations that they have consumed so much oil and gas, companies can now refer to the fact that this year the world has seen less pollution than usual" Yushkov concludes.