A report from the Boston Consultancy Group (BCG) has warned that the world may have already passed peak fossil fuel demand permanently, with the Covid-19 pandemic slashing the need for fossil fuels to levels from which they could never recover.
The report, ‘Have we passed peak demand for fossil fuels?’, modelled the impacts of the Covid-19 pandemic on the global power industry. In all models, global GDP is expected to fall by 3%-6% by the end of 2020, setting up a challenging 2021 regardless of the rate of recovery.
The BCG modelled four potential outcomes until 2021: the pre-pandemic forecast of November 2019, the ‘V-shape’ rapid recovery predicted by the International Monetary Fund (IMF), the ‘U-shape’ gradual recovery predicted by the International Energy Agency (IEA), and the ‘L-shape’ worst-case scenario discussed by the IMF in April this year. The group concluded that, while the impacts of the pandemic would be felt differently in different industries and across different countries, the IEA’s gradual recovery model would be the most likely to come to pass.
“In developed countries, demand for most fuels was already stagnating or declining,” wrote the group in the report. “The Covid-19 crisis has accelerated these trends. In emerging economies such as China and India, demand is more likely to recover and increase, but growth would remain below pre-crisis expectations.
“While it remains a scenario, our analysis suggests the possibility that demand for fossil fuels has already peaked,” the BCG continued. “If the world economy does not rapidly recover from the crisis, and if efforts to curb emissions accelerate moderately, global fossil fuel demand will have peaked in 2019.”
The report did outline a potential scenario for the world’s power industries to reach the more optimistic rapid recovery model of the IMF, however. The slower pace of electrification than the construction of fossil fuel facilities, in countries such as China and India in particular, could slow the move away from fossil fuels, and the long-term shift away from coal and oil to natural gas is unlikely to be impeded by the pandemic. However, many of these projections would see the world fall short of the Paris Agreement targets of limiting global temperature rise to 2°C by 2050, a conclusion that would pose a completely different set of problems for the industry.