The global energy sector in 2020 mainly featured crude oil price volatility due to the Covid-19 pandemic resulting in an energy demand slump, OPEC+’s production cut decisions in response to lower demand, and the rise in renewables as countries call for their inclusion in economic recovery plans.
- Oil prices slump
Crude oil prices in 2020 began trading over $60 per barrel supported by supply concerns due to the dramatic escalation in tensions between the US and Iran in January. The US confirmed on Jan. 3 a strike that was carried out killed Qasem Soleimani, the commander of the Iranian Revolutionary Guards Corps’ Quds Force.
International benchmark Brent crude traded above $70 per barrel on Jan. 6 to mark its highest level since May 23, 2019, while West Texas Intermediate (WTI) traded at around $64 a barrel, its highest level since April 9.
Through the end of January, the Covid-19 pandemic, which originated in Wuhan, started to spread worldwide through travel and trade lines and threatened global economic growth and overall oil demand. Oil prices began their steep decline on Jan. 20 when China reported a sharp rise in Covid-19 cases with 140 new patients. From that date until the end of January, crude oil prices headed for the biggest monthly declines since May 2019. Brent crude lost 13% and WTI fell by 11.4% during this period.
On March 6, OPEC+ failed to agree on deeper oil production cuts. Following the output cut agreement failure, Saudi Arabia and Russia stirred up an oil price war with both boosting their crude oil production levels at the beginning of April. Following announcements of this increased production, Brent fell to $31.27 per barrel and WTI plummeted to $27.34 a barrel on March 9 to mark their lowest levels since February 2016. The daily loss of both benchmarks, tallying to over 30%, was the largest single-day percentage decline since the Gulf War in January 1991.
At the 9th (Extraordinary) OPEC and non-OPEC ministerial meeting via webinar on April 10, OPEC+ agreed to lower collective crude oil production by 10 million barrels per day (bpd) until the end of the second quarter. However, despite the OPEC+ decision, oil storage levels witnessed sharp increases in April. This left less room for available capacity and finally led to a dive in Brent crude to below the viable threshold of $20 per barrel on April 21.
On April 15, the International Energy Agency (IEA) head, Fatih Birol, forecast a fall in global oil demand by a record 29 million bpd in April, making it the worst month in the history of the global oil market and labeling it "Black April".
On April 29, the EIA announced that low liquidity and limited available storage pushed the price of WTI crude oil futures below zero. It said that on April 20 WTI crude oil futures trade on the New York Mercantile Exchange (NYMEX) was priced in negative dollars per barrel for the first time since trading began in 1983. WTI, on that day, traded as low as minus $40.32 per barrel, while WTI prices remained below zero for the majority of trade during that day and the next.
On May 11, Saudi Arabia said it would unilaterally cut an extra 1 million barrels of oil production per day due to the huge burden of low oil prices on the Kingdom's budget. Meanwhile, Kuwait said it would slash an additional 80,000 barrels per day, while the UAE said it would also cut its oil output by an extra 100,000 barrels per day.
The IEA's flagship report Global Energy Investments 2020 revealed on May 27 that the Covid-19 pandemic has set in motion the largest drop on record of $400 billion in global energy investments, marking a 20% annual decline.
On May 28, an OPEC statement declared that Saudi Arabia and Russia agreed to further cooperate on their oil production adjustments to rebalance the global oil market.
OPEC+ agreed on June 6 to extend the oil cut agreement until the end of July, which was set to expire on June 30, and to continue to curb their total crude production by 9.7 million bpd.
Mid-June witnessed rising coronavirus cases in various US states and Wuhan in China, which triggered fears of a second coronavirus outbreak. On June 24, the IEA warned that 6.5 million energy workers globally could lose their jobs this year.
On July 15, OPEC+ agreed to ease their crude production cut from the existing level of 9.7 million bpd to 7.7 million bpd from August.
The months-long blockade on ports and oil facilities imposed by Libya's warlord Halifa Haftar lifted on Aug. 19, prompting a resurgence in Libya's oil industry.
On Oct. 15, the IEA projected recovery in global oil demand to pre-crisis levels by around 2023 in its World Energy Outlook (WEO) 2020 report.
An upward oil price trend emerged in November when positive news of an effective coronavirus vaccine was announced. This instilled economic recovery hopes and the possibility of an oil demand rebound.
On Dec. 11, oil prices extended gains when Brent reached $50 a barrel for the first time since March on optimism that global oil demand would rebound with progress on coronavirus vaccines.
- Renewable energy accelerates
The year, an acceleration in renewable energy installments surfaced, as many countries called for further clean energy penetration as part of economic recovery packages against Covid-19. The EIA announced on Feb. 27 that US annual wind generation in 2019 exceeded hydroelectric generation for the first time to become the top renewable source of electricity generation in the country.
On April 1, the European Geothermal Energy Council (EGEC) and 31 European associations, representing renewables and energy efficiency value chains, called on EU leaders to include the European Green deal in COVID-19 recovery plans.
On May 5, the IEA's report showed in the first quarter of 2020 that global renewable energy use was 1.5% higher than in the same period of 2019.
On June 26, the EU Council adopted resolutions in response to the post-pandemic recovery roadmap in the EU energy market, with a focus on cutting fossil fuel usage and the energy transition away from conventional resources to renewables.
On June 11, Germany agreed to invest billions of euros to expand the role of green hydrogen energy to help end the country's dependence on coal as part of its €130 billion ($147 billion) stimulus package against the coronavirus pandemic.
Goldman Sachs research published on June 18 revealed that renewable power would become the largest area of expenditure in the energy sector in 2021, surpassing upstream oil and gas for the first time in history. The share of renewables stood at just 15% in 2014, however, the bank said it is projected to reach 25% by 2021, driven by the bifurcating cost of capital of up to 20% for long-term oil projects and down to between 3% and 5% for renewables.
A recent report released on July 27 by London-based climate think tank EMBER disclosed that Europe's renewable electricity generation, for the first time, surpassed fossil fuel production in the first half of 2020.
The IEA's Renewables 2020 - Analysis and Forecast to 2025 report released on Nov. 10 revealed that clean energy power saw robust growth while other fuels struggle against the Covid-19 pandemic. The report said global renewable energy capacity this year is on track for 4% year-on-year growth to reach 198 gigawatts (GW), accounting for 90% of total power capacity additions.
On Dec. 14, the IEA projected a fall in global electricity demand by around 2% this year to mark the biggest annual decline since the mid-20th century as a result of Covid-19.
- Emissions to drop
The global lockdown during the spring of 2020 caused a massive drop in carbon emissions in April. An article called Temporary Reduction in Daily Global CO2 Emissions During the Covid-19 Forced Confinement, released on May 20, reported that Covid-19 caused a 17% drop, or a fall of 17 million tons daily in global carbon emissions in April.
As emissions dropped, the US officially exited the Paris Climate Agreement on Nov. 4, making the country the only major polluter in the world to leave the historic pact reached to combat climate change.
The 2020 Climate Transparency report prepared by 14 think tanks and non-governmental organizations on Nov. 18 projected a 7.5% fall in energy-related emissions in G20 countries by the end of 2020 compared with 2019 due to impacts of the pandemic.
On Dec. 11, the EU Council head announced that EU leaders agreed on cutting greenhouse emissions by 55% by 2030.
By Ebru Sengul Cevrioglu