In comparison to 1990, Cyprus’ emissions have actually increased by over 50%
EU leaders agreed on December 11 to set a very ambitious climate target: to cut greenhouse gas emissions (GHG) by at least 55 per cent by 2030 in comparison to 1990 levels, substantially up from the previous target of 40 per cent. This will have profound implications on the way energy is produced and consumed within the EU, but also on member states’ national energy and climate plans (NECP). Achieving this target will mean a faster and bigger switch from fossil fuels to renewables and a faster shift to electric vehicles, requiring huge investments in the energy sector – estimated to be about €350 billion/yr.
This new target, combined with Europe’s Green Deal, is part of the plan to reach net-zero emissions by 2050, making the EU the leader in the fight against climate change.
The EU is well on the way to achieving this, having reduced GHG emissions by about 24 per cent between 1990 and 2019. Cyprus, with a dose of creative accounting, achieved its own 2020 target to reduce such emissions by 13 per cent in comparison to 2005. But in comparison to 1990, Cyprus’ GHG emissions have actually increased by over 50 per cent.
Achieving the new 55 per cent target is likely to require the national GHG emission reduction, renewable energy and energy efficiency targets to increase. This may be done during the next formal revision of the NECPs in 2023. This process will include Cyprus that almost certainly will have to up its, so far, modest targets.
The EU also achieved another major breakthrough. It broke the deadlock over the €1.8 trillion recovery fund, about a third of which is earmarked to fund the green and digital transition.
Decisive moves on climate
There have been decisive moves on clean energy globally due to progressively lower costs of solar and wind power and batteries, driven also by the increasing number of countries committing to achieve net-zero emissions by 2050.
In addition to the European Green Deal, the EU has now adopted a hydrogen strategy, as a longer-term replacement of natural gas in hard-to-abate industries, and a strategy to curtail methane emissions. This will affect gas plants and particularly LNG import terminals.
These developments will start impacting gas demand by mid-2020s, with gas demand in Europe expected to decline by 20-25 per cent by 2030 and by 75-85 per cent by 2050.
As a result, Europe has all the gas it needs and does not need any more large gas import pipelines, including the much talked-about EastMed Gas Pipeline.
The election of Joe Biden as the next president of the US will bring major changes to the global clean energy sector. His declared priority is to bring the US back into the Paris Agreement.
He has also committed to eliminate carbon emissions from the US power sector by 2035 – and likely to net-zero by 2050 – and will revamp the US energy industry, putting climate change-driven policies at the centre of it.
These policies will have a far-reaching impact on US oil and gas industry, but also on global energy. Biden is committed to fully integrate climate change into US foreign and national security policies. The naming of John Kerry as ‘climate-tsar’ is indicative of the importance Biden places on this.
Under Biden’s presidency, oil and gas are not likely to be driving factors in shaping future US policy in the Middle East and East Med
Globally, other major gas importers that have committed to net-zero by 2050 are Japan and South Korea, with China aiming for 2060. According to the UN, 22 countries have committed to net-zero to-date, and more than 120 have announced plans to do so.
With most of the biggest natural gas consumers in the world committing to net-zero, combined with the low cost of solar and wind power and batteries, it will impact future of fossil fuel demand.
Impact on fossil fuels
According to BP’s World Energy Outlook 2020, the transition to a lower carbon energy system will result in a restructured and more diverse energy mix and a decline in the share of fossil fuels, with a corresponding increase in renewable energy.
Global oil consumption will fall over the next 30 years, driven by the increasing efficiency and electrification of road transportation. Under net-zero, it will peak in the early 2020s and decline by 80 per cent by 2050. Global natural gas consumption will also peak in the mid-2020s, and by 2050 it will be around a third lower.
The world is going greener. The writing is on the wall for the longer-term survival of fossil fuels.
Global markets and prices
There was already a glut of LNG in global markets in 2019 that kept prices low. Competition with renewables is also a major and increasing factor.
Covid-19 and its devastating impact on the global economy and energy demand, and the oil price collapse, brought gas/LNG prices down to very low levels.
And yet more LNG is coming into the market, with demand not catching up. The IEA and Bloomberg forecast longer-term overcapacity and oversupply.
This means that low prices will be with us for the rest of the decade, making it very difficult for expensive East Med gas to secure sales in global markets – the future is regional.
But rapid global economic recovery post-Covid-19 may actually lead to short-term growth of both oil and gas demand to levels higher than pre-Covid-19, as renewables will be unable to respond that fast. Goldman Sachs predicts that oil demand will increase to over 102 million b/d by 2022, with prices rising to $65/b, driven by Asia.
The oil and gas sector is in crisis worldwide, with massive losses so far in 2020. The international oil companies (IOCs) – including Chevron and ExxonMobil – have announced 20-50 per cent spending cuts between 2020-2025, as well as 10 per cent-15 per cent staff cuts. Restructuring and consolidation is taking place and recovery may take 2-3yrs.
Between 2019-2020 IOCs announced over $80billion asset write-downs due to shift away from oil and gas – with European IOCs transiting to renewables – and low prices.
The IOCs are going for large projects, easy to develop, with high returns. Where this is not the case, they are looking into divesting assets. East Med does not fit into this.
The energy future of East Med countries, including Cyprus, should rest on maximising the development of renewables and exploiting gas resources regionally – requiring resolution of regional problems. The EU and the US could become catalysts to achieve this. The region needs a new energy model.
Dr Charles Ellinas, Senior Fellow, Global Energy Centre, Atlantic Council
@CharlesEllinas
