You might be familiar with the annual report ranking the world’s most liveable cities, particularly if you live in Melbourne, which has been ranked the world’s most liveable city multiple times.
That report is produced by the Economist Intelligence Unit (EIU), which continually analyses data from nearly 200 countries to provide impartial intelligence that can help corporations, governments, and financial institutions make informed decisions about opportunities and risks.
One of the EIU’s other annual reports covers the global energy outlook, offering a comprehensive view of the challenges, opportunities, and trends to watch in the coming year.
We recently read the 2024 version with great interest.
“Surging demand defies wars and high prices”
That’s the headline: Surging demand defies wars and high prices.
It’s a pretty effective and accurate summation of what’s in the report.
The summary paragraph gives just a bit more detail:
“Global energy consumption will grow by 1.8% in 2024, largely driven by strong demand in Asia. Despite still-high prices and unsolved supply chain disruptions, demand for fossil fuels will reach record levels, but demand for renewable energy will rise by 11%.”
Two of those things won’t come as a great surprise to most. With population growth, ever-increasing development, and more prolonged periods of extreme heat, we would expect energy consumption to rise. And we know renewables are on the increase almost everywhere around the world.
However, the prediction that global coal, gas, and oil demand will reach record levels warrants a closer look.
Demand for fossil fuels will be driven by Asia and the Middle East
The EIU notes that while continued high gas prices will pull down demand in Europe and North America, gas consumption in Asia and in the Middle East will grow rapidly, driven mainly by strong demand from the power generation sector.
Meanwhile, coal consumption will continue its upward trajectory because many governments are concerned about energy security. The EIU data analysts expect global coal demand to continue growing until 2026.
However, they believe that European coal consumption will decline sharply in 2024 as France and the UK phase out coal-fired power generation.
An increase in the demand for oil will be mainly driven by Asia, Latin America, and the Middle East, with lower demand growth in North America and hardly any growth in demand in Europe.
When the demand is there, supply will find a way to meet it
One thing we know about the supply-demand equation is that when anything is in high demand with limited supply, it’s likely to cost more. Investors, corporations, and even government-run entities tend to see that as a pretty strong incentive to do business.
To that end, the EIU forecasts that high commodity prices and EU efforts to replace Russian energy supplies will continue to attract new investment into fossil-fuel production in 2024.
They expect global natural gas production to increase, particularly coming from North America, Norway, the Middle East, North Africa, Azerbaijan, Turkmenistan, China, Australia, and Mozambique.
As the US expands its capacity to export liquefied natural gas in the coming years, domestic production will also increase.
Petrol prices are likely to remain high
Oil prices are expected to remain high throughout 2024, largely due to the decision by OPEC (the Organization of the Petroleum Exporting Countries, which is led by Saudi Arabia) to cut production. Russia has also said it will continue its own cut in production, which was announced a year ago, until the end of 2024.
In response to still-high prices and continued demand growth, the EIU expects a supply response of about 1.2 million barrels per day (b/d). About 540,000 b/d will come from OPEC, with the US making up the difference.
Strong demand growth in non-OECD countries and still-elevated prices will encourage US producers to raise their output in 2024.
Renewables will keep growing
As we said, it’s no great revelation to say that the demand for renewable-sourced energy will continue to grow. However, it is interesting to see how the EIU has analysed and reported on this part of the outlook. For example, their opening paragraph to this section is succinct:
“The need to strengthen energy security in the wake of the energy crisis, in addition to decarbonisation efforts, will drive many governments to push ahead even faster with the deployment of renewable energy.”
The forecast is that combined solar and wind energy consumption will grow by about 11% year on year. Capacity additions reached a record high of about 400 GW in 2023, so any increase on that figure for this year will be significant.
It’s not all rosy for renewables, though
The increase in renewable energy capacity is still facing some headwinds, so to speak.
There are unresolved supply-chain issues and the cost of mining the required elements is constantly rising. In general, the costs involved in renewable-energy projects are putting off some prospective investors, and denting the enthusiasm of some who are already involved.
And that’s only referencing large-scale solar and wind projects. Increased “clean” (or “green”) hydrogen production is on the agenda for many countries, but that, too, is challenging.
As the EIU report explains, most hydrogen production currently is of grey hydrogen, which is made through fossil-fuel reforming. Rapid growth in clean hydrogen production will require a massive expansion in electrolysis capacity, however, producing hydrogen using electrolysis is mineral- and metal-intensive … not to mention that the process shares some of the main raw materials with the manufacturing of renewable energy technologies.
That means any rapid expansion in electrolyser production is likely to boost mineral and metals prices, which in turn will raise the cost of all forms of renewable energy generation. Add to that the fact that the production of green hydrogen will compete with other sectors of the economy for scarce renewable energy output.
It all adds up to any significant increase in hydrogen production being less likely, at least in the short term.
A couple of other takeaways from the report
The report also forecasts lacklustre offshore wind auctions and some new nuclear reactors in France, the US, and South Korea, while two in the UK are expected to be decommissioned.
The EIU team anticipates low investor interest in slated auctions for offshore wind projects in the US, Germany, Finland, Italy, Brazil, and India. They cite a host of challenges, including rising input and financing costs, supply-chain disruptions, and infrastructure limitations.
In terms of nuclear energy, a new 1.6-GW reactor is about to come online at France’s Flamanville nuclear plant. Notably, though, as the first of a new type of reactor, it’s been beset with protracted delays and cost overruns.
The global energy landscape is constantly shifting
One thing this report brings home is that there are many variables impacting the energy sector.
Regardless of best intentions governments are still constrained by reality.
Things take time, cost money, and require the sourcing of sometimes difficult-to-obtain materials, not to mention that the global landscape is constantly changing and a project that makes economic sense when announced might be less attractive when the shovels need to go into the ground to start work.
There will often be some sort of tipping point where a project might move from being viable to not really worth pursuing, although things can also shift in the opposite direction, too.
The energy sector has long been a challenging space to operate in, and perhaps that’s more the case right now than ever before. There really are a lot of people with positive intent, but idealism has never paid the bills.
As far as we’re concerned, we want things to stabilise as much as possible, because stability and reliability usually means less volatility and lower prices for consumers.