(Bloomberg) — Russia’s invasion of Ukraine heralds a tipping point for global energy markets that will shrink Moscow’s influence and hasten the transition to renewables, the International Energy Agency said.
Demand for all fossil fuels is set to hit a plateau from the middle of this decade as governments seek to shield themselves from the crisis by diversifying toward clean energy, the Paris-based agency said in its World Energy Outlook. Russia’s share of world oil and gas markets will halve by 2030, it predicted.
“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said IEA Executive Director Fatih Birol. “The energy world is shifting dramatically before our eyes.”
Global energy markets were already under strain at the start of this year, with prices surging as supplies failed to keep pace with the post-Covid rebound in consumption. But President Vladimir Putin’s attack on his neighbor in February has amplified the turmoil, sending natural gas prices to record levels and permanently redrawing the map of energy flows.
The Kremlin constricted, then halted gas flows through its Nord Stream pipeline to Europe. The disruption to energy markets is likely to worsen this winter as EU sanctions on Russian oil shipments — so far resilient despite widespread condemnation of Putin — take effect.
IEA members, which include most major consumers, have tapped rarely used emergency oil stockpiles twice since Russia’s invasion, and last week President Joe Biden deployed more of America’s reserves to rein in fuel costs.
As countries hunt for alternatives to Russian energy, the lasting consequences may be profound.
Rapid growth in demand for natural gas — often seen as a bridge fuel in the transition to low-carbon energy — will grind to a halt. Consumption will increase by less than 5% to the end of this decade and then stagnate to the middle of the century. Even Chinese gas demand growth will slow to 2% this decade, from the 12% seen since 2010, as it adopts electrification and renewables.
Global oil demand will reach a peak of 103 million barrels a day in the middle of the next decade — slightly later than suggested in recent IEA outlooks — and then decline “very gently” through to 2050, according to the report.
Russia, the world’s biggest exporter of fossil fuels before the current crisis, has so far shared in the $2 trillion windfall being enjoyed by producers. Yet its centrality to global markets is poised to recede dramatically, with exports of hydrocarbons never again reaching the levels seen last year.
Moscow’s share of internationally traded gas will shrink by half to 15% by the end of the decade, the IEA predicts. The country has so far managed to re-route oil shipments from Europe to Asia, but this type of substitution has its limits, and exports will likely drop 25% from the current level of 7 million barrels a day by the end of the decade.
Global energy markets have experienced unprecedented turbulence this year and the IEA’s forecasts have sometimes been off the mark.
A few weeks after the invasion of Ukraine, the agency predicted Russian oil exports would promptly slump by a quarter as buyers shunned the nation. That’s a forecast Moscow has managed to defy, largely by rerouting shipments to buyers in Asia.
The reconfiguration of energy markets predicted by the IEA would mean global carbon emissions peak in 2025, about five years earlier than previously expected. But that wouldn’t be enough to divert the world from its current path toward environmental disaster.
While annual emissions of carbon dioxide are poised to slow by 2050 — from 37 billion tons to 32 billion tons — world temperatures remain on track to increase by 2.5C this century, enough to cause “severe climate change impacts,” the IEA warned. Investment in clean energy will reach on only half the requisite $4 trillion a year.
In the meantime, the crisis is hitting the most vulnerable the hardest. The inflationary shock of higher prices means that 70 million people who only recently gained access to electricity will be unable to afford it, the IEA said. A further 100 million may be unable to to afford clean cooking fuels.
The fallout from this crisis only makes the case for the energy transition more urgent, according to the agency.
“This can be a historic turning point toward a cleaner and more secure energy system,” it said. “Today’s crisis makes it crystal clear why we need to press ahead.”