Recently, Wood Mackenzie published an opinion article, analyzing and predicting the ten major development trends of the global energy market in 2021. Global oil demand is expected to increase substantially in 2021, but the upstream oil and gas industry will continue to be sluggish; more companies will turn to low-carbon development and set emission reduction targets; sensational business mergers may occur in the US tight oil industry; solar power purchase agreements The price will reach a new low, falling below US$13/MWh; global electric vehicle sales are expected to increase by 74% year-on-year; more governments will invest in the supply chain of key energy transition resources to ensure supply security; the Biden administration is expected to adopt a cautious climate policy. The key content is as follows:
1. Strong oil demand growth will push up oil prices
With the gradual implementation of Pfizer’s new crown vaccine in the United Kingdom and the United States in mid-December, the shutdown caused by the epidemic will ease in the first quarter of 2021. It is estimated that in 2021, global oil demand will increase by 6.6 million barrels per day year-on-year, reversing the situation that global oil demand will decrease by nearly 10 million barrels per day in 2020. China’s oil demand in the fourth quarter of 2020 has strengthened, higher than the same period in 2019, indicating that global oil demand will increase significantly year-on-year in 2021, which will narrow the global oil supply and demand gap in the second half of 2021 and support oil prices.
2. Despite rising oil prices, the upstream oil and gas industry will experience a downturn for another year
It is expected that the investment level in the upstream oil and gas industry will remain at around US$300 billion in 2021. Approval of projects will increasingly be based on their environmental, social and governance qualifications. It is expected that about 20 large-scale projects will be approved in 2021 (only about 10 in 2020), but this will only reach the level before the outbreak of the new crown epidemic. Half of it. Oil and gas projects will develop towards low carbon and low cost.
3. Oil and gas companies will accelerate the diversified development of low-carbon energy
Major European oil and gas companies have put forward a vision of zero-carbon growth, and are expected to continue investing in low-carbon technologies in 2021 to lay the foundation for the transition to net zero emissions. The change of the US government, the 26th United Nations Climate Change Conference (COP26), and the changing wishes of stakeholders will all put more pressure on other international oil companies and state-owned oil companies.
4. More companies will set emission reduction targets
There are signs that the pressure on investors to respond to climate change is increasing. In December 2020, 30 fund managers who manage US$9 trillion in funds pledged to work hard to achieve net zero emissions in their portfolios by 2050. They also pledged to set mid-term targets for 2030 and control global temperature rise The trend remains the same at 1.5°C. In early 2021, EU and UK regulators will begin to push listed companies to adopt the recommendations of the Climate-Related Financial Information Disclosure Working Group to discuss their carbon emissions and climate risks. The joint pressure from investors and regulators will prompt more companies to make emission reduction commitments, and more companies with long-term aspirations will set mid-term emission reduction targets.
5. The U.S. tight oil industry will reach a sensational business merger
Everything needed for large-scale integration is ready. Companies with strong financial strength can take advantage of their capital cost advantages, while wise merger transactions can reduce maintenance capital, and diversified mergers will quickly alleviate the risks faced by tight oil companies. Therefore, it is expected that a huge deal will be reached in 2021, which will impact the entire tight oil market. If there are no major fluctuations in the crude oil market, two large companies will merge. Some recent transaction documents show that there may even be a merger of three large companies. It is expected that one (or three) well-known companies will exit the market in 2021.
6. The price of the solar power purchase agreement will hit a new low, falling below US$13/MWh, and the new low will not appear in the Middle East
The solar power purchase agreement price (PPA) usually plummets once every few months, and out of the five lowest price contracts of the power purchase agreement, four of them appear in the Middle East. The Middle East has favorable conditions for cheap solar energy: low capital costs, offtake guarantees, supplier rights, and sufficient sunlight. The United Arab Emirates has set the world’s lowest solar PPA price ($13.5/MWh). Spain and Chile will hold renewable energy auctions in January and May respectively. Both countries have comprehensive wholesale markets that can attract developers to actively bid and ensure that wholesalers will be profitable after PPA transactions. Asset owners will become more and more sophisticated, and when the cost of solar energy decreases and the life expectancy of the asset increases, they may give up the benefits of the full contract and accept some or all of the commercial risks.
7. Global sales of electric vehicles will approach 4 million, an increase of 74% compared to 2020
In order to alleviate the economic impact of the new crown epidemic, many countries’ stimulus plans include increased support for electric vehicles, and the measures adopted in 2020 are expected to take effect in 2021. China has extended its subsidy policy originally scheduled to expire in 2020 to 2022. Some EU countries have increased subsidies for electric vehicles. The new US government has pledged to support the electric vehicle industry and is expected to re-support California’s stricter fuel economy and Vehicle emission standards, which will help promote the sales of electric vehicles. These trends indicate that the sales of electric vehicles will usher in a substantial increase in 2021, but their sales will still only account for about 5% of the total global car sales.
8. More governments will invest in key supply chains of the energy transition
After visiting the White House, all the world’s largest economies will set the goal of achieving net zero greenhouse gas emissions in the next 30 or 40 years, and the low-carbon energy supply chain will be more strategic than ever. For some resources, including lithium, nickel, cobalt and other resources sometimes referred to as “energy transition metals”, the government will take measures to ensure supply security. These measures may include investing in key assets and providing financial guarantees for the private sector to invest in countries that have basic resources but have not yet invested.
9. China’s ban on coal imports from Australia will continue for a whole year
Although importing coal from Australia will undoubtedly bring great convenience to Chinese buyers, if they are willing to pay higher prices, there are many other resources to choose from. The international supply chain can be readjusted to continue to meet China’s coal demand. The sharp rise in China’s coal prices in 2020 indicates that the Chinese government is willing to provide financial support for the transformation of its import sources.
10. The Biden administration will be cautious in climate policy
Biden won the U.S. election. He promised to take immediate action to combat climate change, but the current political and economic situation in the United States will limit his speed of action, and the composition of the Senate will prevent the passage of any radical climate regulations. At least in the initial stage, the fragile economic situation will delay the introduction of measures that may lead to unemployment, such as the suppression of the oil and gas industry. The Biden administration will also take some important symbolic measures, including returning the United States to the “Paris Climate Agreement” and setting a goal of achieving net zero emissions in the United States by 2050 at the latest. In terms of specific policies, it is expected that the government will use more “carrot policies”, such as measures to loosen restrictions on offshore wind power investment, instead of using “stick policies.”