The photo is sourced from kline.co.jp
China is the New Leader in LNG Imports
The four leading Asian LNG consumers (China, Japan, India and South Korea) accounted for 60% of global imports in 2021 (vs. 59% in 2020), with another third coming from all other Asia-Pacific countries (12%) and Europe (21%). The key role of the Asia-Pacific region largely relates to gas’ growing importance for the local power generation: for example, in China, generation at its gas-power plants doubled in absolute terms, i.e. from 133 to 273 TWh between 2014 and 2021. This increase (by 140 TWh) is comparable to last year’s generation by all types of power plants in Norway (157 TWh in 2021). At the same time, China will continue to steadily increase gas consumption in the power industry. According to the Global Energy Monitor estimates, China accounts for 19% of the global gas-fired generation capacity under construction (31 of 161 GW).
Coal Renaissance in Europe
The BP report brought to mind renaissance of coal-fired generation in Europe, which took place against backdrop of last year’s energy crisis. In 2020, coal-fired generation in the EU decreased by 22%, but it increased by 19% (to 439 TWh) in 2021. One of the reasons is gas shortage, which caused decrease by 2% (to 548 TWh) of the generation volume at the EU gas power plants. Unfavourable weather conditions also played their role, as due to them increase in generation from renewable sources (excluding hydropower plants) was slightly more modest than the increase in generation from all types of power plants (3% vs. 4%). However, the share of coal in the EU generation mix increased only from 13% to 15%, which is significantly behind the 2010 level (25%). The matter is that a long-term withdrawal of the coal-fired power units has made its impact. According to the Ember Research Center estimates, the installed capacity of the EU coal-fired power plants decreased by 50 GW within 2010-2021, while capacity of the gas-fired power plants increased by 25 GW, and solar panels and wind generators – by 129 GW and 109 GW, respectively.
South America is a new Flagship of Renewable Energy Development
One of the surprises contained in the BP review is the global leadership of Central and South America in the growth rate of renewable generation capacity. The installed capacity of wind turbines in the region grew by 23% (to 31.8 GW) in 2021 and solar panels – by 47% (to 22.8 GW), outpacing similar growth rates for the Asia-Pacific Region (16% and 18% respectively), and the world as a whole (13% and 19%). There is no doubt that one of the reasons is a low base effect: the share of the region in global wind power capacity (even in late 2021) was only 4% (against 48% in the Asia Pacific region) and 3% in the structure of photovoltaic capacity (against 60% in the Asia Pacific). However, this share will grow rapidly in the coming years. For example, Brazil is going to hold a tender for the construction of the country’s first offshore wind power plant (WPP) in the coming autumn. As Marcelo Freire, Minister of Natural Resources of Brazil estimates, natural and climatic conditions allow Brazil to commission 700 GW of the offshore wind power plants, which is four times higher than the installed capacity of all power plants available in the country.
Deficit in the Oil Market
Another mini-sensation of the review is the deficit volume in the oil market. Global oil production (excluding condensate) was 89.9 million barrels per day (bpd) in 2021 but its global demand was 94.1 million bpd. The difference of 4.2 million bpd is comparable to the production of Iraq (4.1 million bpd), OPEC’s second largest producer after Saudi Arabia (11.0 million bpd). The production growth rate (by 1.4 mln bpd) was more than three times lower than the oil demand growth rate (by 5.3 mln bpd), which was intensively recovering amid easing of the COVID restrictions and growth in the transport sector. Thus, global jet fuel demand increased by 11% (up to 5.3 million bpd), while the demand for gasoline and diesel increased by 8% (to 23.2 million bpd) and 5% (to 26.9 million bpd), respectively. The share of these three oil products in the final oil consumption was 59% in 2021. So, the growth of land, sea and air traffic led to a consumption jump the producers were unable to keep up with, and which resulted in a price rally: the Brent average price rose from $42 per barrel in 2020 to $71 in 2021, and the Middle East grade Dubai rose from $42 to $69.
Price rise was a cross-cutting trend for raw materials markets in 2021. For example, the cost of gas at the TTF key hub in Europe quadrupled in 2021 (from $3.1 to $16.0 per million British thermal units), but energy coal prices in Asia doubled (from $71 to $145 per ton). A similar trend is typical for the prices on cobalt and lithium carbonate, which increased by 63% (up to $51 per ton) and 58% (up to $11 per ton), respectively, in 2021. In addition to the already mentioned gas shortage in Europe and a decade record increase in coal fired generation (by 9%, to 10,244 TWh), the electric car boom has also made its impact in this case: the global fleet of battery-powered electric vehicles grew by 64% (to 11. 3 million units) in 2021, and the number of rechargeable hybrids – by 55% (up to 5.2 million), according to the International Energy Agency (IEA). Therefore, cobalt and lithium have earned the status of new gold.
Boom in Low-Carbon Generation and Transport
The electric car boom has also led to production increase of the metals used in battery production: global lithium production increased by 27% (up to 106,000 tons), cobalt – by 4% (up to 131,000 tons), and graphite – by 16% (to 1,223 thousand tons). At the same time, the world’s rare metal producers are far from exhausting the resource base for increasing their output. Cobalt reserves are 52 times higher than last year’s production; in lithium production, this difference is 191 times, and in graphite production, it is 298 times.
The ratio of uranium reserves to production in 2021 reached 126 (48.8 thousand tons against 6,148 thousand tons, according to the International Nuclear Association). Good state of the raw material base can support the seventh trend in the global energy markets (to be traced from the BP report) – a global jump in nuclear generation, the volume of which increased by 4% last year (to 2,800 TWh). That increase was recorded not only in Europe (by 6%, up to 993 TW*H), but also in the Asia-Pacific Region (by 9%, up to 714 TW*H), in the Middle East (by 78%, up to 14 TW*H), in the CIS (by 5%, up to 230 TW*H) and in Central and South America (by 4%, up to 26 TW*H). This is a clear sign that the demand for low-carbon energy, which cannot be met only by wind turbines and solar panels, is driving nuclear power generation.
In general, the BP review reflects both the post-COVID recovery in energy demand and longer-term trends, should it be the transition to gas generation in Asia, expansion of the geography of renewable energy sources or the production boom of new gold (lithium, graphite and cobalt).