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How the IEA sees the future of energy



For all the talk of recoveries and bouncebacks, Covid-19 will leave an indelible mark on global energy.

The pandemic could leave the world facing the weakest decade of energy demand growth since the 1930s, the International Energy Agency today predicted — if the recovery goes slowly. And 150-odd years of almost untrammelled expansion in oil consumption could end within the next decade — if policies are enacted as planned. As much as the pandemic has hit energy demand, it has disrupted the many certainties in energy forecasting. The IEA’s much-awaited World Energy Outlook is Energy Source’s focus today.

Data Drill charts plans to rapidly build up renewable hydrogen capacity, while Endnote takes a look at Equinor’s ill-fated foray into US shale — and what it says about the sector at large.

Thanks for reading. Please get in touch at You can sign up for the newsletter here. — Myles

The IEA is hopeful about recovery, but gloomy about transition

The IEA’s new World Energy Outlook landed today: the third major energy projection, after BP’s and Opec’s, since the pandemic upended all forecasters’ models.

Its central forecast — the Stated Policies Scenario, or Steps — is startlingly optimistic about the world’s recovery from Covid-19, presuming the virus will be “gradually brought under control in 2021”, allowing the global economy to recover its pre-virus verve next year too. But CO2 emissions from energy will also continue to rise. 

One takeaway: there’s good news ahead for clean energy. The pandemic has been kinder to renewables than fossil fuels, the report states. Energy demand will end up 5 per cent lower in 2020 than last year and energy-related emissions will be down by 7 per cent. Consumption of the two dirtiest energy sources, oil and coal, are set to fall by 8 and 7 per cent, respectively. Demand for clean energy this year will be higher than last.

The pandemic has been especially terrible for poor countries, and energy poverty is getting worse. Five-hundred and eighty million people in Sub-Saharan Africa will end this year without access to electricity. This reverses several years of progress, says the IEA.

Covid-19 “catalysed a structural fall in global coal demand”, says the IEA, and coal’s growth story is now over. Demand never recovers its pre-crisis levels, even in Steps, and its share of the energy mix falls below 20 per cent for the first time since the Industrial Revolution by 2040.

Solar photovoltaic is now “consistently cheaper” than new coal- or gas-fired plants in most countries and solar projects “now offer some of the lowest cost electricity ever seen”. Renewables meet 80 per cent of growth in electricity until 2030. Solar, the IEA says, is the “new king of electricity supply and looks set for massive expansion”, growing 13 per cent a year in the next decade. (It does even better on the Sustainable Development Scenario.)

The central Steps scenario will offer modest comfort to the oil industry. Yes, it declares that the “era of growth in global oil demand comes to an end within 10 years”. But a BP-outlook-style collapse this is not. What the IEA calls an end to oil demand is, in its central scenario, a gentle plateauing, including even modest annual increases. In Steps, the world will burn a bit more oil in 2040 than in 2030, when it will burn more oil than it did in 2019.

Line chart of Million barrels a day showing Diverging paths for global oil demand

Transport, in particular, holds up its end of oil demand, rising by 3.5m b/d until 2030 after efficiency improvements and fuel switching are baked in. This is almost as bullish an outlook for oil demand in transport as Opec offered in its long-term forecast last week.*

In fact, pandemic-related behaviour changes will actually increase oil demand a bit, reckons the IEA. Forget all those cancelled flights, teleworking, and empty commuter parking lots. The shift away from public transport to private cars, the delay in purchasing new ones, and consumers’ preference for SUVs will more than outweigh the demand losses.

The environmental outlook is still terrible. CO2 emissions, down by 7 per cent this year, rise back above their 2019 level in 2027. Air pollution “causes nearly 6m premature deaths in 2030 . . . about 10 per cent more than today”.

“The pandemic and its aftermath can suppress emissions, but low economic growth is not a low-emissions strategy. Only an acceleration in structural changes to the way the world produces and consumes energy can break the emissions trend for good,” the IEA notes.

Line chart of CO2, thousand tonnes showing Emissions could either flatline or fall sharply

Much hinges on the speed of the recovery from the pandemic. A gloomier Delayed Recovery Scenario (DRS) would see the world economy only back to normal in 2023 — and the impact would be huge. In the DRS, the global economy in 2030 is 10 per cent smaller than in Steps. Other outcomes include:

  • A slowing of the “many of the structural changes that are essential for clean energy transitions”.

  • “Systematic under-investment in new, cleaner energy technologies.”

  • A weakening of oil demand growth, with consumption plateauing just above 2019 levels in the 2030s.

  • A persistent natural gas supply surplus.

  • A fall in CO2 emissions, but mainly because of the economic hit.

IEA chief Fatih Birol said “the era of global oil demand growth” would end within the next decade. © REUTERS

Crucially, the IEA says that “if today’s energy infrastructure continues to operate as it has in the past, it would lock in by itself a temperature rise of 1.65 degrees Celsius”. For that reason, its more climate-friendly SDS envisages not just more and faster deployment of green energy but “the operation of existing carbon-intensive assets in a very different way from the Steps”. In other words: carbon capture, repurposing or shutting coal plants.

Huge capital will also be needed to transform the world’s energy infrastructure: more than $2tn compared with $1.6tn in recent years, according to the IEA.

Governments will need to be more involved in this than they have been, says the agency. A “step-change” in clean-energy investment could boost the economic recovery, create jobs, leave cities with cleaner air, and reduce emissions. Yet despite much talk (“build back better”, “green recovery”, etc), few countries outside Europe are taking it seriously, the IEA notes.

As for net-zero emissions plans (another scenario devised by the IEA, called “NZE2050”), the agency is downright pessimistic.

“Realising the pace and scale of emissions reductions in the NZE2050 would require a far-reaching set of actions going above and beyond the already ambitious measures in the SDS. A large number of unparalleled changes across all parts of the energy sector would need to be realised simultaneously, at a time when the world is trying to recover from the Covid-19 pandemic,” it notes.

Behavioural changes would be necessary, especially in the transport sector — and they would not all be popular. They include replacing flights under one hour with low-carbon alternatives, walking or cycling instead of driving by car for trips under 3km, and reducing road traffic speeds by 7km an hour. All this would be enough to cut emissions from transport by a fifth.

The IEA says “they highlight the importance of behaviour changes for NZE2050, and the scale of what is needed”. (Derek Brower)

*The wording in this sentence has been amended from earlier publication which referred to a more bullish outlook.

Data Drill

Hydrogen is rapidly establishing itself as an essential element in the energy transition. The amount of large-scale “green” hydrogen projects — where the fuel is produced from renewable energy — in the pipeline totals more than 60GW of capacity, according to research by Rystad Energy.

But costs remain high and less than half of this capacity is likely to be brought online by 2035, says Rystad. As ES has previously noted, government support to bring down costs will be key to the scale-up.

Bar chart of Planned capacity (GW) showing Countries across the world have big ambitions for green hydrogen

Power Points

  • America’s fracking binge has permanently damaged the country’s oil and gas reserves, the chief executive of private equity group Quantum Energy Partners told Derek Brower.

  • Entergy, the energy utility serving New Orleans, had its credit rating downgraded on Friday as Storm Delta bore down on Louisiana, reports Gregory Meyer.

  • The chief executive of oilfield services group Petrofac is to step down after almost three decades at the UK-listed company, Nathalie Thomas reports.

  • One in 10 new cars sold across Europe this year will be electric or plug-in hybrid — triple last year’s sales levels.

  • The oil price may have stabilised, but the decline in US stocks has continued.


A new report into Equinor’s disastrous US expansion in recent years sheds light on a culture of aggressive growth and unrealistic price assumptions that permeated the entire industry as companies scrambled to gain a foothold in the shale revolution.

The Norwegian oil group launched itself headlong into US shale during the past decade’s boom but lost control as it grew too fast, with weak oversight and an inexperienced leadership team, according to the review, which it commissioned from auditors PwC. The company pumped $40bn into the US between 2007 and 2019, but racked up a total accounting loss of $21.5bn over the same period.

PwC noted that Equinor’s experience was far from unique, however. “Many companies took positions in the US onshore during the ‘boom years’ and have since taken impairments,” it wrote, adding:

“Long periods of growing demand and high prices influenced the outlook and strategic thinking at the time. An entire industry effectively formed a consensus that an oil price above $100 was a ‘new normal’. This assumption fuelled investments, created a heated market and ultimately turned the onshore industry into a victim of its own success.”

Energy Source is a twice-weekly energy newsletter from the Financial Times. Its editors are Derek Brower and Myles McCormick, with contributions from David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London, and Gregory Meyer in New York.

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Hasty, imperfect ESG is not the path for business




The writer is a global economist. Her book ‘How Boards Work’ will be published in May

Good environmental, social and governance practices take a company from financial shareholder maximisation to multiple stakeholder optimisation: society, community, employees. But if done poorly, not only does ESG miss its sustainability goals, it can make things worse and let down the very stakeholders it should help.

To be sure, the ESG agenda should be pursued with determination. But there are a number of reasons why it threatens to create bad outcomes. The agenda is putting companies on the defensive. From boardrooms, I have seen organisations worry about meeting the demands of environmental and social justice activists, leading to risk aversion in allocating capital. Yet innovation is the most important tool to address many of the challenges of climate change, inequality and social discord.

Pursued by $45tn of investments, using the broadest classification, ESG is weighed down by inconsistent, blurry metrics. Investors and lobbyists use different evaluation standards and goals, which focus on varied issues such as CO2 emissions and diversity. Metrics also depend on business models.

Without a clear, unified compass, companies that measure themselves against today’s standards risk seeming off base once a more consistent regulator-led direction emerges (for example, from worker audits, the COP26 summit and the Paris Club lender nations).

ESG is not without cost and the best hope for long-term success lies with business leaders’ ability to stay attuned to its impact and unintended consequences. For example, while the case for diversity is incontrovertible, efforts at inclusion should account for the possible casualties of positive discrimination.

Furthermore, despite ESG advocates setting a strong and singular direction for governance, organisations have to maintain their operations and value while managing assets and people in a world where cultural and ethical values are far from universal. While laudable, a heightened focus on ethics (such as human rights, environmental concerns, gender and racial parity, data privacy and worker advocacy) places additional stress on global companies.

It is often asked if advocates appreciate that ESG is largely viewed from the west’s narrow and wealthy economic perspective. To be truly sustainable, ESG demands global solutions to global problems. Proposals need to be scalable, exportable and palatable to emerging countries like India and China, or no effort will truly move the needle.

Much of the agenda is too rigid, requires aggressive timelines and lacks the spirit of innovation to achieve long-term societal progress. Stakeholders’ interests differ, so ESG solutions must be nuanced, balanced and trade off speed of implementation against the breadth and depth of change.

Business leaders are aware of the need for greater focus and prioritisation of ESG. We also understand that deadlines can provide important levers for senior managers to spur their organisations into action. After all, in the face of pressure for a solution to the global pandemic, vaccines were produced in months instead of the usual 10 years.

I live at the crossroads of these tensions every day. Raised in Africa, I have lived in energy poverty, and seen how it continues to impede living standards globally. As a board member of a global energy company, I have seen much investment in the energy transition. Yet from my role with a university endowment, I have also been under pressure to divest from energy corporations. 

Business leaders must solve ESG concerns in ways that do not set corporations on a path to failure in the long term. They must have the boldness to adopt a flexible, measured and experimental agenda for lasting change. In this sense, they must push back against the politically led narrative that wants imperfect ESG changes at any cost.

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UAE’s Taqa seeks to shine with solar energy push




From a distance, the 3.4m panels making up the United Arab Emirates’ largest solar power plant look like a massive lake.

But Noor Abu Dhabi, nestled between camel farms and rolling sand dunes, is no mirage. The 1.2 gigawatt facility — the world’s largest single-site plant — produces enough electricity for around 90,000 homes. Owned by Taqa, an Abu Dhabi state-backed utility, with Japan’s Marubeni and China’s JinkoSolar, it will celebrate its second anniversary of operations this month.

Staff constantly scan for repairs so production can be maximised during daylight hours, while every evening more than 1,400 robotic cleaners wipe the dust from the banks of solar panels to boost efficiency.

Noor and another Taqa project — an even larger 2GW solar plant under construction in Al Dhafra, nearer the capital — are emblematic of the company’s ambitions to recast itself as a force in clean energy.

It has outlined a new sustainable strategy with a goal for renewables to form 30 per cent of its energy mix, compared with 5 per cent now, and plans to boost domestic power capacity from 18GW to 30GW by 2030. It will set itself a carbon emissions target later this year.

“We want to transform Taqa into a power and water low-carbon champion in and outside the United Arab Emirates,” said Jasim Husain Thabet, chief executive of the power provider, which is majority owned by government holding company ADQ and listed on the emirate’s bourse.

Renewable sources account for a small part of the UAE’s energy supply

Taqa’s push into renewables is a key element of the UAE’s ambition to have clean energy form half of its energy mix by 2050, with 44 per cent from sources such as wind and solar and 6 per cent from nuclear power.

Last year, the oil-rich emirate had 2.3GW of renewable energy capacity, or seven per cent of the power production mix, mainly from solar power, according to Rystad Energy, a research firm. It forecasts that the UAE is on track to reach its 44 per cent target by 2050.

Although many Gulf governments have targets to boost solar and wind power, the UAE has been out in front.

The Al Dhafra plant is expected to boast the world’s most competitive solar tariff when complete. The facility, a joint venture with UAE renewable pioneer Masdar, EDF and JinkoPower, plans to power 150,000 homes when it comes online next year, reducing the country’s carbon emissions by the equivalent of taking 720,000 cars off the road.

“This is about being a good citizen,” said Thabet. “But it is also attractive for global investors keen on environmental sustainability, it fits in with our main shareholder’s priorities and brings down financing costs.”

Yet Taqa’s sustainability pitch could fall flat with investors scrutinising environmental concerns.

Taqa has committed to capping production at its overseas oil and gas assets, which span fields in Canada, the North Sea and Iraqi Kurdistan. But although it has not ruled out selling the hydrocarbons assets that it bought during a spending spree in the 2000s, divestment is not imminent.

“If the right opportunity comes we will consider it, but right now our focus is on enhancing operations and reducing emissions,” Thabet said.

The UAE, a leading oil exporter and member of Opec, is also committed to increasing its crude oil capacity in the coming years. The country is working towards reducing greenhouse gas emissions, but still has one of the highest per capita carbon footprints in the world.

But Mohammed Atif, area manager for the Middle East and Africa at DNV, a renewables advisory firm, said the UAE, like other major oil and gas producers such as Norway and the UK, are working for a more sustainable future. 

“Yes, the roots and history of the UAE are grounded in hydrocarbons, but they are aware of the challenge of climate change,” he said. “It is a transition, not a revolution, and that takes time.”

US special presidential envoy for climate John Kerry: ‘There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis’ © WAM/Handout via Reuters

John Kerry, the US special presidential envoy for climate, visited the Noor plant while attending a regional climate change dialogue in Abu Dhabi earlier this month, saying such “incredible energy projects” would “set us on the right path” to achieving the Paris Agreement goals that aim to limit global warming.

“There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis,” he said in a tweet. 

At the same time, Taqa is eyeing opportunities to expand in renewables beyond the UAE. Last year it merged with Abu Dhabi Power Corporation, creating an integrated utility company with ADQ owning 98.6 per cent.

The government is expected to increase the free float via a share offering, Thabet said, declining to provide further details.

With exclusive rights to participate in power projects in Abu Dhabi over the next decade, the company is now mulling how to leverage that guaranteed cash flow abroad.

Thabet said the company would focus on projects and investments that burnish its sustainable credentials. It wants to build 15GW of power capacity outside the UAE. The group currently produces 5GW internationally, including 2GW in Morocco.

“We believe in solar and [photovoltaic] projects, so we will focus on that — but if there is an opportunity outside the UAE, such as onshore or offshore wind, then we will explore that,” he said. Taqa would also consider investing in international renewables platforms to reach its targets, he added.

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Chinese regulators fine Alibaba record $2.8bn




Chinese regulators have fined Alibaba a record Rmb18.2bn after finding that the ecommerce group had abused its market dominance.

The $2.8bn penalty, which was set at 4 per cent of Alibaba’s 2019 revenues, concludes an antitrust investigation into the company founded by Jack Ma. It comes as Chinese authorities have stepped up scrutiny on dealmaking and anti-competitive practices in its once lightly regulated technology sector.

The market regulator said that since 2015 Alibaba had forced merchants to sell exclusively on its Tmall and Taobao online shopping platforms.

Alibaba used its “market position, platform rules and data, and algorithmic methods” to put in place rewards and punishments for its “choose one of two” policy, the regulator said on Saturday.

In November, Chinese authorities suspended the $37bn initial public offering of Ma’s Ant Group, Alibaba’s payments and lending sister company, at the last minute.

Previously, the country’s competition regulators had focused mostly on traditional industries at home and on foreign companies. It imposed a then-record fine of $975m in 2015 on US chip-design group Qualcomm, which equalled 8 per cent of its China revenues. By law, China’s antitrust fines can be set as high as 10 per cent.

But last November, regulators started drawing up the first antitrust measures to cover the online platforms that have become China’s most valuable companies.

The State Administration of Market Regulation ordered Alibaba to “carry out a comprehensive rectification” drive on its platform, to strengthen its legal controls and compliance. It gave Alibaba 15 days to submit a report detailing changes to its “illegal behaviour”.

Alibaba said it “sincerely accepted” the penalty.

“It is an important action to safeguard fair market competition and quality development of internet platform economies,” the company said. “It reflects the regulators’ thoughtful and normative expectations.”

Alibaba added that it would strengthen compliance, improve its systems and ensure an open and equitable operating environment for its merchants.

Analysts said the fine alone would not significantly affect Alibaba’s operations. It had $48bn of cash on its balance sheet at the end of 2020 and earned $24bn in net profit last year.

The more significant part of the penalty, said Li Chengdong, chief executive of Dolphin Think Tank, was the fact that Alibaba had been found guilty of serious abuses, meaning it would be more likely to yield in future regulatory disputes over tax and counterfeit goods.

“Whereas Alibaba used to have a strong, assertive stance with regulators, now it will be on the back foot,” said Li.

Chen Lin, assistant professor of marketing at China-Europe International Business School, noted that the antitrust case had been “settled through money without really changing its monopolistic position”. Much as in the EU and US, there was little consensus over how Chinese regulators would break up huge companies like Alibaba.

Robin Zhu of Bernstein Research said that while the market may read the fine as the “worst is over” moment for Alibaba’s shares, the longer-term and larger issue was growing competition in ecommerce.

Alibaba’s biggest challenge comes from fast growing rivals. Upstart Pinduoduo overtook its annual shopper count last year, with 788m people buying on its platform ahead of Alibaba’s 779m. 

A Chinese antitrust lawyer, who asked to remain anonymous, said the fine “was meant to teach Alibaba ‘don’t think you can do whatever you want’, but [would] not materially harm the business”.

He noted the penalty was not as large as it could have been and was limited to Alibaba’s ecommerce operations, rather than its other industry-spanning operations.

Alibaba has in recent years bought up everything from supermarket chains to home furnishing retailers, giving it a share of about one-fifth of China’s total retail sales.

Food delivery group Meituan has taken market share from Alibaba’s and is pushing into ferrying all types of goods from shops to consumers — another challenge to Alibaba’s ecommerce dominance.

While the penalty marks the end of the government’s antitrust scrutiny of Alibaba, Ma’s other interests remain under pressure. Authorities have yet to announce formally a deal for Ant’s restructuring and have suspended new enrolment at Ma’s elite business school.

The Communist party’s People’s Daily newspaper said the punishment reflected a “normative correction for the company’s development, a clean-up and purification of the industry environment, and a strong defence of fair competition”.

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