Released July 20, 2022 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The abominable human cost of Russia's invasion of Ukraine this past February has been, and continues to be, well documented by the news media and humanitarian organizations. A new report from the International Energy Agency (IEA) (Paris, France) shows how that war has led to a catastrophic vicious cycle in global energy and electricity markets.
The IEA's new Electricity Market Report, released July 20, projected that global and regional economic growth will be significantly depressed this year and next, coming off a robust 2021 as the world largely emerged from the economic ravages of the COVID-19 pandemic.
The Russia-Ukraine war, high energy prices, supply chain disruptions and high inflation led to downward revisions of near-term economic growth forecasts, the IEA report noted.
Citing recent sharply lower estimates of economic growth from the World Bank (Washington, D.C.) and the International Monetary Fund (Washington, D.C.), the IEA projected global gross domestic product (GDP) is expected to fall to between 3% and 3.6% this year, down from an expectation of nearly 5% made only a few months ago.
In fact, those projections may turn out to be overly optimistic: A global recession is a distinct possibility this year, as growth in the U.S. and China, the world's two largest economies, is slowing dramatically.
Slowing economic growth and rising energy prices are expected to significantly lower electricity demand growth this year and possibly in 2023, the IEA report predicted: "After global electricity demand grew by a strong 6% in 2021, propelled by rapid economic recovery as COVID-19 lockdowns eased, we expect growth to slow to 2.4% in 2022 -- about the same as the average from 2015 to 2019. This reflects slower global economic growth, higher energy prices following Russia's invasion of Ukraine, and renewed public health restrictions, particularly in China." In its projection for 2023 electric demand growth, the agency said there are "high uncertainties ... linked to several interconnected factors: global economic growth, high and volatile fossil fuel prices and ongoing sanitary measures related to COVID-19."
Click on the image at right to see the IEA's historical and projected electricity demand growth for the world and its regions.
The surge in the cost of fossil fuels used to generate electricity is the main reason for a diminished outlook for electricity demand, the agency said. The dramatic growth of coal and gas prices is most evident in Europe, Japan and Korea, though those costs also are rising, albeit at a much slower rate, in the U.S.
In Europe, the report said, gas and coal prices "surged to all-time highs in the first quarter of 2022, following Russia's invasion of Ukraine. Low storage levels and growing uncertainty around Russian supply drove up European hub prices." Gas prices at the TTF hub averaged $31.5 per million British thermal units (MMBtu), which equates to about $107 per megawatt-hour (MWh), in the first half of 2022 -- more than five times their 2017-2021 average for this period of the year. Thermal coal prices rose to an average of $281 per ton -- four times their 2017-2021 average level. Forward prices as of early July 2022 indicate still-rising prices for both gas (up 58%) and coal (up 20%) in the second half of 2022, the report added.
The electricity report noted that liquefied natural gas (LNG) import prices in Japan and South Korea rose by 90% year-on-year in the first five months of 2022, to an average of $16/MMBtu, or about $55/MWh. Spot coal prices in the first six months of 2022 more than tripled to an average of $257/ton. Oil-indexed gas prices are expected to increase in the second half of 2022 (up 24%), while coal prices could decline by about 2% compared with the first half, IEA projected.
By comparison, abundant energy resources are expected to mute expected energy price increases in the U.S., the report noted. Natural gas prices at Henry Hub averaged $6/MMBtu, or about $20.6/MWh, in the first half of 2022 -- the highest average price for this period since 2008, the agency said. This price runup cannot be attributed solely to Russia's invasion of Ukraine, however: colder-than-average temperatures drove up residential and commercial space heating, and gas-fired electricity generation rose by 5% in the first half of 2022, driven largely by a sharp increase in coal spot prices stemming from extraordinarily low coal stockpiles.
In the U.S., spot prices for Northern Appalachian coal averaged $125/ton in the first half of 2022, their highest level for more than a decade, the electricity report said. Higher domestic gas demand coincided with strong growth in LNG exports and weak supply response from U.S. producers who were pursuing capital discipline. Slight declines in prices for coal and gas are forecast for the second half of 2022, and deeper declines are forecast for 2023.
Click on the image at right to see fossil fuel price charts for the U.S., European Union and Japan/South Korea.
From an environmental perspective, the only good news to emerge from the report is that worldwide renewable generation is expected to rise sharply in 2022 and 2023 compared to 2021's record level. High current prices for coal, by contrast, are expected to lead to a rapid decline in electricity generated from the black rock in 2022 and 2023 compared to 2021.
Electricity prices are set to sharply increase in several European countries--notably France, Germany and the U.K.--this year and next compared to the six years preceding Russia's invasion of Ukraine. Electricity price increases in the U.S. this year and next are expected to be far below what other countries are expected to experience.
In an increasingly interconnected global economy, it will not be easy for countries to insulate themselves from the cascading effects of an event like Russia's invasion of Ukraine. However, the IEA report proposes four categories of actions, some of which are already well underway in European countries, that can act as a cushion against energy price and security dislocations. The IEA recommended:
The IEA's new Electricity Market Report, released July 20, projected that global and regional economic growth will be significantly depressed this year and next, coming off a robust 2021 as the world largely emerged from the economic ravages of the COVID-19 pandemic.
The Russia-Ukraine war, high energy prices, supply chain disruptions and high inflation led to downward revisions of near-term economic growth forecasts, the IEA report noted.
Citing recent sharply lower estimates of economic growth from the World Bank (Washington, D.C.) and the International Monetary Fund (Washington, D.C.), the IEA projected global gross domestic product (GDP) is expected to fall to between 3% and 3.6% this year, down from an expectation of nearly 5% made only a few months ago.
In fact, those projections may turn out to be overly optimistic: A global recession is a distinct possibility this year, as growth in the U.S. and China, the world's two largest economies, is slowing dramatically.
Slowing economic growth and rising energy prices are expected to significantly lower electricity demand growth this year and possibly in 2023, the IEA report predicted: "After global electricity demand grew by a strong 6% in 2021, propelled by rapid economic recovery as COVID-19 lockdowns eased, we expect growth to slow to 2.4% in 2022 -- about the same as the average from 2015 to 2019. This reflects slower global economic growth, higher energy prices following Russia's invasion of Ukraine, and renewed public health restrictions, particularly in China." In its projection for 2023 electric demand growth, the agency said there are "high uncertainties ... linked to several interconnected factors: global economic growth, high and volatile fossil fuel prices and ongoing sanitary measures related to COVID-19."
Click on the image at right to see the IEA's historical and projected electricity demand growth for the world and its regions. The surge in the cost of fossil fuels used to generate electricity is the main reason for a diminished outlook for electricity demand, the agency said. The dramatic growth of coal and gas prices is most evident in Europe, Japan and Korea, though those costs also are rising, albeit at a much slower rate, in the U.S.
In Europe, the report said, gas and coal prices "surged to all-time highs in the first quarter of 2022, following Russia's invasion of Ukraine. Low storage levels and growing uncertainty around Russian supply drove up European hub prices." Gas prices at the TTF hub averaged $31.5 per million British thermal units (MMBtu), which equates to about $107 per megawatt-hour (MWh), in the first half of 2022 -- more than five times their 2017-2021 average for this period of the year. Thermal coal prices rose to an average of $281 per ton -- four times their 2017-2021 average level. Forward prices as of early July 2022 indicate still-rising prices for both gas (up 58%) and coal (up 20%) in the second half of 2022, the report added.
The electricity report noted that liquefied natural gas (LNG) import prices in Japan and South Korea rose by 90% year-on-year in the first five months of 2022, to an average of $16/MMBtu, or about $55/MWh. Spot coal prices in the first six months of 2022 more than tripled to an average of $257/ton. Oil-indexed gas prices are expected to increase in the second half of 2022 (up 24%), while coal prices could decline by about 2% compared with the first half, IEA projected.
By comparison, abundant energy resources are expected to mute expected energy price increases in the U.S., the report noted. Natural gas prices at Henry Hub averaged $6/MMBtu, or about $20.6/MWh, in the first half of 2022 -- the highest average price for this period since 2008, the agency said. This price runup cannot be attributed solely to Russia's invasion of Ukraine, however: colder-than-average temperatures drove up residential and commercial space heating, and gas-fired electricity generation rose by 5% in the first half of 2022, driven largely by a sharp increase in coal spot prices stemming from extraordinarily low coal stockpiles.
In the U.S., spot prices for Northern Appalachian coal averaged $125/ton in the first half of 2022, their highest level for more than a decade, the electricity report said. Higher domestic gas demand coincided with strong growth in LNG exports and weak supply response from U.S. producers who were pursuing capital discipline. Slight declines in prices for coal and gas are forecast for the second half of 2022, and deeper declines are forecast for 2023.
Click on the image at right to see fossil fuel price charts for the U.S., European Union and Japan/South Korea.From an environmental perspective, the only good news to emerge from the report is that worldwide renewable generation is expected to rise sharply in 2022 and 2023 compared to 2021's record level. High current prices for coal, by contrast, are expected to lead to a rapid decline in electricity generated from the black rock in 2022 and 2023 compared to 2021.
Electricity prices are set to sharply increase in several European countries--notably France, Germany and the U.K.--this year and next compared to the six years preceding Russia's invasion of Ukraine. Electricity price increases in the U.S. this year and next are expected to be far below what other countries are expected to experience.
In an increasingly interconnected global economy, it will not be easy for countries to insulate themselves from the cascading effects of an event like Russia's invasion of Ukraine. However, the IEA report proposes four categories of actions, some of which are already well underway in European countries, that can act as a cushion against energy price and security dislocations. The IEA recommended:
- Establishing alternative procurement options for fossil fuels
- Implementing austerity measures that reduce energy consumption by constraining consumer choices (such as lowered driving speed limits and moderated energy use in heating and cooling)
- Deploying energy-efficiency measures that reduce energy demand (such as improved insulation of buildings)
- Increasing use of domestic energy sources, including renewables
