"It is not given to human beings - happily for them, for otherwise life would be intolerable - to foresee or to predict to any large extent the unfolding course of events." 2020 aptly reminded us of Winston Churchill’s dictum.
It is always tempting to think of current times as uniquely troublesome, unprecedented and portentous. Mr Churchill’s long career included a global pandemic, the influenza of 1918, which struck his prime minister, David Lloyd George, and even more severely, US president Woodrow Wilson, during the crucial Versailles peace conference. He also served through two World Wars, the Russian Revolution, a global depression, the first atomic bombs, the creation of the Iron Curtain, and the effective end of the British empire.
Another very human tendency is to fight the last war. Patchy immunisation take-up, difficult logistics, and the rise of more transmissible or vaccine-resistant strains may mean the victory over the virus is not as swift and complete as we had hoped. Yet we can hope that the pandemic begins to ebb next year.
The threat du jour over the last two decades has moved from terrorism to financial crises to populist demagogues to pandemics and now, perhaps, a West-China confrontation. All of these dangers remain, but we need to refocus on new concerns. There were plenty of warnings and harbingers of the 9/11 attacks, the global financial crisis, Covid-19, that were ignored by those whose decisions could have made a difference.
Climate change is an ever-intensifying, slowly-unfolding catastrophe that underpins many other troubles. But a new emergency may suddenly erupt in 2021: a major earthquake or volcano, a serious international war, a crippling cyber-attack, or something entirely novel.
The world energy system cannot be prepared for every contingency, but it coped remarkably well with this year’s challenges. It is easier to manage glut than shortage. Notwithstanding, there were no major disruptions to fuel and electricity supplies, no serious panics or massively counterproductive decisions, and energy prices mostly stayed within normal ranges. The exception, the brief dip in US oil prices below zero on April 20, was an anomaly, quickly remedied.
Production cuts of unprecedented depth by the Opec+ alliance were, of course, crucial in restoring oil prices to moderate $40-50 per barrel levels, at which most major oil companies and exporting countries can survive, if not prosper. The 9.7 million barrels per day initial cut has been aided by the drop in US output because of the impact of low oil prices, taking off another 1 million bpd.
The gas industry has no such coordinated stabilisation mechanism, and it entered 2020 already in a state of oversupply. Yet gas demand suffered much less than oil from the seizure of global mobility. Prices were very low in summer, when the new American liquefied natural gas (LNG) facilities showed the value of their flexibility in cutting back output.
Since then, prices have bounced back because of cold weather, shipping bottlenecks, and some technical problems at export projects. In a rare reversal, LNG prices to Asia for delivery in January and February have risen above the energy-equivalent value of oil.
Though it is a dirty dinosaur fuel, prices for coal have risen at the end of this year because of strong Asian demand, an unofficial Chinese ban on importing Australian coal over a diplomatic spat, and growing challenges to supply because of unwillingness to invest in mining.
Metals have also performed well, as pandemic-era demand shifts perhaps temporarily from travel and services to manufactured goods, and China responds to economic trouble with yet another infrastructure-heavy stimulus. Copper, used in electrical wiring, has been especially strong, hitting a seven-year high. Lithium is one exception despite its critical role in batteries, slumping to a third of 2018 prices on oversupply from new mines.
The various commodities seem set for further divergence next year. Oil, the most globalised energy source, is also the one most vulnerable to a sudden halt in globalisation.
We may be weary of teleworking, Zoom schooling, webinars and staycations, but some part of commuting and business travel is likely gone forever. Even though BP’s projection that the all-time peak of oil consumption may have been last year appears premature, perhaps as much as 3 million bpd of demand has been permanently lost.
However, oil’s fate in 2021 depends very much on Opec+’s strategy and coherence. Russia has signalled a desire to recover market share while keeping prices around $40 to $50 per barrel. That is probably the best way to limit competition while keeping wavering members on board. This can be the first stage of transition to a new long-term strategy for the big crude exporters. Underinvestment in new fields elsewhere may bring another market upturn, even against a backdrop of ultimate decline. Yet Iran, Iraq, Libya and Venezuela remain wildcards.
The long-term prospects for gas are debatable, but if prices remain reasonably low, there is still the chance to gain alongside renewable energy in pushing out coal.
Green stimulus plans and targets for carbon-neutrality look good for demand for renewable energy systems, electric vehicles, and the materials that make them. Key battery and electrical metals such as copper, silver, lithium and nickel should all be in strong demand. Idiosyncratic factors such as mine closures, export bans and trade disputes can crimp supply, and may come to be reported as breathlessly as Opec deliberations.
The long-term trends should be clear, some briefly interrupted by the pandemic, others accelerated. The unfolding course of 2021 will have its surprises. But it will not be intolerable for the energy industry and its customers if, once again, they show resilience and flexibility in the face of pandemonium.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis