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Energy, transport and sustainability will be key themes in 2021
Energy, transport and sustainability are three key themes to watch in 2021, according to the latest predictions from BloombergNEF (BNEF).*
The market analyst expects to see $0.5tn of investment in 2021, but with some stock market bumps.
Incorporating investment in renewable energy capacity, plus spending on electric vehicles (EVs) and charging infrastructure, and on electrical heat, batteries, carbon capture and storage (CCS), and green hydrogen, BNEF estimates that ‘energy transition investment’ totalled $501.3bn in 2020, a rise of 9% on the previous year.
This new level is expected to be maintained in 2021. EV sales are expected to jump (see later) and solar installations look set to have yet another record year, more than offsetting further cost reductions per megawatt. The Biden administration is likely to preside over an upsurge in activity in US renewables and electric transport.
The enthusiasm among investors for the low carbon transition allowed EV companies to raise $28.1bn from stock market investors in 2020, up from just $1.6bn in 2019.
However, no stock market investment goes up in a straight line for long without zig-zags, and BNEF expects this rule to catch up with clean energy and transport stocks at some point in 2021. Exactly when there might be some turbulence is anyone’s guess. It may be – as often seems to be the case in markets – that there are several pieces of adverse news at the same time, to test the mettle of the bulls, it says.
Meanwhile, one of the most persistent trends of recent years has been record issuance of sustainable debt. This used to be almost all about green bonds. But these have since been joined by a menagerie of other products, including social bonds (2020’s star turn), sustainability-linked loans and sustainability bonds, notes BNEF. Its latest figures show that issuance of these varieties of sustainable debt came to a record $732bn in 2020, up 29% on the previous year. It expects 2021 to produce yet another record, at $900bn, as companies and public-sector organisations benefit from trumpeting their green credentials, and more and more investors face sustainability mandates.
BNEF also expects to see carbon offset issuance double this year from the 136mn tCO2e reached in 2020. With all the companies that have set emissions reduction targets, there is plenty of unserved demand in the market. Many of these companies are in hard-to-abate sectors and don’t have alternative, affordable and/or saleable ways of reducing their CO2, apart from buying offsets, it notes.
Looking at the EV sector, there are now over 10mn EVs on the road globally, and adoption will continue to accelerate in 2021. Driving this will be generous subsidies, tighter fuel economy/CO2 regulations, fleet purchases, and a growing number of competitive models. BNEF expects around 4.4mn passenger EVs (including battery electrics and plug-in hybrids) to be sold globally this year, up about 60% from 2020. After a close finish in 2020, the race between China and Europe is heating up, it notes.
Sales in Europe spiked in 2020 as automakers rushed to meet their vehicle CO2 requirements. The targets stay the same in 2021, but automakers are no longer able to exempt their worst 5% of vehicles from the calculations and have used up some of their banked credits. This means even higher EV adoption is coming across the continent, says BNEF. EVs should be around 14–18% of light-duty vehicle sales in 2021, and come in around 1.9mn.
EV adoption is also forecast to rise quickly again in China this year, with around 1.7mn passenger EV sales (1.8mn including commercial EVs), up from 1.2mn in 2020. There will still be an oversupply of New Energy Vehicle credits, but the fuel economy targets are getting tighter and city regulations will continue to be major drivers of adoption.
North American EV sales should come in a little over 500,000. This is far behind Europe and China, but 2021 marks a dramatic change on the policy front in the US, notes BNEF. The incoming Biden administration’s appointments and statements so far show strong ambitions on EVs and charging infrastructure.
Meanwhile, global LNG trade is forecast to return to significant growth after gas and LNG markets ushered in 2021 with a bang.
The Japan-Korea Marker LNG spot price is nearing an all-time high as icy weather blasts across North Asia. Demand for gas is recovering fast from the coronavirus pandemic, but the year ahead also looks likely to stir up more fundamental questions about the future role of gas in the energy transition, says BNEF.
This year, global LNG trade is expected to rise 6% from 2020, to reach 375mn tonnes, compared to the mere 0.9% growth between 2019 and last year because of the pandemic. Demand growth in Japan and South Korea from this cold winter, and as COVID-19 wanes, will be damped in 2H2021 by new nuclear generation capacity coming online. The China Oil & Gas Pipeline Network Corporation (PipeChina) will continue its efforts to consolidate infrastructure assets to boost gas consumption ahead of the upcoming 14th Five-Year Plan for the country. Emerging markets, particularly in South Asia, will see LNG demand rise as more infrastructure is built to bring gas to customers.
Global LNG supply output will continue to escalate, particularly in the US, with 35% growth in 2021 over last year, forecasts BNEF. Rising LNG supply calls for more ships, and more are coming this year compared to 2020. But with this comes concern that key shipping passages like the Panama Canal will see worse congestion. BNEF does not anticipate more than 30 laden vessels carrying LNG transiting the canal in a given month. As pressure grows on the gas industry to decarbonise, only one major LNG supply project is expected to be approved for development this year– a Qatar LNG expansion of 33mn tonnes.
BNEF also expects that the volume of hydrogen electrolysers reaching commissioning will set a record in 2021. It has identified 240 MW of projects announced for completion in 2021, compared to just 90 MW finished in 2020. The growth is a testament to the enthusiasm around the world for hydrogen, which many countries and companies recognise as a means of decarbonising some of the hardest-to-abate sectors. Oil and gas majors like it too, because hydrogen can be pumped through gas networks and, like oil, is hugely capital-intensive to produce, providing a barrier to new entrants, states the market analyst.
How this trend continues will depend largely on government support. Such help is now beginning to emerge, with nine countries announcing hydrogen strategies in 2020, some of them funded. BNEF has identified at least 12 more countries that had hydrogen strategies under preparation in 2020, and 16 in initial discussions, making it likely that government support for hydrogen, and hence electrolyser deployment, will grow beyond this year. One country – Poland – has already released a hydrogen strategy in 2021.
Meanwhile, oil markets in 2021 will be dominated by the speed and extent of the demand recovery, and by the evolution of both OPEC+ supply cuts and US production growth. With crude prices back above $50/b, markets are poised for continued re-balancing and normalisation of stocks, with negative news on vaccines and on the relaxation of economic restrictions posing a downside risk to prices. At the same time, OPEC+ supply restraint and the additional surprise cut from Saudi Arabia are underpinning the near-term price outlook. It remains to be seen if higher prices will trigger a recovery in US production, or whether Iranian and Venezuelan exports could increase significantly.
BNEF believes that the supply side response will be sufficient to re-balance the global crude market by 4Q2021. Importantly, it does not expect US production to increase significantly, as producers focus on paying down debt rather than adding drilling rigs. A key trend in the year ahead will be the impact on refiners as higher crude prices are set against the uncertain and uneven demand recovery in road and aviation fuels. BNEF expects refining margins to come under significant and sustained pressure throughout 2021, forcing many plants in high-cost regions to close.
*The analysis is based on an expectation that the COVID-19 health crisis will ease gradually during the course of this year, and that most economies will stage recoveries.