Global Energy Supply Consumption Pattern facing "big Reshuffle"

In the past six months, global energy markets have been hit by two shocks in a row. The first is the winter of 2021. Under the impact of extreme weather, the demand for energy power generation heating is increasing rapidly, The energy supply in Europe is facing challenges. The global energy crisis is gradually emerging. Regional tensions in Ukraine a series of economic sanctions imposed by the United States Europe on Russia have brought geopolitical risks, hampering global supplies of crude oil natural gas. The market worries about supply have pushed international crude oil prices above $120 per barrel. Because Europe is highly dependent on Russia for its gas supplies, geopolitical risks are driving up gas prices in the region, adding uncertainty to the continent's ongoing energy crisis.

In this context, in order to reduce dependence on external energy imports ensure its own energy security, Europe has begun to promote its own energy import consumption transformation. More importantly, the conflict between Russia Ukraine has further heated up the market discussion on energy security energy transition. On the one hand, there are arguments that oil natural gas production should be increased to avoid a similar global energy crisis in the future. On the other hand, some analysts believe that we should continue to accelerate the green transformation of global energy promote the development of clean energy. This can increase the sources of energy supply better respond to the risks of global climate change.

It is worth noting that under the influence of the Conflict between Russia Ukraine, the global energy supply pattern is also changing quietly. At the same time, with the continuous advancement of global energy green transformation, the global energy consumption structure will also appear more new characteristics. the current situation, the supply of clean energy is sufficient, the use scenario is limited, the use cost of clean energy has increased under the impact of supply chain. Natural gas is likely to become an important transitional energy source to balance carbon emissions reduction with a recovery in energy demand, thus affecting global energy supply patterns.

Sharp fluctuations in oil prices accelerate energy restructuring

Recently, uncertainty caused by geopolitical risks has made international crude oil prices fluctuate sharply. Although the current international crude oil price has been some correction, the rise of oil price has sounded the alarm for many European countries, prompting them to consider accelerating their own energy consumption structure transformation, reduce dependence on external energy imports, improve their energy independence security.

The rise in international crude oil prices is influenced by multiple factors. On the one hand, with the recovery of the global economy, the market demand for crude oil is rapidly recovering. On the other hand, crude oil inventory level is low, sudden geopolitical risks impact the stability of the crude oil supply chain. Under the influence of both supply demand, international crude oil prices are rising rapidly. The Organization of the Petroleum Exporting Countries (OPEC) its Allies had been expected to step up production to calm prices during the surge, but OPEC non-OPEC producers did act immediately, sticking with plans to increase output by a modest 400,000 b/d in April May. Members of the International Energy Agency (IEA) released 60m barrels of oil their reserves in an effort to stabilise surging international crude prices, but it did the opposite.

After this war, many European countries realized the importance of their own energy independence security, began to accelerate the diversification of energy production consumption structure. Natural gas, wind energy, solar energy nuclear energy have become the objects of development of many countries. In an interview with the Financial Times, Liu Jintao, an assistant researcher at the Chongyang Institute for Financial Studies at Renmin University of China, said that the EU would take the initiative in clean energy development by accelerating the development of renewable energy, diversifying energy supply improving energy efficiency.

Specifically, Liu jintao said that Germany was the first country in Europe to completely abandon nuclear power. In 2011, Germany quit nuclear power vigorously developed renewable energy. However, due to energy storage technology, Germany was unable to vigorously develop wind power photovoltaic to make up for the nuclear power shortage, so it adopted imported thermal power. In recent years, Germany has been highly dependent on natural gas imports. This time, the problem of energy shortage is aggravated by the shortage of fossil energy. Therefore, Germany will do its best to lay out renewable energy speed up the process of clean energy.

On February 28, the German Economy Ministry put forward new draft legislation that aims to achieve 100% renewable energy supply move away fossil fuels by 2035. However, considering the current energy shortage, Germany needs to comprehensively balance the time planning industrial layout among coal power withdrawal, carbon neutrality energy transition in the future. Premature withdrawal coal power will bring energy risks, rapid development of renewable energy will aggravate energy consumption costs. Therefore, clean energy should be promoted on the premise of ensuring energy security.

Separately, LI Qihao, an analyst at ICBC International, told the Financial Times that he believed European countries would reduce their dependence on Russian gas supplies after the geopolitical shock. Indeed, in early March, the European Union proposed a plan to gradually reduce its dependence on Russia by 2030, in part by increasing its own renewable energy development. Germany has set a target of 100 percent renewable power generation by 2035, other European countries, particularly those that currently use a lot of natural gas for power generation, are expected to accelerate their deployment of renewables.

However, it should be noted that promoting the energy structure to clean energy transformation is an overnight move. Even for an economy like the European Union, which has long been committed to clean energy, a complete shift away fossil fuels remains a daunting challenge. Under the general trend of global green energy transformation carbon emission reduction, natural gas may usher in more development opportunities by virtue of its transitional energy role in the process of energy decarbonization.

"In the context of global green energy transition, natural gas, as a transitional energy source, will play an important role in energy cleanliness ensuring energy security stability. For example, natural gas accounts for 25% of primary energy consumption in the Eu. In particular, natural gas produces a certain amount of carbon emissions, but it is greener has lower carbon emissions than coal. "In the long term, natural gas has good transitional properties is an important energy source in the global decarbonization energy trend." Jin-tao liu said, "on the other hand, renewable energy to replace fossil energy cycle is a long process, the current wind power, photovoltaic power generation is subject to certain climate seasonal factors, temporarily unable to completely replace fossil fuels, to ensure that the needs of the energy security, fossil fuels orderly exit stability of the need for alternative energy transition. Therefore, in the future, some countries may attach importance to the potential of natural gas resources appropriately strengthen industrial investment strategic reserves of natural gas."

For Europe's natural gas industry development, the IEA 10 Suggestions were put forward, including looking for more sources of natural gas imports, strengthen the market rate of fault tolerance, the introduction of low Z gas storage rule, to speed up the deployment of wind solar energy projects, maximum limit use of existing low schedulable emission source power, can consider to improve electric power company temporary tax, reassigned to consumers, etc. The IEA said in a report that the EU could cut Russian gas imports by a third through a combination of increasing imports other sources, accelerating renewable energy improving energy efficiency.

The European Union will buy at least 15 billion cubic meters (BCM) of liquefied natural gas the United States by the end of this year to replace energy imports Russia. It will also help Europe wean itself off energy dependence on Russia by 2027 guarantee 50 billion cubic meters of liquefied natural gas a year by 2030.

In China, ICBC International analyst Yu Xiaoyu said in an interview with the Financial Times that natural gas is a high-quality, efficient, clean low-carbon energy source. "Natural gas is an important realistic choice for the green energy transition," he said. "It can complement renewable energy." Increasing the utilization of natural gas increasing the proportion of clean energy is the only way for China to steadily promote the replacement of main energy sources accelerate the construction of a clean, low-carbon, safe efficient modern energy system.

We need to look at the advantages disadvantages of clean energy comprehensively

In recent years, with the sustainable development of the global economy the continuous advancement of the global green energy transformation process, more low-carbon environmentally friendly clean energy, including solar wind energy, has been developing by leaps bounds. The development of clean energy plays an important role in the process of energy structure diversification in many countries around the world.

However, it is important to note that the pressure under the influence of climate transformation, some of the funds began to withdraw the traditional fossil energy industry, but in the overhaul of the energy structure, clean energy is completely cover the energy gap, in the case of energy structure is reasonable, too fast to promote green energy transformation increased part of the national regional energy supply pressure.

Last year's European energy crisis recent geopolitical risk events have revealed an important truth -- the global economy is still unable to wean itself off fossil fuels. Soaring international crude oil prices supply disruptions have led to rising gasoline electricity prices in the United States the European Union, significantly affecting people's lives raising business costs. At the same time, the supply of clean energy, such as solar wind, is more volatile in extreme weather. Combined with supply chain disturbances labor shortages brought by the epidemic, the clean energy industry is expected to continue to move forward in a bumpy road.

It is undeniable that in the global energy green transformation, the development of clean energy is still the trend of The Times. In addition to the recent rise in oil gas prices, geopolitical risks also cause energy supply problems, Li said. Countries are also aware of the problems associated with over-reliance on foreign energy imports. In this context, countries are expected to accelerate the increase of local energy supply, particularly the production of renewable energy. In recent years, the falling cost of generating electricity clean sources such as solar wind has been a key driver of the industry's growth.

Liu believes that at present, wind power generation solar photovoltaic power generation technologies have become basically mature, especially in China, the cost of wind power photovoltaic power generation has been declining for many years, their scale economy will continue to improve. 2007 to 2017, the cumulative cost per kilowatt hour of photovoltaic power in China fell by about 90 percent, according to the National Energy Administration.

It is worth noting that, similar to crude oil natural gas, the clean energy industry in some countries regions is also vulnerable to supply chain geopolitical risks, also suffers external dependence to a certain extent. "New energy industries such as photovoltaic wind power do need to rely on imports as fossil fuels do, but the supply of raw materials components, such as silicon wafers, wind turbines lithium-ion batteries, will be affected by international trade. China has become a huge exporter of clean energy modules in the world. In 2021, China exported 40.9 gigawatts (GW) of pv modules to Europe, up 54% year on year. Therefore, as clean energy gradually replaces fossil energy, some countries will gradually shift their dependence on the import of fossil energy to the import of clean energy power generation components. The supply chain risk international trade competition of the new energy industry will be a problem that all countries will pay attention to. In this context, trade sanctions supply shortages caused by geopolitical risks will also affect the healthy development of clean energy industries in various countries." Liu jintao said.

Li qihao said that at present, about 80% of the global photovoltaic capacity supply is concentrated in China, including the raw material silicon powder of Z upstream polysilicon, is also domestic supply. Overseas geopolitical risks are more likely to affect pv demand. the perspective of wind power, the raw materials for components, such as steel copper, are mainly overseas. Producers of wind turbines components will face significant cost pressures this year on the back of rising commodity prices.

In terms of energy stability, Liu jintao said photovoltaic wind power are seasonal are affected only by the seasons but also by extreme weather. In February 2021, a large-scale power outage occurred in Texas of the United States under the influence of the extreme cold wave. The wind power generation, which accounted for 23% of the power supply in Texas, could operate supply normally due to frozen unit equipment, reflecting the disadvantages limitations of new energy facilities on climate change. Li also believes that extreme weather has a relatively large impact on new energy sources such as wind power photovoltaic, while coal power generation is a relatively stable way to generate electricity in the face of extreme weather.

Global energy transition creates investment opportunities

Affected by this geopolitical risk, the world's major countries have a new understanding of their own energy security energy structure adjustment in the future. In general, to promote global energy to greener cleaner energy transformation is still the trend of The Times, in the face of rising crude oil natural gas prices, some major countries to promote their own energy transformation will more intense, the global energy structure will usher in "reshuffle", also is expected to create more investment opportunities.

"In the future, the world's energy consumption structure, will be clean, safe, independent, to clean energy consumption of fossil energy substitution for the mainstream trend, reduce import dependence on fossil fuels, increasing energy independence autonomy, at the same time, in order to ensure energy security, the orderly unwinding of coal, the reasonable layout of the natural gas energy transition, etc. Among them, the change of energy consumption pattern will accelerate the process of decoupling global economic trade fossil energy, the importance of fossil fuel resources will gradually give way to the technology investment raw material trade of renewable energy-related industries. At the same time, the composition of energy consumption will be diversified, to achieve the rational layout of fossil energy, transitional energy renewable energy, to prevent energy risks in the clean transition ultimately achieve the long-term sustainable development of the energy industry." Liu jintao said.

However, at the same time, it is worth noting that energy transformation can be completed overnight, there are opportunities in the process of transformation, but also challenges risks. There are already concerns that moving away fossil fuels too quickly could have further economic consequences. Bridgewater founder Ray Dalio has called for a premature shift away fossil fuels. Energy costs must come down they will fuel inflation, which in turn threatens food security. Officials at the European Central Bank have also said the EU could face higher inflation than expected as it cuts carbon emissions shifts to green energy. Earlier, Bank of England Governor Chris Bailey warned that if the world moves away fossil fuels in a chaotic fashion, it could spark inflation.

However, despite the risks, the world's major countries are stopping their efforts to promote the energy transition clean energy development. China's point of view, the "dual carbon" target will continue to drive the transition to low-carbon energy, including power, transport industry, Li said. This year's Government Work Report also mentioned that we will work to achieve carbon neutrality in an orderly manner. Implement the Carbon Peak Action Plan. Promote energy revolution, ensure energy supply, based on resource endowment, adhere to the establishment before breaking, overall planning, promote low-carbon energy transition. We will strengthen the clean efficient use of coal, reduce coal consumption in an orderly manner, replace coal with electricity. We will promote the upgrading of coal power generation to conserve energy, reduce carbon emissions, make it more flexible, provide heat. We will promote the planning construction of large-scale photovoltaic power bases their supporting regulatory power sources, strengthen the construction of pumped storage power stations, increase the power grid's capacity to absorb renewable energy generation. Overseas, US President Joe Biden has made a speech stressing the need for rapid deployment of clean energy in today's international situation. European countries also accelerated the development of new energy after the conflict between Russia Ukraine. Overall, in the context of environmental protection stable power supply, global investment in new energy is expected to accelerate further in the future.

China's "government work Report" this year pointed out that to promote energy revolution, ensure energy supply, based on resource endowment, adhere to the establishment before breaking, overall planning, promote low-carbon energy transition. We will strengthen the clean efficient use of coal, reduce coal consumption in an orderly manner, replace coal with electricity. We will promote the upgrading of coal power generation to conserve energy, reduce carbon emissions, make it more flexible, provide heat. We will promote the planning construction of large-scale photovoltaic power bases their supporting regulatory power sources, strengthen the construction of pumped storage power stations, increase the power grid's capacity to absorb renewable energy generation. Support the development of biomass energy. We will promote the research, development application of green low-carbon technologies, develop a green manufacturing service system, promote energy conservation carbon reduction in the steel, non-ferrous, petrochemical, chemical building materials industries, strengthen energy conservation in transportation buildings.

On the developed side, Germany is taking positive action on the energy transition. The British government is considering a major expansion of wind farms across the country promoting renewable energy sources such as wind solar to improve the country's energy independence dependence on imported oil gas.

Separately, the U.S. Energy Information Administration (EIA) reported on March 18 that it expects the share of U.S. electricity generated renewable sources to increase 21 percent in 2021 to 44 percent in 2050. This growth in renewable energy mainly includes new wind solar power. By 2050, the contribution of hydropower will remain roughly the same, while other renewables, such as geothermal biomass, will still account for less than 3 per cent of total power generation.

In addition, the EIA projects that the contribution of total solar power generation in the United States, including utility-scale solar farms small rooftop terminal systems, will exceed wind power by the early 2030s. The early growth of wind solar was driven by federal tax credits that are set to expire decline sharply in 2026, but cost reductions for both technologies have played a big role in both their short - long-term growth.

According to a report released on March 30 by Engber, a British climate energy think tank, global solar power generation will grow by 23 percent wind power by 14 percent in 2021. Together, the two renewables accounted for 10.3 per cent of global electricity generation last year. The Netherlands, Australia Vietnam are growing fastest.

Globally, renewable clean energy remain key themes an investment perspective, says Chan Ho-yeung, Asia-pacific director of environmental, social corporate governance (ESG) client strategy. The International Energy Agency forecasts that the EU will need to add about 50GW of solar wind capacity in the future. This will create opportunities only for pure renewable clean energy companies, but also for traditional utilities investing in new technologies such as renewables hydrogen. Technologies that improve energy efficiency storage, such as power grid systems, energy-efficient real estate companies are also likely to benefit.

To sum up, the European energy crisis, which started last winter, has continued to this day due to geopolitical risks. The high oil gas prices have sounded the alarm for the sustainable development of global energy consumption, some European countries are also suffering the impact of insufficient energy supply due to the rapid green transformation. In this context, countries around the world have begun to take active measures to enhance their energy diversity security, renewable energy has become a key option.

However, renewable energy has its own shortcomings shortcomings. In the short term, liu said, the surge in the price of fossil fuels such as natural gas crude oil led to a boom in investment in green clean energy industries, the share prices of many well-known new energy power generation companies continued to rise. In the long run, the substitution of clean energy for fossil energy is an important trend in the process of global sustainable development, but it is still unable to get rid of the dependence on fossil energy immediately in the early stage. Especially for Europe, which is highly dependent on oil gas imports, the global energy supply shortage will have a serious impact.

So the global energy transition still has a long way to go. In the development process of renewable energy, the supporting role of green finance can also be fully utilized to further improve the enthusiasm confidence of financial institutions to participate in green energy projects. Bank of China Research Institute analysis pointed out that green finance support energy transformation has great potential. Energy transformation needs a lot of financial technological support. According to relevant estimates, China's green low-carbon energy transformation alone will generate over 130 trillion yuan of investment. The clean fossil energy, large-scale non-fossil energy carbon emission absorption all require cutting-edge core technologies. Government funds are far meeting the investment financing needs of energy transformation, the participation of social capital is the key to make up for the capital technology gap. Green finance can play a role in resource allocation market pricing, drive more market-oriented capital into the field of energy transformation.

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Source: Financial Times

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