“Fossil fuels will peak in the 2020s as renewables supply all growth in energy demand”: Carbon Tracker

Analyst Kingsmill Bond estimates peak years for different growth rates of renewables & global energy demand, and warns of “trillions of dollars in stranded assets” across the corporate sector and in petro states.

Extracts from the Carbon Tracker press release:

The 2020s will be the decade of fossil fuel demand peaks, as one bastion after another is stormed and overwhelmed by the rising renewable tide. This will inevitably lead to trillions of dollars of stranded assets across the corporate sector and hit petro-states that fail to reinvent themselves.”
With global energy demand expected to grow at 1-1.5% and solar and wind at 15-20% a year, fossil fuel demand will peak between 2020 and 2027, most likely 2023.
The impacts of the energy transition will be colossal:
  • The fossil fuel sector has invested an estimated $25 trillion in infrastructure and there will be systemic risk to financial markets as they seek to digest vast amounts of stranded assets.
  • The transition will directly affect companies that compose up to a quarter of equity indexes and debt markets, hitting banking, capital goods, transport and automotive sectors.
  • Fossil fuel exporting countries will suffer. Russia is one of 12 countries where fossil fuel rents account for 10% or more of GDP.
Fossil fuel demand has been growing for 200 years, but is about to enter structural decline.  Entire sectors will struggle to make this transition. They can expect price declines, greater competition, restructuring, stranded assets and market derating.
Incumbent industries have typically seen demand peak when the challenger was still very small, at around 2%-3% of total sales. For example, demand for thermal electricity in Europe peaked in 2007 when renewables made up just 3% of total supply. As demand fell following the financial crisis and renewables grew their market share the industry was forced to write down $150 billion of assets.

Kingsmill Bond: “We have seen a similar pattern in many energy transitions, from electricity, coal and cars in recent years to horses and gaslights in the past. Demand for incumbents peaks early, and investors in incumbents lose money early on.”

Much of the fossil fuel industry appears blind to this risk. BP, OPEC, and the IEA do not expect peak fossil fuel demand for another generation or more.   Yet some forecasters such as DNV GL forecast peak fossil fuel demand in the 2020s.

The report finds that the tipping point for fossil fuel demand will come when the challenging technologies of solar and wind make up around 6% of total energy supply and 14% of global electricity supply – far below levels of penetration in many countries in Europe.

Essential reading.

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