The West's Awkward South African Coal Stance // IEA: Peak Oil Demand Soon

The West's Awkward South African Coal Stance

The Climate Investment Funds is providing South Africa and Indonesia with $1 billion to help them transition off of coal. The funding highlights the West's awkward relationship with South Africa and its coal.

Forty-five percent of South Africa's emissions come from its electricity sector; the country the world's 13th largest carbon emitter. The $500 million from CFI will go towards replacing its coal fleet with wind, solar, and batteries. In no country on earth has there been a grid that has phased out baseload power with intermittent sources without either increasing the cost of electricity, fragilizing the grid, or increasing demand for fossil fuels--if not all three.

The West seems to be willing to help South Africa dispose of its rickety coal fleet with everything except the two power sources that have historically displaced coal power electricity: natural gas and nuclear energy. At the same time, the developed world has spent the year begging the African country for its coal.

In the first six months of this year, South African exports to Europe increased by eight-fold. “It’s worth noting that coal exports from RBCT into Europe have increased by about 720% from half a million tonnes in H1 2021 to 4.1 million tonnes in the first half of 2022,” Thungela Chief Financial Officer Deon Smith said during an investor call in August.

Meanwhile, Germany has been tearing down wind turbines to make way for coal mining as its coal plants wolf down lignite. The country has deployed 3 gigawatts of coal to ensure it makes it through the winter. Perhaps the Germans could also use some money from CFI to restart its nuclear fleet.

Coal for me, but not for thee.

IEA: Peak Oil Demand Soon

The International Energy Administration believes the war in Ukraine and the sanctions of Russian energy it inspired have potentially put us on the path of global fossil fuel demand reduction.

"The International Energy Agency, a Paris-based group of some of the world’s biggest energy users, said the war and the disruption to energy markets that it has unleashed has set off a realignment of global supply and demand," reports the Wall Street Journal. "If governments make good on policy goals they have set in motion recently in response to the crisis, they would speed up the shift from fossil fuels to cleaner renewable energy, the agency said."

The IEA believes the world will see a brief uptick in coal deployment to weather the energy crisis, followed by a plateau in natural gas demand at the end of the decade. Once electric vehicles are deployed at scale, the demand for oil will peak in the mid-2030s, plateau until 2050, and then fall.

“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said Fatih Birol, executive director of the IEA. “The energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point.”

In its report, the IEA also said that electricity from renewables needs to rise from its recent $390 billion to $1.3 trillion by 2030. According to the report, this would match the highest level of investment ever spent on fossil fuels--a peak reached in 2014.

How this build-out will coincide with a drop in fossil fuel demand remains unclear as industrial production for renewables demands intensive fossil fuel inputs. Global thirst for hydrocarbons has hovered around 80% for decades. The IEA forecasts that will drop below 75% in 2030 and plummet to 60% by 2050.

“Shortfalls in clean energy investment are largest in emerging and developing economies, a worrying signal given their rapid projected growth in demand for energy services. If China is excluded, then the amount being invested in clean energy each year in emerging and developing economies has remained flat since the Paris Agreement was concluded in 2015,” the IEA said.

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Conversation Starters

1. Climate action has done little to mitigate global warming. "Government plans to cut greenhouse gas emissions aren’t enough to avoid catastrophic global warming, with the planet on track to heat up between 2.1 and 2.9 degrees Celsius by the end of the century compared with preindustrial times," reports the Japan Times. "Despite some progress in the last year, governments need to do more by 2030 to ensure that the global temperature increase is below 2 degrees and ideally closer to 1.5 degrees — the goal set in the Paris Agreement reached in 2015."

2. Natural gas use in Europe has fallen down an elevator shaft going into fall. "Europe slashed its gas use in August and September as industries cut production in response to soaring prices and scarce Russian supply, although the cuts were unevenly spread between countries," reports Reuters. "Overall gas use in the 27-nation European Union plunged by 14% in August compared with the five-year average for the month, and by 15% in September, according to the latest data from EU statistics office Eurostat."

3. Coal had a moment in America last year. Now it seems that moment is gone. The Energy Information Administration expects 6% less coal-fired generation in 2022 than in 2021. "Although coal-fired generation declined each year between 2014 and 2020, it rose 16% in 2021 as a result of increased electricity demand and higher natural gas prices following the pandemic," the EIA reports. "Despite natural gas prices remaining high, coal-fired generation has continued its previous trend of decline this year as a result of constrained coal supply."

Crom's Blessing