Fossil Fuel Emissions To Peak In 2025

1. Fossil Emissions Are Set to Peak in 2025 As Energy Industries Adapt

- A new Rystad Energy study indicates carbon dioxide emissions from fossil fuel usage will peak in 2025, hitting 39 gigatonnes before trending lower.

- One signal of the upcoming plateau is the expectation that CO2 emissions from electricity and heat generation will peak (14.4 GT) this year, with industry emissions beginning to fall by 2027.

- Interestingly, Chinese carbon emissions are expected to start their four-year plateau in 2023, too, with India, other parts of Asia, and Africa set to take the lead in adding CO2 globally.

- Whilst China, having more than double the fossil fuel CO2 emissions of the U.S., will remain the world’s largest carbon polluter for some time, India’s industrial ascent will catapult its carbon dioxide emissions above the US and Europe by 2030.

2. Can Chinese Gas Demand Return to Pre-Pandemic Levels?

- Even though China has relaxed its Covid requirements, the market expectation that Chinese LNG importers would ramp up purchases might be premature amidst a higher pipeline gas intake and surging coal production.

- China was the world’s largest importer of LNG before peak Covid, seeing its purchases fall from 106 bcm in 2021 to 88 bcm last year, easing the supply squeeze on Europe.

- According to China’s Oilchem, LNG imports will rise by just 7% this year to 94 bcm, 14% below their 2021 peak, with coal continuing to dominate power generation after the 10% year-on-year output surge in 2022.

- Apart from higher domestic coal and gas production, China’s national oil and gas company CNPC will be increasing its pipeline imports from the Power of Siberia-1 pipeline from Russia, coming in at 22 bcm after the 15 bcm reached in 2022.

3. The India-Russia Axis Builds Muscle

- The December oil price cap has prompted an unseen surge in Russian crude exports to India, overtaking both Saudi Arabia and Iraq as the largest oil supplier there, hitting almost 1.5 million b/d in January.

- India ended the year 2022 with Russian crude making up 15% of total imports, lowering the share of OPEC to 64.5%, although the current pace of buying would set the same metric at 30-35% in 2023.

- By now, all top- and mid-tier Russian exporters deliver their crude to India, covering pretty much all the country’s refineries but still spearheaded by Reliance and Nayara Energy.

- It seems the Moscow-Delhi axis will extend into LNG as Russian LNG exporter Novatek is reportedly discussing a term deal with Indian companies, potentially to be settled in Indian rupees.

4. California’s Gas Problems Stem From Years of Mismanagement

- Californian natural gas prices have been consistently above the national average throughout 2022 and this year, with residential prices for the ones relying on gas already approaching 800 per month.

- Limited gas storage is a major factor in high prices, with the Golden State’s import capabilities damaged by years of underfunding and the 2021 explosion in Coolidge, AZ, debilitating Kinder Morgan’s Line 2000.

- With Governor Gavin Newsom openly advocating an expedited energy transition, there is very little incentive to invest in midstream gas projects, nevertheless, the Governor called for an investigation into market manipulation on prices.

- In late December spot gas prices in southern California were trading above $55 per mmBtu, tenfold the level of Henry Hub futures, highlighting the potential upside in periods of cold weather.

5. Is Europe Right to Bet on Its Own Hydrogen Capacity?

- According to the European Union’s RePower EU energy strategy, the EU is seeking to produce 10 million tonnes and import another 10 million tonnes of renewable hydrogen by 2030, reducing fossil-based production of hydrogen to an absolute minimum.

- The risked project pipeline of green hydrogen projects in the EU 27 currently stands at 7.8 million tons per annum, Rystad reports, implying most of the conceptual thinking has already been done.

- Europe’s problem, however, might be the relatively high cost of producing green hydrogen at home, aggravated by Brussels’ limits on tax credits (which in the US could go up to $3/kg, as per the IRA).

- As things stand currently, importing green ammonia (as a hydrogen carrier) from Africa and then cracking it back to green hydrogen once shipped to the EU is on average 5-10% cheaper than domestic production.

6. South Africa’s Electricity Grid Is Collapsing

- South Africa’s President Cyril Ramaphosa declared a national “state of disaster” this week as the country’s worsening electricity shortages continue to hamstring economic activity.

- Insufficient generation capacity is coming from delays in coal-fired power plant approvals, widespread sabotage as well as authorities’ lack of regulatory activity to ease the inclusion of renewable energy sources into the national grid.

- For more than 100 consecutive days, South Africa’s grid operator Eskom has cut power supply on the grounds of lacking generation, with the firm estimating that at least 4-6 GW of capacity is sorely needed.

- Despite the headwinds, South Africa’s economy is expected to grow in 2023 (the Central Bank expects 0.3%), with pundits claiming growth has been made possible by the rapidly spreading practice of self-generation.

7. Voluntary Carbon Market Collapses Amidst Lack of Trust

- The voluntary carbon market is in a freefall after a recent investigative report conducted by European media found that most deforestation offset contracts are “phantom schemes” and do not represent any actual carbon reductions.

- According to the Guardian, of the 94.9 million carbon credits that Verra, the world’s leading provider of so-called REDD+ contracts, had claimed, only 5.5 million (6%) resulted in real emission reductions.

- S&P Global Platts puts the price of nature-based carbon credits currently around $2 per metric tonne of CO2 equivalent, one-seventh of what it was a year ago and the price plunge is still not over.

- Voluntary carbon, especially the REDD+ segment, seems to be facing a change or die moment – either it lives up to buyers’ expectations of verification and trackability or makes way to direct emission removal projects such as afforestation or CO2 capture.