WoodMackenzie – What will shape the energy world in 2021?


According to WoodMackenzie energy experts, there are four critical sector-related topics to pay attention to in 2021: the effects of the Covid-19 vaccine, action on climate change, balance in the oil market concerning Iran, and rebuilding the sector’s financial strength.

This Monday, Forbes reported some of WoodMackenzie’s experts’ opinions on what will shape the energy sector for the year ahead. According to them, there are four central themes to address and pay attention to.

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Covid-19 vaccination programs: a boom for the sector?

The start of Covid-19 vaccination programs has made people in the energy industry expect and foresee a quicker economic recovery. Experts expect GDP to surpass the 2019 peak, seeing the biggest ever annual increase in economic output.

That situation would add around US$4 trillion to global GDP – equivalent to another Germany. In this regard, the magnitude of recovery can indeed make an impression.

Experts also foresee a higher sustained commodity demand through the decade, possibly but not indeed, generating another super-cycle. A potential driver for commodities will be the energy transition – at least US$40 trillion over the next twenty years on WoodMackenzie’s estimates.

“It’s central to the post-pandemic stimulus packages and will carry on well beyond. That augurs well for transition commodities – among them copper, aluminum, nickel, lithium, cobalt, perhaps gas, and LNG too,” told Forbes, a WoodMackenzie partner.

However, the Company also recognizes several challenges regarding the possible non-beneficial effects of the vaccine. Delays to the roll-out of the vaccine could curtail off recovery, and the pandemic’s side-effects could also hold back growth.

Indebtedness could lead to more spending. Rising income inequality may boost protectionist policies, and deglobalization trends might increase, undermining global economic expansion.

Wood Mackenzie anticipates more action on climate change

Next year will be crucial in terms of climate change’s tackling efforts. In the early months of 2021, the European Union Green Deal is expected to be ratified.

Hopes are rising even more since the COP 26 will be held in November 2021. Experts expect the meeting to deliver a successful new round of five-year commitments to get the world onto a 2-degree Celsius lower trajectory by 2050.

2021 will also be crucial given the expected net-zero mandatory commitments from South Korea, Japan, and Canada by 2050 and carbon neutrality commitments from China by 2060.

In the U.S., the Biden Presidency is expected to sign an Executive Order to bring the country back into the Paris Agreement. Large fuel- and non-fuel-based companies’ commitments to fighting global warming are also increasing.

Nevertheless, experts anticipate congressional or senatorial decisions might limit these achievements. Furthermore, international cooperation in this regard could be distracted by the need to rebuild economies in a post-Covid-19 scenario.

Balancing the oil market and Iran

WoodMackenzie keeps expecting an exceptional year for oil demand growth (up to 6.6 mbpd). OPEC+ measures to constrain supply would balance the market back.  

However, some potential risks regarding these measures are more delays in controlling the pandemic, creating a stall demand recovery.

Also, Iran may be tempted in the coming months to increase exports from today’s minimal levels. If President-elect Joe Biden opts to lift the country’s sanctions – unlikely until 2022 at the earliest – up to 1 mbpd could return to market within months.

Rebuilding the energy sector’s financial strength

According to WoodMackenzie’s experts, the industry needs Brent above US$41/bbl in 2021 to generate positive free cash flow. The firm’s 2021 forecast is US$51/bbl.

Regarding assets, major oil companies would have to sell up to US$50 billion of assets to get leverage down to the same range. Other subsectors within the industry, perhaps US$200 billion. Both situations would take years to work through.

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