Last checked at 
(Adds para on possible ways out of supply crunch)
By Noah Browning and Bozorgmehr Sharafedin
LONDON, Oct 4 (Reuters) - Demand for coal and natural gas
has exceeded pre-COVID-19 highs with oil not far behind, dealing
a setback to hopes the pandemic would spur a faster transition
to clean energy from fossil fuels.
Global natural gas shortages, record gas and coal prices, a
power crunch in China and a three-year high on oil prices all
tell one story - demand for energy has roared back and the world
still needs fossil fuels to meet most of those energy needs.
"The demand fall during the pandemic was entirely linked to
governments' decision to restrict movements and had nothing to
do with the energy transition," Cuneyt Kazokoglu, head of oil
demand analysis at FGE told Reuters.
"The energy transition and decarbonisation are decade-long
strategies and do not happen overnight."
Over three-quarters of global energy demand is still met by
fossil fuels with less than a fifth by non-nuclear renewables,
according to energy watchdog the International Energy Agency.
Energy transition policies have come under fire for the run
up in energy prices. In some places, they are having an impact,
such as in Europe where high carbon prices aimed at reducing
emissions have made utilities reluctant to switch on coal-fired
plants to alleviate the shortage.
In China, policies to reduce emissions have contributed to
the government's decision to ration energy to heavy industry.
But much of the rise in energy prices is simply because
producers took enormous amounts of capacity offline last year
when the pandemic led to an unprecedented fall in demand.
Several factors mean temporary shortages may not last.
They could abate with a decision by OPEC to open taps to
unleash supply it reined in during the first onslaught of COVID,
likely new liquid natural gas (LNG) output coming online after a
price slump in the last decade and a Chinese government
climb-down on price setting which has undercut coal power
production.
RENEWABLES A "SOLUTION, NOT A CAUSE"
Producers of gas, coal, and to a lesser extent oil have been
caught flat-footed by the economic recovery, much of it sparked
by government stimulus spending in energy-intensive industries.
National policies have also played a role in the power
supply problems. In China, state mandated power prices mean
utilities simply cannot afford to burn coal and sell the power,
because the cost of coal is too high to make a profit.
Chinese utilities are producing below capacity to avoid
losing money, not because they cannot produce more.
Meanwhile, most gas projects take several years to design
and build, so the shortage now reflects investment decisions
taken pre-pandemic - and before the energy transition gathered
political momentum.
The chief of the Paris-based IEA said energy transition
policies were not to blame for the crisis.
"Well-managed clean energy transitions are a solution to the
issues that we are seeing in gas and electricity markets today –
not the cause of them," Fatih Birol said in a statement.
2020 LOSSES ERASED
Still, the IEA's data show global demand for coal, the
single largest source of CO2 emissions, surpassed pre-pandemic
levels late last year.
Global coal supplies are tight because China, responsible
for around half of global output, has tightened safety
regulations at mines after a spate of accidents, sapping supply.
That has left China importing more coal from Indonesia, in
turn leaving less for other importers such as India.
Global coal demand is set for with a 4.5% increase this
year, pushing beyond 2019 levels.
Global natural gas demand fell 1.9% last year, a smaller
drop than other energy sources as utilities cranked up power
production to meet heating needs during winter.
But the IEA projects gas demand will rise 3.2% in 2021 to
over 4 trillion cubic metres, erasing 2020 losses, and pushing
demand above 2019 levels.
Cold weather patterns in the northern hemisphere, Oslo-based
consultancy Rystad Energy said, "caused a rise in demand for
coal, liquefied natural gas (LNG), electricity and even a bit of
oil (that) is here to stay".
LNG accounts for just over 10% of the global supply but is
more readily traded globally so can be deployed more easily to
cover short-term supply crunches.
"Eye-popping price spikes and their spread between summer
and winter will widen, especially for gas, both natural and
liquefied," Rystad added, as prices are higher amid cold winter
weather than in summer.
SUPPLY GAPS, SHORT-TERM RALLIES
Last to catch up, oil demand is set to rebound toward
pre-pandemic levels above 100 million barrels per day sometime
next year, according to four of the major tracking groups.
High prices on oil markets are because OPEC and allied
producers still have millions of barrels per day of oil
production offline after they made record cuts to supply during
the pandemic to match plummeting demand for transport fuel.
Producer club OPEC offers the most robust prediction for a
demand rebound, putting the recovery date at the second quarter
of 2022.
In the more distant future, with most forecasters predicting
a peak in fossil fuel demand within the next two decades and the
IEA recommending against new projects to ensure net zero
emissions, broader supply gaps could fuel more price shocks.
"Prices for fossil fuels will remain volatile", said Nikos
Tsafos, senior fellow at the Center for Strategic and
International Studies (CSIS).
"The risk of a supply-demand imbalance is greater in a
market that is shrinking where the case for further investment
is weak, which could produce short-term rallies."
(Writing by Noah Browning; editing by David Evans and Ed
Osmond)
