Welcome back to our last post for this theme! While all of us are still stuck with the pandemic unable to leave our houses without our new best friend, the face mask, it feels apt to discuss a little about the state of the oil industry in these times.

Sluggish oil demand 

Due to quarantines and lockdown measures, people are forced to telecommute, cut back on physical shopping, travelling and overall, consume less. The aviation industry in particular, has been hit seriously (recall that the transportation industry accounts for bulk of the global oil consumption). 

Unavoidably, the oil industry is generally facing considerable blows. The International Energy Agency (IEA) estimates that the global oil demand would decrease by 8% from 2019, which is 6 times greater than the previous record drop set by the 2009 financial crisis! Furthermore, oil prices have dropped by around 50% since January this year (Strachan, 2020). In response, big oil companies such as BP and the Royal Dutch Shell have decreased their asset value by 17.5 billion and 22 billion respectively (Climate Cast, 2020). 

As such, the global energy-related carbon dioxide emissions is expected to fall by 2.6 Gt (IEA, 2020). This is so unprecedented, I never thought such a figure was possible in today’s modern society! :O

Renewables – renewing the energy industry? 

Though investments and growth of the industry have been encouraging pre-covid, the pandemic is expected to accelerate this long-term trend. Renewables may still take up a small slice of the global energy pie, but oil and gas companies (e.g. BP, Shell, Total) are starting to invest more in renewables due to the drop in oil demand (Climate Cast, 2020). Good news for the renewable energy industry! 

Overall, renewables are expected to increase by 0.8% in 2020 compared to 2019 (IEA, 2020). Specifically, global solar and wind production are set to increase 15% and 10% respectively (Blum, 2020). Why so? Renewables are generally more resilient against low electricity demands. They are preferentially dispatched to power systems because of their low operating costs (Crooks, 2020) where non-renewables pale in comparison. 

COVID-19 seems to provide a relatively favorable climate for the renewable energy industry, such as Iberdrola, a Spanish utility group with some of the largest investments in renewable energy (Parnell, 2020). The company reported a 5% rise in first quarter adjusted net profit and is even aiming to increase capital spending by 12% in 2020 (Crooks, 2020)!

Of course, we don’t have a magic crystal ball to predict the future. The trajectory of the energy industry remains uncertain and would depend on several factors such as the duration of the pandemic and the state of the economy. Would companies succumb to the lure of huge oil profits and completely revert to their old dirtier ways after COVID-19? 

Nevertheless, the estimates have been encouraging and I’m glad that this pandemic is at least benefiting the environment in some ways 🙂 

Before we end off this week’s theme, have a listen to this short podcast (titled “Big oil pivots to renewables, but will it last?”) by Climate Cast! I think it nicely summarises the situation of oil companies and renewable energy. Till next time! 

 

References:

Blum, J. (2020) Oil, fossil fuel demand may have peaked in 2019 thanks to COVID-19: report. 

Available from: https://www.spglobal.com/platts/en/market-insights/latest-news/electric-power/062320-oil-fossil-fuel-demand-may-have-peaked-in-2019-thanks-to-covid-19-report [Accessed 15 September 2020]. 

Crooks, E. (2020) Renewable energy shows its strength in the coronavirus crisis. Available from: https://www.woodmac.com/news/opinion/renewable-energy-shows-its-strength-in-the-coronavirus-crisis/ [Accessed 15 September 2020]. 

Climate cast (2020) Big oil pivots to renewables, but will it last? [Podcast]. Available from: https://www.npr.org/podcasts/414685982/climate-cast [Accessed 15 September 2020]. 

International Energy Agency (2020) Global energy review 2020. Available from https://www.iea.org/reports/global-energy-review-2020/renewables#abstract [Accessed 15 September 2020]. 

Lee, J (2020) Oil demand isn’t roaring back yet. Available from: https://www.bloomberg.com/opinion/articles/2020-06-14/coronavirus-oil-demand-is-a-long-way-from-recovery [Accessed 15 September 2020]. 

Parnell, J. (2020) Iberdrola plots post-lockdown renewables investment spree. Available from: https://www.greentechmedia.com/articles/read/iberdrola-plots-post-lockdown-investment-spree [Accessed 15 September 2020]. 

Strachan, R. (2020) Covid-19 creates supply and demand crisis for oil and gas. Available from: https://www.offshore-technology.com/fdi/covid-19-creates-supply-and-demand-crisis-for-oil-and-gas/ [Accessed 15 September 2020].