How Has COVID-19 Impacted The Global Energy Sector?
COVID-19 is much more than a public health crisis. This global pandemic has wreaked havoc on international economies and triggered a more profound sense of urgency when it comes to establishing efficient, reliable, and sustainable energy supplies.
Poverty and poor infrastructure have directly impacted public health efforts, as energy keeps homes warm and powers hospitals- and a lack of energy can be detrimental for all involved. During lockdowns, worldwide energy consumption decreased, while the generation and use of renewable energy increased.
The oil and gas industries were hit the hardest by COVID-19 – the latest in a long series of challenges. Due to demand shifts, new and upcoming policies, and evolving public attitudes, analysts predict that oil and gas consumption will radically change in the near future.
Despite broader pressures, investments in low-carbon assets such as clean transport and green energy reached an all-time high of $500 billion in 2020. The transition away from fossil fuels (and towards clean energy) is a crucial component of worldwide COVID-19 recovery plans.
The global energy sector is probably not the first place your mind jumps to at the mention of COVID-19. As a public health crisis, coronavirus has had a grievous medical impact on millions of lives worldwide – leaving few countries untouched. The pandemic has also disrupted life on a systemic scale by shifting national priorities and sending supply and demand into a tailspin.
While periods of lockdown and quarantine have helped to prevent the spread of illness, they have also triggered unprecedented changes in basic day-to-day activities. The ramifications of these shifts have impacted the global economy (which includes the energy sector). Due to COVID-19 restrictions, industries such as travel, transport, and construction have been brought to a literal halt at times. Beyond these difficulties, businesses worldwide have been under pressure to adapt like never before.
Since energy helps to power daily life, it’s vital to appreciate how COVID-19 has impacted the global energy sector. Just a few of the questions we will be exploring in this article include:
- Why was there so much chaos in the 2020 oil industry?
- How has COVID-19 affected the production and consumption of energy?
- Has the pandemic ‘helped’ us to realise the importance of clean energy and eco-friendly living?
- Is green energy primed to become more profitable than fossil fuels in the long term?
The Relationship Between COVID-19 and Energy
Energy supports life-saving resources such as ambulances, clinics, hospitals, and medical equipment.
According to the UK Energy Research Centre (ERC), the COVID-19 pandemic has exacerbated fuel poverty – as British households paid an average of £16 more per month in times of lockdown. As you may already know, fuel poverty can lead to cold homes – which may increase the risk of vulnerable people becoming isolated and unwell. The ERC stresses the urgency of transitioning to more efficient energy sources that can create new jobs and positively impact both the environment and the economy. Furthermore, the ERC suggests that COVID-19 has required energy companies to put more resources into customer care and install remote solutions, such as ‘smart meters’.
Let’s not forget the connection between energy and public health. A recent statement issued by the United Nations (UN) stresses that global power needs to be more accessible and sustainable. While the UN observes that clean energy is becoming more prosperous within the electricity sector, 3 billion people on Earth still have inadequate access to vital power and technologies. According to Damilola Ogunbiyi (Co-Chair of UN-Energy), a lack of sustainable energy solutions is worsening the COVID-19 response in many countries. Energy supports life-saving resources such as ambulances, clinics, hospitals, and vital medical equipment. Forbes Magazine puts it this way: ‘beating COVID is all about electricity’.
COVID-19 and Global Electricity Consumption
There was an increase in the production and consumption of renewable energy in all major territories.
According to the recent COVID-19 Impact on Electricity report, international lockdown measures have profoundly impacted electricity consumption patterns. On the one hand, these initiatives triggered a noticeable increase in residential electricity use. However, restrictions on construction projects, services, and broader infrastructure actually caused electricity demands to plummet during periods of national containment.
In times of total lockdown, electricity consumption dropped by approximately 15% in Britain, Germany, and France. Beyond this, countries such as Spain, Italy, and India saw electricity demands decline by over 20%. Interestingly, China’s energy consumption steadily grew from April onwards – with overall annual electricity consumption increasing by 6%. By the end of 2020, the global demand for electricity returned in line with pre-coronavirus trends.
However, the 2020 Impact on Electricity report also reflected on the considerable increase in renewable energy production (mainly wind, hydropower and solar energy) in all major territories. This shift may be due to decreased energy demand and the more comprehensive regulatory advantages of adding clean energy to the grid. During lockdown periods, there was an increase in green energy consumption in the EU, USA, India, and China. In Germany, Italy, and Spain, renewable energy reached record highs – both in and out of lockdown.
How Has The Coronavirus Affected The Oil Industry?
While the oil industry is recovering from a historic demand shock, recent shifts triggered by COVID-19 could reduce demand in the long-term.
Even before the coronavirus struck, global oil and gas industries were underperforming – and some companies were in enormous debt. Between 2005 and early 2020, the average growth rate was 7% lower than the S&P 500 Index. Additionally, the much-publicised Russia-Saudi Arabia price wars created conditions of uncertainty within the market. So, how has COVID-19 impacted the oil industry?
According to the Oil 2020 fuel report, global oil demand dropped by 2.5 million barrels per day during lockdown periods, partly due to massive transport and mobility declines. This report suggests that global clean energy transitions may weaken the demand growth for oil by 2025. However, it also observes that some oil refiners continue to stretch production above and beyond what current demand requires. As more countries are on a mission to decarbonise, the long-term future of fossil fuels does not look bright.
In terms of oil investments, the value of one barrel of West Texas crude oil fell to minus $37.63 during 2020 lockdowns – as companies struggled to store unused product due to enormous demand shifts. In Newfoundland and Labrador, the Come by Chance oil refinery temporarily shut down – along with numerous other Canadian crude oil facilities. Overall, national refinery utilisation rates dropped by 30% between March and May 2020.
While the oil industry is recovering from a historic demand shock, recent changes triggered by COVID-19 could reduce demand in the long term. Here, it’s essential to appreciate evolving societal attitudes towards sustainability, as many investors choose to support the environment and the economy through “green investments”.
How Has COVID-19 Influenced Global Energy Investments?
Despite the recession and wider chaos of COVID-19, the world invested a record-breaking $500 billion in low-carbon assets in 2020.
As we know, the COVID-19 pandemic triggered a global economic recession comparable in some ways to the Great Depression or post-Second World War era. It’s normal to see a decline in economic activity across the board during periods of widespread financial disruption. Understandably, COVID-19 has impacted investment activity in the global energy sector in several key ways. The following paragraph will summarise some core findings from the International Energy Agency’s 2020 World Energy Investment report.
Before the COVID-19 pandemic set in, the IEA originally predicted that global energy would experience its highest investment uptick since 2014. However, the onset of COVID-19 revealed a very different reality – especially in the fossil fuel sector. In 2019, global energy investments in the power sector and combined oil and gas sector stood almost shoulder-to-shoulder: respectively at $756 billion and $757 billion. In 2020, global energy investments declined from 2019, but the power sector towered above oil and gas supply by an impressive 25%.
Despite the recession and broader chaos caused by COVID-19, the world invested a record-breaking $500 billion in low-carbon assets in 2020. These energy transition investments aim to support the global shift away from fossil fuels and towards clean power via renewable energy stocks, sustainable transport, power storage, eco-friendly infrastructure and more. As you can imagine, there is a broad range of renewable energy companies to invest in, and many prospectors enjoy the dynamic and electrifying possibilities of solar energy, wind turbines, and other opportunities.
Clean Energy: A Golden Opportunity
Sustainable energy is a golden opportunity for governments and investors to fortify the environment, economy and future.
According to the Sustainable Recovery Plan recently published by global energy experts at the IEA, the road to recovery is green and clean. In this three-year plan, the IEA suggests that 0.7% of global GDP (gross domestic product) and 9 million new jobs may be all it takes to transform the energy sector into an eco-friendly system that can boost the economy and global funds. The Sustainable Recovery Plan also indicates that optimising clean energy infrastructure will help make energy more accessible, particularly for low-income countries. In light of this research, sustainable energy is a golden opportunity for governments and investors to fortify the environment, economy, and future.
In a recent energy report backed by the Canadian government, national experts predict that carbon emissions will become more expensive and that policies will increasingly support green power, sustainable energy storage, and newer, cleaner technologies.
At the 2021 Leaders’ Summit on Climate, representatives from the USA, Britain, the European Union, South Korea, and many other nations pledged to take both financial and political measures to help appease global warming. Clean energy remains at the heart of many of these discussions as a pragmatic and useful way to impact the environment.
COVID-19 has impacted the global energy sector by altering energy production and consumption patterns worldwide, especially during lockdown periods. While fossil fuel industries (predominantly oil) suffered the most in 2020, the renewable energy sector saw greater prospects. Even amidst the pandemic and recession, people and governments invested more money into low-carbon assets than ever before. This interest highlights the beginning of a monumental shift, as investors look to clean energy as an opportunity to make money and assist with economic COVID recovery plans.
Frequently Asked Questions (FAQs)
How has COVID-19 impacted energy supply chains?
In a nutshell, logistics underpin the vast majority of energy supply chains – from sourcing and manufacturing, to distribution and maintenance. Often, this cycle is labour-intensive and designed for maximum energy output (and, of course, profits). Particularly in the first half of 2020, COVID-19 created a scenario where global energy consumption suddenly decreased, which caused many energy companies (particularly oil providers) to overproduce energy. In the short term, this imbalance caused the market value of oil to plummet. Government-backed restrictions associated with COVID-19 also impacted energy workforces, services, and the global relay of parts and equipment.
What is renewable energy, by definition?
While coal, oil, and gas are finite resources that emit harmful greenhouse gases into the atmosphere, renewable energy comes from sustainable sources. This type of energy is often referred to as ‘green’, ‘clean’, or ‘sustainable’, and typically comes from natural elements such as sunlight, wind, water, and biomass (food waste).
How has COVID-19 impacted clean energy projects?
Not surprisingly, some clean energy projects have had to delay or postpone their projects due to COVID-19. Structures such as solar panels and wind turbines cannot generate power from the elements until they are correctly installed. However, low-carbon assets generated record-breaking investments in 2020. Combined with new government pledges and renewed public concerns about global warming, clean energy projects have attracted a new wave of long-term support.
How long will it take for the world to switch to green energy?
Transitioning to renewable energy requires a great deal of mutual effort across the board – particularly between the nations that consume lots of energy (i.e. China, the USA, India, Russia, the UK, etc.) According to the World Economic Forum (WEF), we can switch to green energy by 2050. Achieving this target will require a constant sense of urgency and ongoing action, given the damage already done to the planet.
What will happen to oil prices in the future?
Some people have suggested that oil prices may experience a slight increase in the short term as COVID-related travel and transport restrictions ease. However, since oil is a non-renewable resource, it is environmentally destructive and only available in limited quantities. As more and more governments are voicing their intentions to cut down on greenhouse gas emissions and support green energy, the long-term demand for oil is on a slippery slope.