By Momal Khan
The future of the global oil industry is looking bleak. Over the years, the oil world has seen many shocks but none have paralleled the impacts being witnessed today. The industry’s 2021 outlook has taken a huge hit from the COVID-19 pandemic’s repercussions, as fuel consumption was slashed earlier this year. The impacts of this have had a trickle-down effect in all parts of the oil’s global supply chain and may also ripple into other parts of the energy sector.
The outbreak of the coronavirus has added a significant layer of uncertainty to an already-rattled global market, and clouded the oil outlook for the coming year. According to the International Energy Agency’s (IEA) “Fuel 2020” report published in March, the worldwide oil demand is expected to see an average of 8.4 million BPD (barrels per day) decline year-over-year. The Organization of the Petroleum Exporting Countries’ (OPEC) latest oil demand forecast also anticipates that consumption will average only 90.2 million BPD in 2020, and heading into the next year. This is a stark difference of 400,000 BPD from the previous month’s estimate and 9.5 million year-over-year.
“The outlook appears even more fragile … the path ahead is treacherous amid surging COVID-19 cases in many parts of the world,” the International Energy Agency warned in its monthly report last Tuesday.
Domestically, Statistics Canada says capital spending in the country’s oil and gas sector fell by 54 per cent in the quarter that ended on June 30. Numerous producers have chopped their budgets significantly amid the falling global oil prices. In June, the Canadian Association of Petroleum Producers estimated that $23.3 billion would be spent in the oil and gas production sector of Canada during this year, a downward revision from what was originally a $37 billion estimate in its January forecast.
These changes in the oil markets will ripple across all parts of the energy sector, with implications for a wide variety of different technologies and fuels on a global scale. A prolonged period of lower-than-average oil prices would impact the outlook for clean energy transitions. This would lead to the easing of some aspects of this transformation- such as the removal of fossil fuel consumption subsidies- while complicating other aspects. For example, gas demand is less exposed to the immediate effects of the current crisis than oil demand is, due to its comparatively limited use for transport. However, industrial and power demand for gas will still be affected by the lockdowns and the resulting economic slowdown.
Another perspective on this decrease in demand looks at the fact that this slowdown was in fact inevitable, and might not be entirely negative from a broader point of view. The British Petroleum Company’s (BP) influential annual report on energy consumption and emerging technologies, which was published last Monday, says oil will be replaced by clean electricity from wind farms, solar panels and hydropower plants as renewable energy is emerging as the fastest-growing energy source in history to-date.
Spencer Dale, BP’s chief economist, said the company’s vision of the world’s energy future has become greener due to a combination of the COVID-19 pandemic and the quickening pace of climate action. The report indicated that if governments grow more aggressive in their attempts at reducing carbon emissions, demand may never recover from its current slump. It also stated that oil demand is likely to dramatically fall in the next 30 years, mainly due to the growth of renewable energy.
The threat of financial collapse looming over a number of countries around the world, paired with the crucial role of oil in finance and trade, adds some serious concerns to an unstable global financial situation. However, this may also translate to be an encouraging and somewhat necessary start for the world as the global energy industry shifts to renewable and greener sources for consumption.
Photo by Patrick Hendry, Unsplash