Another Industry Disrupted
To the list of industries disrupted by the Covid-19 pandemic, add energy. As lockdowns spread across the world, businesses shuttered, and travel and transport contracted. Airline travel in the United States dropped by 90%. Other than shipments to grocery and discount stores, most other shipping customers shut down. Instead of rising, suddenly worldwide demand for oil began to fall. The pandemic previewed a world of low demand for fossil fuels.
Reducing consumption of fossil fuels has been an objective of environmentalists for many decades. The coronavirus has prompted action on two fronts that have needed more focused attention: How will petrostates and oil energy giants adjust to the lower-demand world that the pandemic previewed; and what opportunities does the pandemic offer for addressing global warming? Up to now, the pandemic and global warming have had two things in common. Both impact every person on the planet; and both will soon go away, according to Donald Trump. Time for a new plan.
Low interest rates and rising demand encouraged oil and gas companies to invest heavily in increasing supply. When the pandemic arrived in 2020, demand for natural gas fell by five to ten percent relative to pre-pandemic projections. Demand for refined products decreased by at least twenty percent. Increases in efficiency and consolidation within the industry are expected.
Wealthier countries have committed hundreds of billions of dollars to helping businesses survive through the pandemic. Some corporate bailout packages have strings attached to encourage investment in low-carbon emission. U.S. Democratic presidential candidate Joe Biden proposes spending $2tn to reduce emissions in the process of replacing some of the millions of lost jobs. Climate change is the focus of over $250bn of the European Union’s pandemic recovery planning.
The pandemic has given these efforts a head start. Living through lockdown, people have realized that many daily auto trips are unnecessary. Business travel is increasingly being replaced by web-based conferencing. Multinational corporations that spread production across the globe are considering reducing supply chains in number and length.
Competition among countries heavily dependent upon oil production for their national budgets will be intense. Holding or increasing their market share is essential to meeting their citizens’ needs. These petrostates already were seeking ways to transform their economies for the day their wells run dry. If the pandemic accelerates the transition to less reliance on fossil fuels, the urgency to transform grows.
The long-sought vaccine for Covid-19 will eventually free people of this daily threat of illness and death, even if it doesn’t fully “go away.” But the fight for success over the pandemic may hasten reaching success in the battle against climate change.