- Due to the COVID-19 pandemic consumer demand for energy is expected to fall by the largest margin in 70 years, says the International Energy Agency.
- The oil glut in the market and low energy prices are causing energy companies to pull back on spending and checks to investors.
- The demand for renewable energy sources like wind and solar power is expected to rise
Consumer demand for energy is expected to fall by the largest measure in 70 years, while demand for renewable energy sources like solar and wind is expected to grow, according to the International Energy Agency.
However, the Paris-based agency that advises governments on energy matters warned the positive developments for ESG investors and those battling climate change may not last. “As after previous crises, however, the rebound in emissions may be larger than the decline,” the IEA wrote. “Unless the wave of investment to restart the economy is dedicated to cleaner and more resilient energy infrastructure.”
The combination of the COVID-19 outbreak and government-led lockdowns have hurt the global economy and consumer appetite for energy is projected to fall by 6% this year says the IEA, in a recent report.
In response to depressed market conditions, the Organization of the Petroleum Exporting Countries, which includes the world’s top crude exporter Saudi Arabia, teamed up with external allies such as Russia to cut global crude output by about 13% in April.
Still, the surplus of oil in the market and low energy prices have created a perfect storm, says NJ Ayuk, a partner at Centurion Law Group, that specializes in energy deals in Africa.
“Hollywood could not have figured out this script in regards to what’s happening with oil,” Ayuk told Karma. “All industries have been put on life support and everybody has gone into survival mode.”
The gloomy prospects for oil have brought pain to sovereign country producers such as Nigeria, which received a $3.4 billion emergency financing package from the International Monetary Fund in April.
Oil giant ExxonMobil said it was cutting its capital expenditure budget for oil and gas exploration on Friday, while Royal Dutch Shell PLC had to pull back on its payouts to investors for the first time since World War II, Reuters reported on Thursday. The company slashed its quarterly dividend to 16 cents per share, down from 47 cents.
“The dividend cut isn’t a one-off, it’s a complete reset and leaves the stock on a 3.5% yield,” noted Stuart Joyner, an analyst at the research firm Redburn Partners in a report. “It’s therefore clearly much worse than bulls wanted or expected.”
As the dust from fervent global economic activity settles, IEA forecasts that carbon dioxide emissions, which have been linked to global warming, are expected to fall 8% year-on-year to levels last seen a decade ago.