{"id":41877,"date":"2020-05-13T18:28:44","date_gmt":"2020-05-13T17:28:44","guid":{"rendered":"https:\/\/www.climatechangenews.com\/?p=41877"},"modified":"2020-05-14T11:00:14","modified_gmt":"2020-05-14T10:00:14","slug":"oil-crash-not-like-others","status":"publish","type":"post","link":"https:\/\/www.climatechangenews.com\/2020\/05\/13\/oil-crash-not-like-others\/","title":{"rendered":"This oil crash is not like the others"},"content":{"rendered":"

Shell cuts its dividend for the first time since the second world war. Oil prices turn negative in the US. Supertankers of unwanted fuel stack up in the Singapore Strait.<\/strong><\/p>\n

The Covid-19 pandemic has scared the global economy to a standstill, slashing demand for the hydrocarbons that to this day are its main source of energy.<\/span><\/p>\n

As travel restrictions begin to ease and production cuts kick in, oil prices are edging up from rock bottom. But this is not just another cyclical downturn. It is a savage blow at a time when fears of climate breakdown call the whole basis of our energy system into question.<\/span><\/p>\n

The majority of the world\u2019s oil and gas reserves must stay in the ground, unburned, to stop dangerous global heating. While few in the industry grasp the scale and speed of transition required, oil majors see the writing on the wall.<\/span><\/p>\n

Will the current oil market turmoil hasten or hinder the shift to clean energy sources? Do governments need to play a more active role in managing production? What, ultimately, does this mean for the climate?<\/span><\/p>\n

Climate news in your inbox?\u00a0Sign up\u00a0here<\/a><\/strong><\/p><\/blockquote>\n

Producers are drilling less, pretty much everywhere.<\/span><\/p>\n

The Organization of Petroleum Exporting Countries (Opec) last month <\/span>struck its broadest and deepest deal ever<\/span><\/a> with non-members including Russia, to reduce global output by 10%. It was not enough to match the slump in demand, but put a floor on how low prices can sink.<\/span><\/p>\n

Further production cuts will be market-driven. IHS Markit forecasts a drop of 17 million barrels a day worldwide in the second quarter of 2020.<\/span><\/p>\n

Jim Burkhard, head of oil markets at IHS Markit, said of the analysis: \u201cAll producing countries are subject to the same brutal market forces. Some will be impacted more than others. But there is nowhere to hide.\u201d<\/span><\/p>\n

Extraction is on pause across much of Canada\u2019s tar sands, one of the most carbon intensive sources of oil. US shale frackers are not putting up any new rigs, with many debt-laden small players expected to go bust.<\/span><\/p>\n

US supermajor Exxon Mobil cut 30% off its capital spending programme. Loathed by activists for its decades-long disinformation campaign on climate change, the once mighty corporation is losing its shine with investors, too. Its stock has declined 10.8% in the past decade, <\/span>Bloomberg reports<\/span><\/a> in a scathing catalogue of the company\u2019s misjudgments.\u00a0<\/span><\/p>\n

Less oil extracted means less oil burned means lower greenhouse gas emissions. There is an increased risk of polluting methane leaks from abandoned wells and some Russian companies <\/span>have said<\/span><\/a> they might prefer to pump and burn unsellable oil than cease production. On balance, though, the immediate impact is good for the climate.<\/span><\/p>\n

Comment:<\/strong>\u00a0After the oil crash, we need a managed wind-down of fossil fuel production<\/a><\/p><\/blockquote>\n

Historically, oil busts have been followed by recovering demand and then price spikes as supply catches up. This time, most analysts are not predicting a return to pre-Covid levels of demand until late 2021, if at all.<\/span><\/p>\n

Among oil majors, longer term forecasts diverge.<\/p>\n

Exxon <\/span>remains bullish as ever<\/span><\/a>, seeing population growth and economic development driving oil sales up over the next three decades.<\/span><\/p>\n

European companies, under pressure from climate-conscious governments and investors, are less confident of the outlook for oil. Or to put it another way, more confident humanity can overcome climate catastrophe by switching to low-carbon energy sources.\u00a0<\/span><\/p>\n

BP, Shell, Repsol and Total have set out strategies to reach \u201cnet zero\u201d greenhouse gas emissions by 2050. Unlike earlier generations of climate plans, these assume responsibility for the emissions from burning their products, which dwarf those from drilling and refining operations. While none actually measure up to the \u201cnet zero\u201d claim, according to the <\/span>Transition Pathways Initiative<\/span><\/a>, the plans show an acceptance that oil\u2019s share of the energy mix will shrink.<\/span><\/p>\n

Shell chief Ben Van Beurden, defending a decision to cut the dividend by 66%, <\/span>told shareholders<\/span><\/a> he did not expect the oil market to recover in the medium term.<\/span><\/p>\n

BP\u2019s Bernard Looney <\/span>told the Financial Times<\/span><\/a> oil demand could even have peaked pre-crisis. \u201cI would not write that off,\u201d he said.<\/span><\/p>\n

The longer oil prices are depressed, the more oil fields will go untapped. Analysis firm Rystad has <\/span>cut its production forecast<\/span><\/a> for 2030 by 6%, citing deferred investment in exploration.<\/span><\/p>\n

Coronavirus<\/strong>\u00a0lockdown speeds India\u2019s shift from coal to solar power<\/a><\/p><\/blockquote>\n

Renewable energy projects, a tiny fraction of oil majors\u2019 portfolios that historically yielded much lower financial returns than petrol products, now look more favourable. They are largely unpinched in the coronavirus round of belt-tightening.<\/span><\/p>\n

The International Energy Agency, which has long underestimated renewables, <\/span>now says<\/span><\/a> they are more resilient in the downturn than fossil fuels.<\/span><\/p>\n

Carbon Tracker Initiative is calling it: 2019 was \u201calmost certainly\u201d the peak of the fossil fuel era, <\/span>according to the think-tank\u2019s energy strategist Kingsmill Bond<\/span><\/a>. He doesn\u2019t quite go so far as to say oil and gas have peaked. Coal is assumed to have peaked in 2013; the other fuels may have further to go, but their heyday is over.<\/span><\/p>\n

\u201cWe should not be surprised to see this peak even as we are surrounded by fossil fuels in our daily lives,\u201d writes Bond. \u201cHorse demand peaked when cars made up just 3% of their number, gas lighting demand peaked when electricity was in its infancy, and we had Nokia phones before the iPhone came along.\u201d<\/span><\/p>\n

The global economy will be reshaped by the response to Covid-19. Many of these changes are likely to keep oil demand down: shorter supply chains, teleworking, health and education services being delivered online.<\/span><\/p>\n

Others will delay a shift to cleaner energy: principally, people shunning public transport for private cars, to limit their exposure to the disease.<\/span><\/p>\n

Public attitudes matter: the extent to which air travel rebounds depends on how individuals weigh the heightened health risks against pent-up wanderlust.<\/span><\/p>\n

Comment: <\/strong>Five ways for governments to green airline bailouts<\/a><\/p><\/blockquote>\n

More important, though, is the policy reaction. Governments are preparing to inject billions of dollars to revive the economy as the coronavirus threat is brought under control. Whether that throws a lifeline to polluting sectors or boosts sustainable infrastructure and retraining is key.<\/span><\/p>\n

\u201cGreen recovery\u201d is the buzzword among UN agencies, climate-hawk governments, urban planners and sustainable business coalitions.<\/span><\/p>\n

\u201cIf our world is to come out of this [coronavirus] crisis more resilient, we must do everything in our power to make it a green recovery,\u201d <\/span>said Kristalina Georgieva<\/span><\/a>, head of the International Monetary Fund (IMF), at a virtual conference last month.<\/span><\/p>\n

As the IMF deploys its \u20ac1 trillion lending power, it can demand recipients scrap fossil fuel subsidies or work with petrostates to diversify their economies.<\/span><\/p>\n

Specific investment decisions will be for governments to take. Green spending options include creating cycle networks, renovating buildings for energy efficiency and rolling out better internet connections.<\/span><\/p>\n

It is also a moment to reconsider oil policy and how it aligns – or not – with climate goals.<\/span><\/p>\n

The <\/span>2019 Production Gap report<\/span><\/a> found governments were planning to extract 43% more oil and 47% more gas in 2040 than was compatible with holding global temperature rise to 2C – the minimum level of ambition in the Paris Agreement.<\/span><\/p>\n

If production goes unregulated, the usual market dynamics of boom and bust prevail.<\/span> Cheap oil weakens the incentive to switch to cleaner technology like electric vehicles, undermining climate policies. As drivers revert to gas-guzzling cars, demand for oil picks up and prices spike, spurring fresh investment in exploration.<\/span><\/p>\n

\u201cThe crisis in the oil market does not mean this is the end of oil and gas, so we need government intervention,\u201d says Laurie van der Burg, senior campaigner at Oil Change International (OCI). A ban on new exploration licences, end to public finance for the sector and retraining or early retirement programmes for oil workers is where she would start.<\/span><\/p>\n

Covid-19 outbreak<\/strong> in Polish coal mines heaps further pain on struggling sector<\/a><\/p><\/blockquote>\n

In the US, the OCI <\/span>floated the idea<\/span><\/a> of nationalising distressed oil companies and winding them down. It brought them into an unlikely alignment with President Donald Trump, whose administration <\/span>considered buying stakes<\/span><\/a> in oil companies and imposing production cuts.<\/span><\/p>\n

The idea was shot down in Congress: shale drillers who had taken on too much debt could not expect a bailout from the Democrats. The White House has yet to muster significant targeted support for the sector, despite Trump\u2019s promise to \u201cnever let the great U.S. Oil & Gas Industry down\u201d.<\/span><\/p>\n

Still, it gives a hint of how constituencies with starkly different motives can have common interests. Managed production cuts, while supporting climate policy, would sustain oil prices at a profitable level and smooth out market volatility.<\/span><\/p>\n

The oil market crash also spurred Trump into a rare act of international collaboration, as broker of last month\u2019s Opec++ deal.<\/span><\/p>\n

Petropowers have responded to growing competition from clean energy by pumping as much oil and gas as possible while they still can. Russia and Saudi Arabia continued to aggressively pursue market share as the pandemic lockdown started to bite.<\/span><\/p>\n

This price war came at a cost. Riyadh was forced to <\/span>raise taxes and cut spending<\/span><\/a>, unsettling the Kingdom\u2019s fragile social compact. Moscow saw its budget surplus for 2020 turn to a deficit.<\/span><\/p>\n

A weak anaesthetic for the painful downturn, the Opec++ deal, like international climate cooperation, was hampered by conflicting ideas of how to fairly share the burden.<\/span><\/p>\n

Comment: <\/strong>Why climate advocates should welcome the historic Opec++ deal<\/a><\/p><\/blockquote>\n

Michael Dobson, a PhD researcher at the New School into the anti-colonialist roots of Opec, argues the deal nonetheless shows Opec\u2019s potential to negotiate an orderly exit from oil.<\/span><\/p>\n

\u201cObviously the leadership in most Opec countries at the moment are not that interested in managed decline,\u201d he concedes. But looking at the history of Opec, the idea it could take a conservationist approach is not so outlandish.<\/span><\/p>\n

Venezuelan co-founder Juan Pablo Perez Alfonso conceived Opec as an ecological organisation, to raise oil prices and deter wasteful consumption. He <\/span>died in 1979<\/span><\/a> without owning a car.<\/span><\/p>\n

\u201cIf you want to have a transnational organisation that would bring parties around the table and sit down and allocate oil production in order to meet the market demand but you contract over time\u2026 If you wanted to build that from scratch, you would build something that looked a lot like Opec,\u201d says Dobson.<\/span><\/p>\n

\u201cI do think it\u2019s worth climate people understanding how the oil industry operates and not having an entirely antagonistic relationship to it.\u201d<\/span><\/p>\n

Comment:<\/strong> How the coronavirus recovery effort can support a European Green Deal<\/a><\/p><\/blockquote>\n

There is also the small matter of millions of workers worldwide dependent on the industry for their livelihoods.<\/span><\/p>\n

The trade union movement, primed though it is to defend any job under threat, is willing to talk about a \u201cjust transition\u201d away from fossil fuels.<\/span><\/p>\n

This phrase is vague enough not to scare oil workers, while tacitly acknowledging their jobs will vanish.<\/span><\/p>\n

\u201cWe would all like to preserve those jobs,\u201d says Sharan Burrow, head of the International Trade Union Confederation, \u201cif climate action was not an imperative. We are talking about a transition to stave off an extinction of the human race.\u201d<\/span><\/p>\n

The consolation prize they are fighting for is early retirement or retraining opportunities for workers and regeneration of communities losing out in the shift to clean energy.<\/span><\/p>\n

\u201cWe cannot avoid the shift away from fossil fuels, the question is the timing and how it is done,\u201d says Burrow. \u201cIf people don\u2019t trust in the future, if they cannot see themselves with security, see opportunity, they are going to fight it. We have to make sure people move out of those areas in a way that builds hope, with as little damage as possible.\u201d<\/span><\/p>\n

Comment:<\/strong> No silver lining to coronavirus, but a golden opportunity<\/a><\/p><\/blockquote>\n

At an international level, just transition implies that historically disadvantaged countries should be given some leeway.<\/span><\/p>\n

\u201cWe would like to see rich countries lead the transition and phase out their production first,\u201d says OCI\u2019s Van der Burg, while helping oil-dependent developing countries like Nigeria and Iran diversify their economies.<\/span><\/p>\n

Many countries have a blind spot when it comes to the impact of oil supplies on climate policy. The UK, for example, has one of the strongest carbon-cutting laws in the world, yet maintains a policy to maximise oil and gas extraction from the North Sea.<\/span><\/p>\n

That is partly justified by sustaining employment in the sector, but as external forces cause heavy job losses, this could be the moment to address the disconnect. In a <\/span>letter to the UK prime minister<\/span><\/a>, the independent Committee on Climate Change put retraining oil workers in low-carbon industries high on the priority list.<\/span><\/p>\n

In efforts to protect jobs, the government should avoid \u201clock-in\u201d of a polluting status quo, it warned: \u201cSupport for carbon-intensive sectors should be contingent on them taking real and lasting action on climate change.\u201d<\/span><\/p>\n

In a briefing call, the Committee\u2019s chief executive Chris Stark said: \u201cWe are seeing the impacts of a disorderly transition play out. What we need is an orderly transition.\u201d<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"The coronavirus lockdown has dealt a savage blow to Big Oil, at a time fears of climate breakdown call the whole basis of our energy system into question","protected":false},"author":12,"featured_media":41879,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6,598],"tags":[80],"coauthors":[3983],"class_list":["post-41877","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-energy","category-fossil-fuels","tag-oil-and-gas","type-analysis"],"acf":[],"yoast_head":"\nThis oil crash is not like the others<\/title>\n<meta name=\"description\" content=\"The coronavirus lockdown has dealt a savage blow to Big Oil, at a time fears of climate breakdown call the whole basis of our energy system into question\" \/>\n<meta name=\"robots\" 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