25 Jun 2020 Covid-19 and Energy Transition. What’s next for Big Oil?
The COVID19 pandemic had a huge impact across the whole energy sector, particularly in terms of demand and supply. Read more on how this time the pandemic’s impact on the oil and gas industry is expected to endure.
The COVID-19 pandemic had, and it is still having, a huge impact across the whole energy sector, particularly in terms of demand and supply. Even though, in the past few months prices went down, oil companies were still receiving investments. This time, however, the pandemic’s impact is expected to endure.
Shell has recently announced that it would cut $22bn from the value of its assets and BP declared that the crisis could hit the company with a $17bn loss. Hence, they are publicly announcing that the fall of oil and gas prices will make inefficient and uneconomic the existence of vast hydrocarbon reserves never being extracted and burnt.
Moreover, the acceleration of the green energy transition for areas such as the European Union will only make it even more arduous for oil and gas companies to recover in the aftermath of the Covid-19 crisis. The Financial Times estimates that unviable assets could amount to $900bn should governments implement policies to restrict the rise in global temperatures to 1.5C above pre-industrial levels.
Shell is preparing for a big organizational restructuring. Oil and gas companies were pressured for years by activist investors and environmentalists who have accused them of not taking adequate measures to overhaul their asset portfolios and accounts for the energy transition. European companies are for now ahead of their US counterparts. BP, Shell, Total and Repsol have energy transition and net-zero commitments at least partly driving their decisions.
Oil companies will be forced to realign their projects to make sure they are fit for a low-carbon world. It is then that the true motives of energy companies will be revealed. They will face a choice: whether to use that period to hasten the shift towards a greener future or to reinvest in existing hydrocarbon businesses that still provide most of their revenue. But what will the value of those investments? Stranded assets are quickly becoming a reality the companies in the oil and gas sector need to confront with.
For further information, see the following links:
https://www.iea.org/reports/global-energy-review-2020
https://www.ft.com/content/590b1fec-af0d-11ea-a4b6-31f1eedf762e