When the pandemic caused the global economy to slam on the brakes in early 2020, it didn’t take long for the effects of countries closing their borders and locking down to register in dollars and prompt a swift and necessary reset. In July last year, Wood Mackenzie
, a global energy research and consultancy group, estimated that US$1.6tn had been wiped from the oil and gas sector. In the latter part of 2020, there was a better than expected turnaround in the industries. Financial advisor group Deloitte
reported a 25% plummet in global oil demand in April last year, but also an unexpected and steep rebound to reduce overall losses to a mere 8%. A direct example of the effects of Covid-19 lockdowns is apparent in a reduction of work-related travel in the United States to between 35-40% driving (ironic pun intended) consumption down dramatically. Consolidation, perhaps a rash of small company collapses and takeovers by the remaining giants, is a likely outcome. Simultaneously, digitialisation of processes will be a means of reducing labour costs and, some say, enhancing safety. This known, there will likely be redundancies across the board, but also skilled engineers realigning their work towards aiding the green transition – the overall direction of the energy industries.
Green money, green energy
Of course, it’s not just the pandemic that is casting long-term question marks over the future of the energy sector. Political and social will for a greener future, prompted by the increasing evidence of an emerging climate crisis as concisely outlined by the Royal Society
in a one minute long overview video, means the oil and gas industries will never operate again as they did pre-pandemic. Political and social momentum is now too strong to be ignored and demands evolution if the oil and gas industries are to survive. And, inevitably, not all parts of it will, again according to Deloitte
Green is Good
Global management consultants, Mckinsey & Company
, in a fascinating article
on hard finance and green ambitions, identifies the aligning of mutual needs between the fossil fuel industries, (in danger of becoming commercial fossils), government policies, and ethical investors. “According to analyses conducted by the Wall Street Journal, in the first three quarters of 2020 alone, oil and gas companies in North America and Europe wrote down asset values of $145 billion, roughly equivalent to 10 percent of their market value. Climate Action 100+, an investors initiative that aims to ensure major companies take necessary actions on climate issues, has more than 500 signatories which, combined, account for more than $50 trillion in assets under management. Likewise, many governments are making sustainable investments a keystone of their economic stimulus strategies. And in an unprecedented global decision, Denmark has cancelled all upcoming North Sea licensing rounds in anticipation of ending oil and gas production in the North Sea by 2050. Given these dynamics, this is a moment for oil and gas companies to make thoughtful choices: both to improve their economic and reputational resilience, and to consider whether and how to reposition themselves to take advantage of the accelerating low-carbon winds of change.” Remarkably, it has taken the pandemic to bring together a powerful triangulation of will between the oil and gas industries
, corporate finance and political policy to begin the monumental transition towards a green future.
This has to be good news for the oil and gas industries; specialists and engineers who have made careers within these fields, but most importantly, for the world at large. Green ambitions, once a preserve for marginalised activists in the 1970s and 80s and most recently Greta Thunberg
, are finally being prioritised under a new gas and oil industry ethos that in today’s world, “Green is Good” and is the way ahead for all of us. While oil and gas are not alone in struggling in the face of biggest economic slump in nearly a century, WoodMac says its carnage cannot solely be blamed on Covid-19. The economic reality of the climate crisis is also starting to bite