According to the International Energy Agency (IEA), global energy demand declined by nearly 4% in the first quarter of 2020. Oil demand reduced by nearly 5% in the same time period, driven primarily by massive reductions in flights and road transport as lockdowns were enforced in many countries throughout the world, while gas demand was down by 2%. Recovery is expected to be gradual, with demand unlikely to reach pre-Covid levels before the end of the year, and oil prices are still volatile and will probably remain at low levels for some time.
The oil industry has been hit by a ‘double whammy’ of lower demand and lower prices; Rystad Energy predict that global E&P revenues could fall by as much as a trillion dollars in 2020. However, the crisis has stimulated further moves in the E&P industry to increase productivity and cut costs, as well as increase the use of digitalisation, AI and remote operational tools. Some organisations will not survive these difficult measures, but many feel that they can now be profitable in a $35-a-barrel world.
Meanwhile, the only energy source that recorded an increase in demand, according to the IEA, was the renewable sector, increasing in the first quarter of 2020 by about 1.5% in comparison to 2019. Despite reduced demand, renewable electricity generation increased by almost 3% in the first quarter as new wind and solar projects, sanctioned in 2019, came on stream. The use of renewables is expected to rise by nearly 5% in 2020. Crucially, with that $35 oil price, renewables can compete with many oil and gas projects.
Should the oil industry be worried by these developments? One thing that has become abundantly clear from this crisis is that energy security is vital for the whole global population. In particular, we all need a reliable supply of electricity. Without that, our hospitals could not have functioned and the economic activity that has been maintained through home-working and virtual networking would not have happened. Renewable energy has supply issues just as oil and gas does but as we move to a lower emissions world, choice and variety in our energy supply is vital, and we need to work together to ensure that supply is available to all.
As the CEO of BP, Bernard Looney, recently said: it is time to start reimagining energy.