Countercurrents | March 31, 2020
The coronavirus pandemic is influencing the entire human world. The pandemic’s impact and the changes it will bring are searched. After the crisis is over, there will be many changes. The longer the pandemic lasts, the more people may embrace new aspects of lifestyle.
The global oil industry has been hit hard. Oil prices have crushed. Long-term viability of many of the oil producers are being questioned. In some cases, the costs of shutting down a well are so high that drillers are paying customers to take oil away.
Low oil prices are forcing massive cuts to supply, which will be slow to return when demand bounces back. When demand outpaces supply, there will be inflation. Industries relying on petroleum will feel the pain of surging costs, and the industries may be forced to make long-term changes.
The way people live may be changing. Social distancing and home office may turn into a routine.
These depend on how long the pandemic keeps economic activity frozen.
Goldman Sachs’ Jeff Currie wrote in a note to clients on Monday: “The global economy is a complex physical system with physical frictions, and energy sits near the top of that complexity. It is impossible to shut down that much demand without large and persistent ramifications to supply.”
In his note, Currie explores the immense challenges the industry faces as it aims to balance supply and demand in a profitable way.
Currie wrote: “The climate change debate will almost certainly take a different course when the global economy emerges from this and is faced with the prospect of having to make large-scale investments into carbon-based industries.”
“The silver lining of the coronacrisis is that the virtual shutdown of key carbon industries – autos, airlines and cruise ships – is likely to cause carbon emissions to fall this year, with initial data from China pointing to a c.20%+ fall during the peak of the shutdown,” he added.
Currie wrote: “People are adapting to a more local existence and living off more sustainable activities, consuming less globally-produced fresh food, producing less waste with a more conservative approach to consumption, all of which may have lasting impacts on demand. Further, commuters and airlines account for c.16.0 million b/d of global oil demand and may never return to their prior levels.”
Currie added: “While oil prices are low today and physical constraints are forcing the behavioral changes, as oil shortages develop once economic activity normalizes, the high oil prices will likely accelerate the energy transition by constraining demand.”
He wrote: “Higher oil prices would also greatly improve the relative economics of EVs and hydrogen. But from the supply side, capital markets’ push for de-carbonization is likely to prevent the broad investment the industry will need to get out of this crisis and will reinforce a tight physical market beyond 2020.”