Oil slump may no longer be a curse for renewable energy

Bloomberg

Low oil prices are usually a curse for green energy, but this time might be different. The collapse of the crude market has seen prices fall below zero for the first time in history. Yet Royal Dutch Shell outlined a bold programme to slash carbon emissions and invest in clean energy, while Eni said it’ll consider accelerating its ambitious climate plan.
There’s always been tension between calls for Big Oil to tackle climate change and their investors’ doubts about the profitability of spending on renewables. Historically, a plunge in crude prices has tended to undercut costlier clean energy, prompting companies to divert dwindling financial resources into their core business of fossil fuels. What’s different this time is that the cost of renewables and natural gas has broken away from oil, weakening crude’s influence on the price of electricity.
While the coronavirus has destroyed demand for oil and transport fuels, power use has dropped less sharply. Energy companies are now painfully aware of the mounting pressure from consumers — and investors — to clean up their output, rein in emissions and prepare for a future beyond oil.
“The situation is totally different since the last time oil prices were this low,” said Nick Boyle, CEO of solar company Lightsource BP. The cost of solar is a 10th of what it was during the recession of 2008 to 2009. Even as crude has slumped, “in the last few weeks we have announced new deals on nearly 400 megawatts of new capacity in the US alone,” he said.
Transport is dominated by oil, especially in aviation where battery power or renewable fuels have virtually no presence. So any investment today in a hydrocarbon project is a bet that the impact of the coronavirus will be temporary. That could be a risky assumption.
The lockdowns imposed around the world to slow the spread of the virus have hammered almost every part of the global economy. In France for example, tight restrictions on movement have reduced power demand by about a fifth but wiped out 70% to 90% of consumption of gasoline and diesel. Similar patterns have emerged in other European countries and the US.
Unlike during previous price slumps, cheap fuel is no incentive for people to drive or fly because they can’t leave their homes. Even if travel restrictions are eased in the second half of this year, the International Energy Agency expects global oil demand to fall by a record 9.3 million barrels a day on average in 2020.
A lot depends on how long lockdown habits, such as working from home and replacing business travel with video conferences, will continue to reduce demand from transport. That in turn will depend on things far beyond the control of the energy industry, such as the development of comprehensive virus testing, or possibly a vaccine. Any recovery in demand will be gradual, given the damage done to the global economy, according to London-based consultant Energy Aspects Ltd.
Prior to the Covid-19 outbreak, Energy Aspects was forecasting a demand increase of 5.6 million barrels a day from 2019 to 2025, according to Matt Parry, head of analysis. Its models are showing that number is more likely to be around 3 million barrels a day because of the huge drop in consumption this year.