COVID-19 Causes Largest Fall In Global Energy Investment

The COVID-19 pandemic has set in motion the largest freefall in global energy investment in history. The International Energy Agency (IEA) said in a May 27, 2020 report that spending is expected to plunge in every major sector this year—from fossil fuels to renewables and efficiency.

The unparalleled decline is staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions. At the start of 2020, global energy investment was on track for growth of around 2%, which would have been the largest annual rise in spending in six years. But after the COVID-19 crisis brought large swathes of the world economy to a standstill in a matter of months, global investment is now expected to plummet by 20%, or nearly $400 billion, compared with last year, according to the IEA’s World Energy Investment 2020 report.

“The historic plunge in global energy investment is deeply troubling for many reasons,” said Dr. Fatih Birol, IEA’s executive director. “It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems.”

The World Energy Investment 2020 report’s assessment of trends so far this year is based on the latest available investment data and announcements by governments and companies as of mid-May, tracking of progress on individual projects, interviews with leading industry figures and investors, and the most recent analysis from across the IEA. The estimates for 2020 then quantify the possible implications for full-year spending, based on assumptions about the duration of lockdowns and the shape of the eventual recovery.

A combination of falling demand, lower prices, and a rise in cases of non-payment of bills means that energy revenues going to governments and industry are set to decrease by well over $1 trillion in 2020, the report suggests. Oil accounts for most of this decline as, for the first time, global consumer spending on oil is set to fall below the amount spent on electricity.  

Companies with weakened balance sheets and more uncertain demand outlooks are cutting back on investment while projects are also being hampered by lockdowns and disrupted supply chains. In the longer-term, a post-crisis legacy of higher debt will present lasting risks to investment. New analysis in this year’s report highlights that state-owned enterprises account for well over half of energy investments in developing economies.

Global investment in oil and gas is expected to fall by almost one-third in 2020. Investment in shale is anticipated to fall by 50% in 2020. At the same time, many national oil companies are now desperately short of funding. For oil markets, if investment stays at 2020 levels, this would reduce the previously-expected level of supply in 2025 by almost 9 MMbbld, creating a clear risk of tighter markets if demand starts to move back to its pre-crisis level.

SOURCE: The Weekly Propane Newsletter, June 4, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.