Global energy revenues to plummet US$1 trillion in 2020, triggering biggest energy investment slump in history

International Energy Agency IEA global investment oil coal coronavirus COVID-19
The International Energy Agency forecasts energy revenues flowing through to governments and industry will plunge by more than US$1 trillion in 2020.

“The unparalleled decline is staggering in both its scale and swiftness” — dramatic words from the normally staid International Energy Agency (IEA) as it issued a report charting the impact of the COVID-19 virus on the global energy industry.

“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 fall by well over US$1 trillion (A$1.5 trillion) in 2020,” the IEA’s Global Energy Review 2020 stated.

Oil accounts for most of this decline. For the first time, global spending on oil is set to fall below the amount spent on electricity.

The industry had to react to precipitous declines in oil demand and prices as the pandemic slashed fuel use in the transport sector, aggravated earlier in the year by the removal of restraints on supply from the OPEC+ grouping.

The bleak outlook presented by Paris-based IEA comes after it investigated the effects of the global pandemic, concluding that spread of the virus had set in motion the largest drop in global energy investment in history, with spending expected to plunge in every major sector this year.

And that includes fossil fuels, renewables and efficiency “with serious potential implications for energy security and clean energy transitions”.

Large swathes of the world economy have been brought to a standstill in a matter of months, the report noted.

Energy investment expected to fall by 20%

The findings are dramatic.

The IEA expected energy investment this year to grow by 2%. Instead, it now looks likely to plunge by US$400 billion (A$602 billion) — or 20%.

Within that, oil and gas investment are expected to fall by almost one-third in 2020. Many national oil companies are now desperately short of money.

“The speed and scale of the fall in energy investment activity in the first half of 2020 is without precedent,” said the IEA.

“Many companies reined in spending; project workers have been confined to their homes; planned investments have been delayed, deferred or shelved; and supply chains interrupted.”

IEA executive director Fatih Birol said the historic plunge in investment is troubling for several reasons.

“It means lost jobs and opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers,” Dr Birol added.

“The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems.”

Oil (50%) and electricity (38%) were the two largest components of worldwide consumer spending on energy in 2019. The IAE expects power sector revenues to fall globally by US$180 billion.

“The revisions to planned spending have been particularly brutal in the oil and gas sector,” said the IEA.

Restrained spending could continue well into 2021

This has already triggered an increase in borrowing as well as the likelihood that restrained spending will continue well into 2021.

In addition, sharp reductions to auto sales and construction and industrial activity are set to stall progress in improving energy efficiency.

China, “the major determinant of global trends”, has been cushioned by the relatively early restart of industrial activity followed the severe lockdown in Wuhan and other places.

The United States will see a larger fall in investment of more than 25% because of its greater exposure to oil and gas. Europe’s estimated decline is around 17%, with investments in electricity grids, wind and efficiency holding up better than distributed solar PV and oil and gas, which see steep falls.

Coal also hit

The COVID-19 crisis is also hurting the coal industry.

Investment in coal projects is expected by the IEA to fall by one-quarter this year.

However, the report added this does not amount to an “existential” threat.

Although decisions to go ahead with new coal-fired plants have come down by more than 80% since 2015, the global coal fleet continues to grow.

Based on available data and announced projects, approvals of new coal projects in the first quarter of 2020 — mainly in China — were running at twice the rate observed in 2019 as a whole.

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