How Energy Markets Stack Up in a Global Pandemic and What’s Ahead?
Almost every market in the world is seeing unprecedented shifts in the era of COVID-19, from growth in the toilet paper and bean sales to market contraction for small businesses. Energy markets are no exception, undergoing unparalleled price changes and demand shifts. While these drastic changes may be short term, they can still point to existing shortcomings and strengths in the energy sector.
It’s no secret that the oil market is, and always has been, extremely volatile. With the ongoing market shock caused by the virus, it is becoming increasingly clear just how vulnerable the oil markets are.
West Texas Intermediate crude hit a decades-long low of $24/barrel on April 8th. This single oil price reflects the certainty and availability of supply almost anywhere in the global market. $24/barrel indicates a serious over-supply and under-demand hurdle that will fundamentally change the industry. Despite the OPEC+ deal being made, cuts are not expected to save smaller oil businesses from bankruptcy. Such a low price could put U.S. shale producers, once the touted emerging market of the early 21st century, in the red.
But the coronavirus cannot take all of the credit for this change; rather it is the straw that could break the camel’s back. A few weeks ago, before the virus really shook the state of affairs in the U.S., Faiza Haq of BuildEdison published an article on the growing popularity of climate investment in the financial sector. Environmental and social governance (ESG) is progressively influencing investor decisions as backing fossil fuels increasingly presents more and more risks.
Despite ESG being somewhat amorphous, the International Renewable Energy Agency (IRENA) had numbers to back up this claim:
77% of investment in new electricity generation in 2019 was in renewables.
That percentage is well on its way to becoming 100%. While renewable projects may have seen some delays in permitting applications from the virus, the market has truly shown its resilience, expecting to see continued growth through 2020 and 2021, even with coronavirus considerations.
But fossil fuel companies employ many blue-collar workers who could see significant life-altering changes from this virus. Pennsylvania, for instance, has been the epicenter of booms and busts in the energy industry since the first commercial oil drilling reservoir was discovered in Titusville, PA in the 1850s. And with the shale industry buying up mineral rights along the Marcellus, the commonwealth is bound to get hit once again, from the volatile fossil fuel markets which have caused mass social and economic devastation of PA towns for centuries.
So where do we go from here? While U.S. shale producers may certainly lobby for industry bailouts in the new stimulus package, it’s important for our policymakers to consider the long term vitality of our nation’s economy and the well-being of the U.S. population.
If the federal government decides to bail out the oil and gas industry, climate and labor stipulations should be tied to those bailouts; not only because it is the moral imperative of our elected leaders, but also because it is simply the economically resilient option.
As Generate Capital’s Jigar Shah noted in an Energy Gang podcast episode earlier this month, the oil and gas industries are well-poised to transition to clean technology, namely through carbon capture, utilization and storage (CCUS). The industry has the physical, financial and intellectual capital required for this technology to seriously change the path of the climate change crisis for the better. This is the right time to leverage the skilled and plentiful U.S. labor market hurt by the low oil price to forge radical change in oil and gas industry’s business-as-usual.
Revisiting the Pennsylvania example — the U.S. Geologic Survey (USGS) estimates the Appalachian basin has the capacity to store 20,000 megatons of CO2. Even better? The labor market, the geologic intellect already exist in this area. No outsourcing, no offsets, just a reframing of current business practices that coronavirus has already pushed out the door.
So what’s the missing piece in the magic puzzle that could save the nation from catastrophic unemployment and climate change? Strategic policymaking that prioritizes the profound long-term impacts of these coexisting crises over quick fixes to benefit few.
The coronavirus stimulus package could spark this fire, whether through the extension of both the Production Tax Credit (PTC) for wind energy projects and the Investment Tax Credit (ITC) for solar projects, or through infrastructure support of delayed construction projects. But more solutions will be necessary to meet the nation’s needs. The National Climate Bank Act of 2019, for example, was designed to forge public-private investment in climate projects, with a $35 billion total price tag. What this bank would do is to on-take some of the risk associated with investing in renewable and low-carbon infrastructure, catalyzing private sector investment and bridging the gap in meeting emissions reduction goals.
This global pandemic doesn’t have to be all bad news. Instead, it can bring the nation together to flatten the climate curve.
At Build Edison, we have decades of experience in developing, managing, and financing demonstration projects across various clean energy technologies. We offer a number of solutions for startups, large companies, governments and investors to grow quickly and consistently, and to capitalize on one of the most exciting areas of the energy market.
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