Fossil fuel industry heading to ‘terminal decline’?
Traditional fossil fuels are facing difficult times: despite robust demand growth for oil, gas and coal over the past decade, prices have plunged significantly. Some analysts assume that the current crisis may become the beginning of the end for this industry.
The rise of renewables combined with the fall in energy consumption as a consequence of the global Covid-19 pandemic is pushing the fossil fuel industry over the edge and into “terminal decline”, according to Forbes. The pandemic has caused a change to the industry outlook. First, China’s economy slowed due to the country’s efforts to contain the virus. As oil demand began to soften, OPEC tried to convince Russia to reduce production, but instead, Riyadh and Moscow started a price war that smashed oil prices.
Moreover, Covid-19 spread to other countries pushed oil prices into negative territory, which had never happened before with a major benchmark. In April, global oil demand fell dramatically, followed by gas and coal demand. Demand for liquefied natural gas, which has seen strong growth in recent years, also plummeted, and cargos had to be redirected from Asia to Europe.
Besides oversupply, the fossil fuel industry has faced a public relations problem. It is struggling to attract investors, as even before the pandemic, the industry was already seen by many as one on its way out. The investment climate for fossil fuels is expected to continue worsening, so companies may struggle to attract new capital even if demand recovers after the crisis.
At the same time, renewables are currently facing only a small negative impact from the pandemic. Taking into account the rising demand for clean energy, the move toward renewables may gain momentum as soon as the Covid-19 threat fades. Nuclear power can also be part of a low-carbon sustainable future, considers Forbes’ contributor Robert Rapier. According to the International Energy Agency, the current rate of nuclear capacity additions, which is about 10-12 gigawatts of electricity per year, must be at least doubled to meet the world’s sustainability targets.
While the current pandemic doesn’t mark the end of fossil fuels, it may be the beginning of the end, so it’s important to focus on the overall system performance and ensure that the transition to a low carbon future is sustainable itself. The world could find itself with an energy shortfall if the crisis is long-lasting and fossil fuel production declines faster than originally expected, Rapier warns. Capital budgets in the fossil fuel sector are being slashed due to global turmoil. A subsequent decline in output can be larger than the capacity of variable renewables to absorb. Thus, the current glut of energy supply may give way to severe intermittent shortages when the sun doesn’t shine and wind doesn’t blow.