According to theInternational Energy Agency (IEA), the coronavirus is expected to wipe out about 20% of spending plans across all energy sectors this year. Global energy investment will decline by one-fifth by 2020. This is the largest decline in history. This will obviously have serious implications for future fuel security and the transition to a low-carbon economy, according to the International Energy Agency (IEA).
By 2020, energy investment was on track to reach its highest level in six years
400 billion less in energy investments in 2020
About $400 billion is expected to be cut from energy investments this year. The impact of the coronavirus is affecting demand, funding capacity and project logistics. This is prompting companies to reduce their capex plans in order to protect their balance sheets.
Oil and gas investments will be the most affected. But all sectors, from coal to renewables to power grids, will be affected by the decline. This decline has been described as staggering in both its magnitude and rapidity.
An important turnaround
Prior to Covid-19’s emergence, global energy spending was on track to increase by 2% over 2019, which would have been the largest annual increase in six years. This reversal means that government and corporate revenues will decline by more than $1 trillion this year.
Falling energy investment may have long-term consequences
Today, the drop in energy investments is causing job losses and economic opportunities. But short-term reductions in energy capital spending could have long-term consequences.
Indeed, project deferrals and cancellations will result in lost energy supplies that we may well need tomorrow when the economy recovers. In addition, the increase in post-crisis debt will present lasting risks to investment.
It’s also worrisome in relation to investments in the energy transition. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems.
Oil and gas sector to receive largest spending cuts
The oil and gas industry has suffered the most among the energy industries. The main reason for this is the restriction of travel which has led to a drop in demand for fuel.
A decline in spending of nearly one-third is expected across the sector compared to 2019. Big Oil set the tone in a difficult first quarter by announcing budget cuts averaging about 25% below pre-crisis projections.
Most of the largest spending cuts in the oil and gas sector are in the U.S. shale industry. It was already in financial difficulty before the pandemic. It is now forecasting a 50% decline in investment activity in 2020.
The national oil companies (NOC) are also tightening their purse strings. This raises long-term questions about the future finances of developing economies that are heavily dependent on hydrocarbon revenues.
Slowing investment in renewable energy jeopardizes the transition to clean energy
In the electricity sector, an overall decrease of 10% in investments is expected. This trend will have implications for the energy transition. This had accelerated before Covid-19 began to spread around the world.
Forecasts estimate that spending on coal will decline by nearly a quarter. But China’s awakening from strict containment may shift this trend. China being the major player in coal-related spending.
The IEA revealed last week that growth in renewable energy capacity additions is set to slow this year for the first time in two decades. It is expected to be down 13% from 2019. There are many reasons for this decline. These include supply chain disruptions, project deferrals, and funding issues.
Energy transition investments are expected to decrease by about 10% in 2020. This will further slow the pace of the clean energy transition.
Rooftop solar installations have been hit hard by the market turmoil. There have been numerous calls for the integration of clean energy into national economic stimulus plans. This could give new impetus to decarbonization efforts.
However, the exact shape of the government’s reconstruction plans has yet to be confirmed.
Clear warning signs for power grids
Power grids were a key pillar of the emergency response to the health crisis. Economic and social activities have been able to continue in a closed situation. These networks must be resilient and intelligent to protect against future shocks. But also to cope with the increasing share of wind and solar energy.
Current investment trends are clear warning signs for future electricity security. Network operators have faced major challenges. Total network flexibility was required while the world was locked up at home.
An expected 9% drop in investments this year. It is in addition to a 7% cut in 2019. The future resilience of power systems is a major concern raised by the analysis.
