WASHINGTON (MaceNews) – The demand destruction sparked by efforts to contain the global coronavirus pandemic will have a lasting impact on the energy sector, the International Energy Agency predicted Thursday, warning that financial struggles could become a permanent feature of the industry’s landscape.
“This unprecedented situation and the stimulus packages that governments are putting in place will shape the energy sector for years to come, with significant consequences for the energy industry at large, energy security and clean energy transitions,” the IEA said in its 2020 Global Energy Review.
And the outlook is less than rosy. “The energy sector that emerges from the Covid-19 crisis may look significantly different from what came before,” the report said. “Low prices and low demand in all subsectors will leave energy companies with weakened financial positions and often strained balance sheets.”
It predicted companies that are the most exposed to market prices will experience the most severe financial impacts, with “market concentration and consolidations are likely.”
On the flip side, the IEA said business lines that are insulated to a degree from market signals, such as those with renewable electricity projects, will emerge in the best financial position.
In terms of future investment by the industry, the report expects the public health crisis to have a “significant impact,” posing a threat to global energy security.
“Investment is necessary even if global energy demand takes a long time to return to the pre-crisis trajectory,” the IEA said, as “a considerable proportion of global energy investment is devoted to just sustaining existing levels of energy supply: maintaining oil and gas production at current levels, replacing aging power generation capacity – often with a capital-intensive combination of renewables and flexibility sources – and reinvesting in aging electricity networks.”
“Investment in these activities will have to remain robust even with a subdued recovery,” it added.
On the theme of energy security, the IEA noted the central role crude oil plays in global macro finance, both as a share of trade and as a critical source of government revenues for several major producers.
And due to COVID-19 containment measures and due to the absence of coordinated management, “a disorderly production shutdown is likely,” the IEA wared. “The consequent macroeconomic and financial disruptions could undermine the industry’s ability to ramp up production as the world economy and oil demand recover,” it concluded