Fossil Fuel Industry on the Brink of Collapse due to Coronavirus Crisis

  • Jun 06, 2020 BST
  • Team Kalkine
Fossil Fuel Industry on the Brink of Collapse due to Coronavirus Crisis

Coronavirus pandemic has not only hammered the financial market but has also badly impacted the demand for nearly all forms of fossil fuels-oil, gas, and coal. As per the International Energy Agency (IEA), demand for fossil fuel is estimated to crash to a historically low level that could be seven times severe than the plunge caused by the global financial crisis. But on the positive side, the agency added that the slump in emissions is projected to be six times greater than the drop recorded in 2009, inducing the largest downswing ever recorded.

Wind, solar and other renewable energies have rapidly replaced coal in energy generation over the years. The massive downturn in the global coal industry could force many countries like the UK and Germany to wind down their coal production plants. Experts expect coal production to plunge by a quarter this year with the overall loss in the fossil fuel industry projected to reach $25 trillion due to the coronavirus pandemic. Further, relatively the higher cost of coal, compared to gas, wind and solar, has brought the resource to the brink of collapse where experts believe that the coal industry could never recover after the pandemic.

Renewable electricity is expected to be the only sector to visualise growth in 2020, as renewable technologies have made great progress in electric vehicles and are supported by several clean energy transition missions. Carbon dioxide emissions are expected to decline by 8% globally in the COVID-19-induced lockdown scenario, where borders restrictions had been imposed, factories remained shut, and travel bans were implemented. However, the brunt of the crisis on energy demand is majorly dependent on the span and measures taken to prevent the spread of coronavirus.

Generation of Clean Energy: A Stimulus to Green Restoration

The Executive Director of IEA Fatih Birol told media that the upswing of renewables could stimulate the fossil fuels industry to generate clean energy if the government uses green investment to curb the economic plunge. As per the analysis of IEA, around 70 per cent of the global clean energy investments are backed by the government, either through subsidies/taxes or through direct finances.

Birol has further urged the governments across the globe for the investment in energy efficiency measures that may not yield returns in the short-term but would pay off huge gains in a longer period of time. It could thus enable the world to change the adversity caused by the fallout of pandemic into opportunity by capitalising resources for a greener world.

Crash in Crude Oil Prices

As per the Oil Market Report (OMR) of IEA, global oil demand is anticipated to drop by a record of 9.3 mb/d year-on-year in 2020. For the first time in history, US oil prices turned negative on April 21 this year, reflecting the biggest slump in demand for 25 years.

Global oil prices are dropping unwaveringly since December 2019 when coronavirus first broke out in China. In addition to drastically declining demand for oil due to lockdown in major economies, the price war between major oil producers including OPEC+ members led to the oversupply of crude oil, thereby creating an imbalance in the forces of demand and supply and resultant financial pain in the market. IEA believes that the pandemic would curb any global oil demand growth during 2021.

UK’s benchmark Brent Crude Oil Futures surged by 4.95 per cent to last trade at a price of USD 41.97 per barrel on Friday, June 5. Similarly, the US benchmark WTI Crude Oil Futures was up 4.12 per cent to last trade at 38.95 per barrel on June 5.

Oil and Gas Authority of the United Kingdom has, however, estimated that the production of crude oil is estimated to fall from 48.62 million tonnes in 2019 to 47.68 million tonnes in the year 2020. On the contrary, the trend in expenditures has been signalling an upside to rise to £15.35 billion in 2020 as per the UK’s government statistics.

Overview of some Oil and Gas Companies listed on the London Stock Exchange

Diversified Gas and Oil PLC (LON: DGOC)

Diversified Gas And Oil PLC (DGOC) is one of the fastest-growing UK listed energy companies focused on innovatively acquiring and enhancing gas and oil-producing assets in the Appalachian Basin US.

Since DGOC’s listing on London’s Alternative Investment Market (AIM) three years ago, the company has massively grown its production to nearly 112,000 barrels of oil per day from merely 4000 boepd earlier. The increase underlines the company’s acquisition-driven growth, where the company has recently shown interest in purchasing small existing gas wells, mainly in Appalachian area of the mid-Atlantic seaboard, in order to scale up its business operations in main London market.

DGOC stock last traded at GBX 105.80, down 0.19 per cent on June 5. The 52-week high/low of the stock is recorded at GBX 116.50/GBX 59.60, respectively. The market capitalisation of the company stands at GBP 749.51 million as at the market close on Friday.

BP PLC (LON: BP.)

UK-based leading energy company, BP Plc is one of the seven oil and gas ‘supermajors’ of the globe with the business focused on fuel, energy and petrochemical products. The company has reportedly started evacuating workers from the site of US Gulf of Mexico production on Wednesday as the Tropical Storm Cristobal is forecasted to hit the Louisiana coast by June 7.

The stock of BP Plc surged by 7.75 per cent to last trade at GBX 362.25 on June 5. BP is worth GBP 68.62 billion with 20.26 billion shares outstanding. The 52-week high/low of the stock is recorded at GBX 557.90/GBX 233.70, respectively.

Glencore PLC (LON: GLEN)

Glencore Plc is a mining and commodity company domiciled in Baar, Switzerland. The company operates through its three core divisions that include metals and minerals segment, agricultural goods segment and energy product segment.

Glencore majority shareholders have recently voted for Tony Hayward to continue as Chairman of the Board despite long-standing criticism coming from the shareholder advisory Pirc to consider Hayward’s off the board on its track-record of environmental protection standards – a reference to the Deepwater Horizon accident in 2010.

GLEN stock last traded at GBX 180.98, up 6.99 per cent, on June 5. It’s 52-week high and low are at GBX 280.25 and GBX 112.50, respectively. The market capitalisation of the company is reported at GBP 22.53 billion as at the end of last trading session on June 5.

Coronavirus Pandemic has brought the fossil fuel industry on the verge of collapse due to sharply declining demand but has somehow opened doors for the clean energy, hydrogen and reduced carbon footprints that could potentially shift the interest of major energy producers to emerging renewable technologies.  

 

 

 


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