The COVID-19 pandemic has set in motion the largest drop in global energy investment in history, with spending expected to plunge in every major sector this year, with global investment in oil and gas is expected to fall by almost one-third in 2020, according to the International Energy Agency (IEA)
At the start of 2020, global energy investment was on track for growth of around two per cent, which would have been the largest annual rise in spending in six years. But after the COVID-19 crisis brought large swathes of the world economy to a standstill in a matter of months, global investment is now expected to plummet by 20 per cent or almost US$400bn, compared with last year, according to the IEA’s World Energy Investment 2020 report.
The shale industry was already under pressure, and investor confidence and access to capital has now dried up: investment in shale is anticipated to fall by 50 per cent in 2020. At the same time, many national oil companies are now desperately short of funding. For oil markets, if investment stays at 2020 levels then this would reduce the previously-expected level of supply in 2025 by almost nine mmbbl a day, creating a clear risk of tighter markets if demand starts to move back towards its pre-crisis trajectory.
“The historic plunge in global energy investment is deeply troubling for many reasons,” said Dr Fatih Birol, IEA’s executive director. “It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems.”
The World Energy Investment 2020 report’s assessment of trends so far this year is based on the latest available investment data and announcements by governments and companies as of mid-May, tracking of progress on individual projects, interviews with leading industry figures and investors, and the most recent analysis from across the IEA. The estimates for 2020 then quantify the possible implications for full-year spending, based on assumptions about the duration of lockdowns and the shape of the eventual recovery.
A combination of falling demand, lower prices and a rise in cases of non-payment of bills means that energy revenues going to governments and industry are set to fall by well more than US$1 trillion in 2020, according to the report. Oil accounts for most of this decline as, for the first time, global consumer spending on oil is set to fall below the amount spent on electricity.
Energy efficiency, another central pillar of clean energy transitions, is suffering too. Estimated investment in efficiency and end-use applications is set to fall by an estimated 10-15 per cent as vehicle sales and construction activity weaken and spending on more efficient appliances and equipment is dialled back.