COVID-19: The Beginning of the End for Oil?

Michael T. Klare says a vast restructuring of the global energy enterprise is happening now.  

By Michael T. Klare

Energy analysts have long assumed that, given time, growing international concern over climate change would result in a vast restructuring of the global energy enterprise. The result: a greener, less climate-degrading system. In this future, fossil fuels would be overtaken by renewables, while oil, gas, and coal would be relegated to an increasingly marginal role in the global energy equation. In its World Energy Outlook 2019,” for example, the International Energy Agency (IEA) predicted that, by 2040, renewables would finally supersede petroleum as the planet’s No. 1 source of energy and coal would largely disappear from the fuel mix. As a result of Covid-19, however, we may no longer have to wait another 20 years for such a cosmic transition to occur — it’s happening right now.

So, take a breath and, amid all the bad news pouring in about a deadly global pandemic, consider this: when it comes to energy, what was expected to take at least two decades in the IEA’s most optimistic scenario may now occur in just a few years. It turns out that the impact of Covid-19 is reshaping the world energy equation, along with so much else, in unexpected ways.

That energy would be strongly affected by the pandemic should come as no surprise. After all, fuel use is closely aligned with economic activity and Covid-19 has shut down much of the world economy. With factories, offices, and other businesses closed or barely functioning, there’s naturally less demand for energy of all types. But the impacts of the pandemic go far beyond that, as our principal coping mechanisms — social distancing and stay-at-home requirements — have particular implications for energy consumption.

Among the first and most dramatic of these has been a shockingly deep decline in flying, automobile commuting, and leisure travel — activities that account for a large share of daily petroleum use. Airline travel in the United States, for example, is down by 95 percent from a year ago. At the same time, the personal consumption of electricity for telework, distance learning, group conversations and entertainment has soared. In hard-hit Italy, for instance, Microsoft reports that the use of its cloud services for team meetings — a voracious consumer of electricity — has increased by 775 percent.

These are all meant to be temporary responses to the pandemic. As government officials and their scientific advisers begin to talk about returning to some semblance of “normalcy,” however, it’s becoming increasingly clear that many such pandemic-related practices will persist in some fashion for a long time to come and, in some cases, may prove permanent. Social distancing is likely to remain the norm in public spaces for many months, if not years, curtailing attendance at theme parks and major sports events that also typically involve lots of driving. Many of us are also becoming more accustomed to working from home and may be in no rush to resume a harried 30-, 60-, or 90-minute commute to work each day. Some colleges and universities, already under financial pressure of various sorts, may abandon in-person classes for many subjects and rely far more on distance learning.

No matter how this pandemic finally plays out, the post-Covid-19 world is bound to have a very different look from the pre-pandemic one and energy use is likely to be among the areas most affected by the transformations underway. It would be distinctly premature to make sweeping predictions about the energy profile of a post-coronavirus planet, but one thing certainly seems possible: the grand transition, crucial for averting the worst outcomes of climate change and originally projected to occur decades from now, could end up happening significantly more swiftly, even if at the price of widespread bankruptcies and prolonged unemployment for millions.

The Chicago Theater and empty streets on March 20, 2020. (Dinfinite2011, CC BY-SA 4.0, Wikimedia Commons)

Oil’s Dominance in Jeopardy

As 2019 drew to a close, most energy analysts assumed that petroleum would continue to dominate the global landscape through the 2020s, as it had in recent decades, resulting in ever greater amounts of carbon emissions being sent into the atmosphere. For example, in its “International Energy Outlook 2019,”the Energy Information Administration (EIA) of the U.S. Department of Energy projected that global petroleum use in 2020 would amount to 102.2 million barrels per day. That would be up 1.1 million barrels from 2019 and represent the second year in a row in which global consumption would have exceeded the notable threshold of 100 million barrels per day. Grimly enough, the EIA further projected that world demand would continue to climb, reaching 104 million barrels per day by 2025 and 106 million barrels in 2030.

In arriving at such projections, energy analysts assumed that the factors responsible for driving petroleum use upward in recent years would persist well into the future: growing automobile ownership in China, India and other developing nations; ever-increasing commutes as soaring real-estate prices forced people to live ever farther from city centers; and an exponential increase in airline travel, especially in Asia. Such factors, it was widely assumed, would more than compensate for any drop in demand caused by a greater preference for electric cars in Europe and a few other places. As suggested by oil giant BP in its “Energy Outlook” for 2019, “All of the demand growth comes from developing economies, driven by the burgeoning middle class in developing Asian economies.”

Even in January, as the coronavirus began to spread from China to other countries, energy analysts imagined little change in such predictions. Reporting “continued strong momentum” in oil use among the major developing economies, the IEA typically reaffirmed its belief that global consumption would grow by more than one million barrels daily in 2020.

Only now has that agency begun to change its tune. In its most recent “Oil Market Report,”it projected that global petroleum consumption in April would fall by an astonishing 29 million barrels per day compared to the same month the previous year. That drop, by the way, is the equivalent of total 2019 oil usage by the United States, Canada, and Mexico. Still, the IEA analysts assumed that all of this would just be a passing phenomenon. In that same report, it also predicted that global economic activity would rebound in the second half of this year and, by December, oil usage would already be within a few million barrels of pre-coronavirus consumption levels.

Other indicators, however, suggest that such rosy predictions will prove highly fanciful. The likelihood that oil consumption will approach 2018 or 2019 levels by year’s end or even in early 2021 now appears remarkably unrealistic. It is, in fact, doubtful that those earlier projections about sustained future growth in the demand for oil will ever materialize.

A Shattered World Economy

The near-empty arrival hall of Seoul–Incheon International Airport in South Korea on 6 March 2020. (Bonnielou2013, CC BY-SA 4.0, Wikimedia Commons)

As a start, a return to pre-Covid-19 consumption levels assumes a reasonably rapid restoration of the world economy as it was, with Asia taking the lead. At this moment, however, there’s no evidence that such an outcome is likely.

In its April World Economic Outlook” report, the International Monetary Fund predicted that global economic output would fall by 3 percent in 2020 (which may prove a distinct underestimate) and that the pandemic’s harsh impacts, including widespread unemployment and business failures, will persist well into 2021 or beyond. All told, it suggested, the cumulative loss to global gross domestic product in 2020 and 2021, thanks to the pandemic, will amount to some $9 trillion, a sum greater than the economies of Japan and Germany combined (and that assumes the coronavirus will not come back yet more fiercely in late 2020 or 2021, as the “Spanish Flu” did in 1918).

This and other recent data suggest that any notion China, India, and other developing nations will soon resume their upward oil-consumption trajectory and save the global petroleum industry appears wildly far-fetched. Indeed, on April 17th, China’s National Bureau of Statistics reported that the country’s GDP shrank by 6.8 percent in the first three months of 2020, the first such decline in 40 years and a staggering blow to that country’s growth model. Even though government officials are slowly opening factories and other key businesses again, most observers believe that spurring significant growth will prove exceedingly difficult given that Chinese consumers, traumatized by the pandemic and accompanying lockdown measures, seem loath to make new purchases or engage in travel, tourism and the like.

And keep in mind that a slowdown in China will have staggering consequences for the economies of numerous other developing nations that rely on that country’s tourism or its imports of their oil, copper, iron ore, and other raw materials. China, after all, is the leading destination for the exports of many Asian, African, and Latin American countries. With Chinese factories closed or operating at a reduced tempo, the demand for their products has already plummeted, causing widespread economic hardship for their populations.

Add all this up, along with a rising tide of unemployment in the United States and elsewhere, and it would appear that the possibility of global oil consumption returning to pre-pandemic levels any time soon — or even at all — is modest at best. Indeed, the major oil-exporting nations have evidently reached this conclusion on their own, as demonstrated by the extraordinary April 12th agreement that the Saudis, the Russians, and other major exporting countries reached to cut global production by nearly 10 million barrels per day. It was a desperate bid to bolster oil prices, which had fallen by more than 50 percent since the beginning of the year. And keep in mind that even this reduction — unprecedented in scale — is unlikely to prevent a further decline in those prices, as oil purchases continue to fall and fall again.

Doing Things Differently

Wind farm in Oregon. (BLM Oregon, Flickr)

Energy analysts are likely to argue that, while the downturn will undoubtedly last longer than the IEA’s optimistic forecast, sooner or later petroleum use will return to its earlier patterns, once again cresting at the 100-million-barrels-per-day level. But this appears highly unlikely, given the way the pandemic is reshaping the global economy and everyday human behavior.

After all, IEA and oil-industry forecasts assume a fully interconnected world in which the sort of dynamic growth we’ve come to expect from Asia in the 21st century will sooner or later fuel economic vigor globally. Extended supply lines will once again carry raw materials and other inputs to China’s factories, while Chinese parts and finished products will be transported to markets on every continent. But whether or not that country’s economy starts to grow again, such a globalized economic model is unlikely to remain the prevailing one in the post-pandemic era. Many countries and companies are, in fact, beginning to restructure their supply lines to avoid a full-scale reliance on foreign suppliers by seeking alternatives closer to home — a trend likely to persist after pandemic-related restrictions are lifted (especially in a world in which Trumpian-style “nationalism” still seems to be on the rise).

“There will be a rethink of how much any country wants to be reliant on any other country,” suggests the aptly named Elizabeth Economy, a senior fellow at the Council on Foreign Relations. “I don’t think fundamentally this is the end of globalization. But this does accelerate the type of thinking that has been going on in the Trump administration, that there are critical technologies, critical resources, reserve manufacturing capacity that we want here in the U.S. in case of crisis.”

Other countries are bound to begin planning along similar lines, leading to a significant decline in transcontinental commerce. Local and regional trade will, of course, have to increase to make up for this decline, but the net impact on petroleum demand is likely to be negative as long-distance trade and travel diminishes. For China and other rising Asian powers, this could also mean a slower growth rate, squeezing those “burgeoning middle classes” that were, in turn, expected to be the major local drivers (quite literally, in the case of the car cultures in those countries) of petroleum consumption.

Effects of More Telework

A cardiologist  in Sonora, Mexico, engages in a remote pre-op consultation with a patient and her doctor who are 400 miles away in La Paz, Baja California. 28 Sept. 2011. (Intel Free Press, CC BY-SA 2.0, Wikimedia Commons)

Another trend the coronavirus is likely to accelerate: greater reliance on telework by corporations, governments, universities and other institutions. Even before the pandemic broke out, many companies and organizations were beginning to rely more on teleconferencing and work-from-home operations to reduce travel costs, commuting headaches, and even, in some cases, greenhouse gas emissions. In our new world, the use of these techniques is likely to become far more common.

“The COVID-19 pandemic is, among other things, a massive experiment in telecommuting,” observed Katherine Guyot and Isabel Sawhill of the Brookings Institution in a recent report. “Up to half of American workers are currently working from home, more than double the fraction who worked from home (at least occasionally) in 2017-2018.”

Many such workers, they also noted, had been largely unfamiliar with telecommuting technology when this grand experiment began, but have quickly mastered the necessary skills. Given little choice in the matter, high school and college students are also becoming more adept at telework as their schools shift to remote learning. Meanwhile, companies and colleges are investing massively in the necessary hardware and software for such communications and teaching. As a result, Guyot and Sawhill suggest, “The outbreak is accelerating the trend toward telecommuting, possibly for the long term.”

Any large increase in teleworking is bound to have a dramatic dual impact on energy use: people will drive less, reducing their oil consumption, while relying more on teleconferencing and cloud computing, and so increasing their use of electricity. “The coronavirus reminds us that electricity is more indispensable than ever,” says Fatih Birol, executive director of the IEA. “Millions of people are now confined to their homes, resorting to teleworking to do their jobs.”

Increased reliance on electricity, in turn, will have a significant impact on the very nature of primary fuel consumption, as coal begins to lose its dominant role in the generation of electrical power and is replaced at an ever-accelerating pace by renewables. In 2018, according to the IEA’s World Energy Outlook 2019,”a distressing 38 percent of world electricity generation was still provided by coal, another 26 percent by oil and natural gas, and only 26 percent by renewables; the remaining 10 percent came from nuclear and other sources of energy. This was expected to change dramatically over time as climate-conscious policies began to have a significant impact — but, even in the IEA’s most hopeful scenarios, it was only after 2030 that renewables would reach the 50 percent level in electricity generation. With Covid-19, however, that process is now likely to speed up, as power utilities adjust to the global economic slowdown and seek to minimize their costs.

With many businesses shut down, net electricity use in the United States has actually declined somewhat in these months — although not nearly as much as the drop in petroleum use, given the way home electricity consumption has compensated for a plunge in business demand. As utilities adapt to this challenging environment, they are finding that wind and solar power are often the least costly sources of primary energy, with natural gas just behind them and coal the most expensive of all. Insofar as they are investing in the future, then, they appear to be favoring large solar and wind projects, which can, in fact, be brought online relatively quickly, assuring needed revenue. New natural gas plants take longer to install and coal offers no advantages whatsoever.

In the depths of global disaster, it’s way too early to make detailed predictions about the energy landscape of future decades. Nonetheless, it does appear that the present still-raging pandemic is forcing dramatic shifts in the way we consume energy and that many of these changes are likely to persist in some fashion long after the virus has been tamed. Given the already extreme natureof the heating of this planet, such shifts are likely to prove catastrophic for the oil and coal industries but beneficial for the environment — and so for the rest of us. Deadly, disruptive, and economically devastating as Covid-19 has proved to be, in retrospect it may turn out to have had at least this one silver lining.

Michael T. Klare, a TomDispatch regular, is the five-college professor emeritus of peace and world security studies at Hampshire College and a senior visiting fellow at the Arms Control Association. He is the author of 15 books, including the just-published, All Hell Breaking Loose: The Pentagon’s Perspective on Climate Change (Metropolitan Books).

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14 comments for “COVID-19: The Beginning of the End for Oil?

  1. John
    April 30, 2020 at 19:11

    I see I’m not the only one who doesn’t buy in. “. . .Many of us are also becoming more accustomed to working from home and may be in no rush to resume a harried 30-, 60-, or 90-minute commute to work each day. {. . .} Millions in the US alone have lost their jobs. Few jobs are continued without a reason. Few people, especially in office jobs, could credibly say that their jobs are indispensable. And the other shoe may drop.Working from home is fine for some artists, programmers, writers and a few other jobs. It’s a next-best for most.
    This pandemic is a time to re-assess and right some wrongs at the same time. We all need: (clean) air,food, and water; shelter (housing); healthcare; education; and human rights and freedom-froms. Besides water and electricity, the internet has become a public utility. All work should be centered around the above (and whatever obvious thing I left out), so that sustainable farming, home building and maintenance, transportation for shipping and reasonable personal mobility, home-use water and sewer, electricity generation and distribution and communication networking, medical care and education. If we continue the current model of haves and have nots, of course the haves will need a lot of police presence, and a robust penal system to protect against the ‘radicals.’

  2. aquadraht
    April 30, 2020 at 19:05

    What I find a bit strange, is how the author is mostly worrying about China’s economic prospects, while nearly entirely leaving out the US, and fracking in particular. Fracking has not been profitable for well a decade (in fact it never was, rather losses were financialized), and all of the impressive gains in productivity never reached break even, but depleted the “sweet spots” of particularly productive wells. The IEA always had rosy and widely unrealistic forecasts overestimating reserves and resources. The recent drop in oil price, together with the collapse of natural gas production, will most likely spell the end of the fracking adventure, on of the last industrial branches in the US.

    Other than that, the US have developped an economy based on services and finance, along with thorough de-intrustrialization of the country. All promises notwithstanding, the Trump administration did not revert this trend. Rather, some US Industries left China, but only to Vietnam. Indonesia, India .. which was what the Chinese government did not resent as they were and are about to get rid of cheap labour based business anyway.

    And in the situation arisen or triggered by the pandemia, a meltdown of the US economy is quite likely. Over 70% of economic activities were based on consumption, to wide extent covered by ever rising debt. With the economy collapsing, household consumption will drop sharply. Consequence will be mass bancrupcies, foreclosures, and a spiral of contracting economic activities. When the credit cards are blocked, the mortgage about to default, there is not much left for restaurants, theme parks, culture.

    And there is no plan to counter those developments, other than some helicopter money, which is the right move in such emergency, btw. , but will almost certainly not suffice, and may yield problematic side effects. In some sense it is a boon that a Republican, and then a ruthless opportunist like Trump, is president, who has not the least ideological qualms to spend such staggering sums (where most goes to the wrong people and corporations, but though ..). Even the market and budget Taliban of the GOP can hardly oppose those measures.

    Yet stability is not achieved that way. I have a lot more confidence in the Chinese government that they take the necessary steps to stabilize the economy in a planned, organized, and pragmatic way. On can only hope that the US weather their troubles without a civil war or an all out war.

  3. Anonymot
    April 30, 2020 at 16:47

    Be very, very careful about taking wishful thinking for reality. There’snot really anything in sight except for a lot of journalistic blah blah that vindicates that a year from now people everywhere won’t be back in their carsto go shopping and off to vacationsby plane where they’ll rent a car at the far end.

    I assume you’ve seen the new Michael Moore film. Anyone who’s not seen it doesn’t know what they are talking about. Anyone who’s not thought about it a lot and digested it is driving backwards up a one-way street. What he says is the 1968 Limits To Growth being realized. We are living in an end game where the ultra rich and a modest number of their friends feel so insulated that they will be happy to see about 7.5 billion people die off, leaving them with about a billion slaves from hi-tech to farm hands.

    This pandemic has been but a minor glitch on the evolutionary highway. That’s why Trump and Clinton and Gates, etc., etc. are not in a flap on any level.

    • May 3, 2020 at 22:56

      Thank you for that comment. I think Michael Moore is right to focus on the dependence of renewables on oil and gas supply. The wind does not blow constantly. Its a shame Moore did not cover storage devices like Musk’s batteries.

  4. rosemerry
    April 30, 2020 at 15:51

    ” a greater preference for electric cars in Europe and a few other places.”

    “favoring large solar and wind projects, which can, in fact, be brought online relatively quickly, assuring needed revenue. New natural gas plants take longer to install and coal offers no advantages whatsoever.”

    The film “Planet of the Humans” makes it clear that the coal-based grid is greatly relied on, that natural gas is certainly still fossil fuel, that “biomass” means killing millions of trees, not just a few leftover woodchips from logging, and lots of other “green” solutions unlikely to help much.

    However, the avoidance of waste seems likely to have entered the minds of many people during the weeks of lockdown, as they realise that so much they thought necessary is certainly not so, and they intend to pursue the “less is better” path in the future. who knows? Worth a try!

  5. Jared
    April 30, 2020 at 13:00

    A large US shale oil producer Whiting Energy declared bankruptcy April 1 as a result of cratering oil prices. Unfortunately, bankruptcy doesn’t seem to actually stop extraction. Instead the banks just took direct ownership and are keeping the rigs running. US banks can easily afford to hold distressed assets like this for long periods of time. They have trillions of dollars at their disposal that was recently provided to them by the Fed and the capitalist political party. The banks will be ready, as soon as market conditions are more favorable, to ramp up production to even greater levels.

    The political fight against fossil fuel extraction must continue. The surest way to see oil fields shut down for good is to confiscate them from the industrialists and banks. This confiscation should include not only the land, but the rigs and other industrial equipment, as well. Every day in the US, police departments confiscate the homes, cars and other valuable belongings of poor and working class defendants on the suspicion that those items were tangentially related to crimes. If working class property can be confiscated on suspicion of petty crimes, then it must be reasonable to confiscate capitalist property when that property is used to commit global ecocide.

    FYI/P.S., Whiting Energy paid its top executives $13 million in *bonuses* only a few days prior to the bankruptcy.

  6. Anonymot
    April 30, 2020 at 12:54

    Be very, very careful about taking wishful thinking for reality. There’s not really anything in sight except for a lot of journalistic blah blah that vindicates that a year from now people everywhere won’t be back in their carsto go shopping and off to vacationsby plane where they’ll rent a car at the far end.

    I assume you’ve seen the new Michael Moore film. Anyone who’s not seen it doesn’t know what they are talking about. Anyone who’s not thought about it a lot and digested it is driving backwards up a one-way street. What he says is the 1968 Limits To Growth being realized. We are living in an end game where the ultra rich and a modest number of their friends feel so insulated that they will be happy to see about 7.5 billion people die off, leaving them with about a billion slaves from hi-tech to farm hands.

    This pandemic has been but a minor glitch on the evolutionary highway. That’s why Trump and Clinton and Gates, etc., etc. are not in a flap on any level.

  7. April 30, 2020 at 12:43

    Much that is thought provoking in this. Yes, there is likelihood at least for a year or two, things will be different. But both capitalism and socialism or any combination of the two is built on assumption that unlimited growth is possible. And all will be gear up to pursue it as fast as possible. That means that alternative or renewable energy would have to be able to replace fossil fuels, which up to the viral outbreak had to be used in high quantities because of industrialization/globalization necessities. That push will reemerge and the alternative/renewables will only provide rhetorical substance because:\
    The main arguments that “renewables” cannot replace fossil fuels are:
    – energy density: batteries are unable to reach the energy density needed to power big trucks, mining machines or bigger airplanes, even if current models of electric vehicles may be an amazing effort of engineering
    – scale: the storage problem with rising intermittent power sources
    – fossil fuel inputs in mining, transportation, deployment and maintenance, with machines that only run on high energy density fuel
    – diminishing returns: as also Vaclav Smil has explained, the more we mine metals in easily accessible deposits and exploit them, the more energy inputs in mining are needed to mine less concentrated/accessible deposits
    – synthetic materials from fossil sources are widely in use in modern technology. May here and there be replaced by biogenic materials, but at what cost? 
    And finally nothing escapes the fact that nothing is unlimited. 

  8. Vera Gottlieb
    April 30, 2020 at 12:26

    A most welcome “silver lining” in this cloud. All our excesses coming to an end – having to learn how to live with a lot less…and it is possible to live with a lot less.

  9. Moi
    April 30, 2020 at 02:54

    Interesting that, as reported today by the MSM, in South Australia the authorities say that so much solar energy is now being produced that they need the capability to remotely turn off rooftop collectors to protect the national grid. It seems that rooftops are producing up to 80% of daytime needs and it’s affecting the management of base load generating capacity.

    Just like we’ve got a glut of oil and nowhere to store it, we’ve got a glut of cheap renewable electricity and no way to store it cheaply.

    • Dennis Z.
      April 30, 2020 at 11:01

      The way to store electricity is to convert it to hydrogen and then re-convert it back into electricity through the use of hydrogen fuel cells. Unfortunately, the oil industry managed to kill that idea.
      Maybe, it is time to revisit this idea.

    • hojo
      April 30, 2020 at 11:58

      Any overproduction is dumped to ground, or stored in batteries, etc. No matter what the source.

    • evelync
      April 30, 2020 at 17:03

      Sounds like we need more of Elon Musk style storage batteries…like the relatively small ones made to be mounted on a homeowners wall to collect excess solar panel energy for later use along with the huge outdoor ones to store for the grid.

      There’s a new (free) documentary (executive producer Michael Moore) on youtube – “Planet of the Humans” – that questions Wall Street’s thirst for endless growth and it’s destructive impact on the planet. The photos of the orangutan at the end of the film are heartbreaking…
      It points out that for decades “green technology” has relied heavily on fossil fuel energy for construction and start up power.

      On PBS there’s a fascinating documentary “H2O The Molecule That Made Us” about the planetary sources for and use of water systems relying heavily on the huge rain forests that are being destroyed – burnt, cut down, emaciated along with the ecosystems and animal habitats they support….

    • Tim
      May 1, 2020 at 07:42

      > and it’s affecting the management of base load generating capacity.

      In plain English: the big coal-fired power plants can no longer rely on a guaranteed demand, so the big capitalists who own them have told their government lackeys to cut back on solar power. (Some other governments in similar situations already took similar steps a few years ago.)

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