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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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This Historic Oil Price Crash Will Create A New Era For Energy

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In the last couple of months, the global energy industry has been flipped on its head. As the novel coronavirus pandemic ravaged economies around the world, the energy industry took a particularly brutal hit, made infinitely worse by an oil price war between the leading OPEC+ countries of Saudi Arabia and Russia. In the severe global crude oil glut that ensued, oil supply soon threatened to overtake available worldwide storage capacity, plunging the West Texas Intermediate crude price well below zero, in a historic upset that sent serious shockwaves through global markets.

The severity of this oil price crash and pandemic panic means that ‘business as usual’ is no longer an option. The global energy sector is at a historic crossroads in which some big, world-altering decisions will have to be made and unprecedented international collaboration will be essential in order to stabilize markets. Until now, there has never been a disruption to the status quo large enough to enable any serious re-thinking of the way we power our world, but coronavirus has given us that unthinkable pause.

A report this week from the World Economic Forum highlights this unique opportunity, positing that “the crisis offers an opportunity to consider a new energy order to enable the energy transition in a sustainable way.” Critics of fossil fuels and Big Oil have been overpowered and drowned out by the momentum of the machine and the unshakable inertia of business-as-usual. Maybe an apocalyptic global pandemic is what it takes to truly divest from fossil fuels and redirect the sector.

“Though this is the worst possible way to begin a decade, the coronavirus pandemic and the collapse of oil prices also offer an opportunity to consider unorthodox intervention in the energy markets and global collaboration to support the recovery phase once the acute crisis subsides,” states the World Economic Forum. “This giant reset grants us the option to launch aggressive, forward-thinking and long-term strategies leading to a diversified, secure and reliable energy system that will ultimately support the future growth of the world economy in a sustainable and equitable way.”

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Already, the COVID-19 pandemic and oil price crisis has fostered previously unseen levels of cooperation and collaboration between OPEC and the G20 international forum for governments and central banks. Saudi Arabia, Russia, and the United States, three petroleum powers that have no historically played nice, were able to reach a deal to mitigate the oil price crash, which “sets a precedent for future collaboration for global energy security and economic growth.” This could be pivotal for the development of meaningful policy and alliances for a global energy transition. “While the impact of this alignment in the short term has been low and insufficient,” says the World Economic Forum, “the medium- and long-term effects could be substantial.” 

An energy transition away from fossil fuels isn’t going to happen overnight, of course, even in the middle of a pandemic and negative oil prices. The world’s infrastructure is set up to run on oil, the global economy is organized around it, and petro-nations and oil autocrats in countries like Saudi Arabia, Russia, and Iran will not go quietly into that goodnight. This crisis has shown, however, that the current system has serious vulnerabilities and diversifying the energy economy will be in the best interest of everyone.

“Threats to the infrastructure from extreme weather events, the increasing risk of cyberattacks, and the disruption to supply-and-demand balance from external shocks such as COVID-19 expose vulnerabilities in the system. This can be detrimental to society at large,” continues the World Economic Forum report. “Lasting and systemic outcomes can only come from a balanced approach, which values economic growth, security and reliability along with sustainability, and promotes stability in energy markets.”

We all knew that the end of oil was coming. Even Saudi Aramco admitted that they expect peak oil by midcentury. But the pathway to achieving an energy transition before reaching the tipping point toward catastrophic climate change has always been murky at best, with the private sector often dominating the decision-making. If there were ever a time to change that tune, it’s now. 

By Haley Zaremba for Oilprice.com 


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Leave a comment
  • Phil Mirzoev on April 28 2020 said:
    "Maybe an apocalyptic global pandemic is what it takes to truly divest from fossil fuels and redirect the sector". Where does that follow from??
    In this whole article I haven't been able to see a single rational argument to support its thesis - and that thesis needs quite a bit of support: indeed, it is not quite understandable or self-explanatory how on earth an oil price crash to less than 20$ per barrel with the corresponding crash in gas prices to follow can be somehow conducive to better conditions and popularity of alternative energy sources and create nice conditions for, quote, "divesting from fossil fuels and redirecting the sector". Rather "prima-facie" it looks pretty much the opposite.
    Indeed, the recent urge towards alternative forms of energy was to a degree ushered in by the unheard-of oil price escalation before 2008 - hardly surprising so because at that level fuel prices started to hit consumer demand and retard economic growth.
    Not many economists would disagree with the statement that at a certain critical threshold oil prices become "self-destructive" and force market to invest into alternative forms of energy and technology for utilizing them. How, I pray, have the author of the article come to the conclusion that the opposite - a massive price crash - leads to the same result - this I don't know and haven't found an answer, alas.
    There was a mention of "cooperation between OPEC and G20". Cooperation in what? Cooperation in trying to save basically oil prices and the core of its production basis to avoid structural damage of the oil sector? So basically "the whole world" jumped to the assistance of OPEC, and the US itself, after turning into "its own Saudi Arabia" (biggest oil producer in the world) in the 21st century have started to worry about its own oil industry. How on earth does that contribute to "divesting from fossil fuels and redirect the sector"?
    The media and its experts have the duty to objectively study reality and provide objective information, not to channelize what they would like to see or dream about presenting it as a reality. Unfortunately nowadays this duty is being buried even on highly specialized platforms, like oilprice.com that are designed to provide independent objective expertise on the oil market, not personal social and political "visions and dreams".
  • Fredric Williams on April 28 2020 said:
    While environmentalists may think this is a wonderful opportunity to kick oil while it is down, it is silly to think that restoration of the economy will be a great opportunity to change the sources of energy.

    Unfortunately for the alternate-energy aficionados, oil and gas being cheaper means more reliance on oil and gas, not less, and more enthusiasm for using cheap energy -- not capital-intensive alternatives. Any rebound in the economy will have businesses and government focusing on getting things back to normal rather than find ways to spend money foolishly.
  • Arch Region on April 29 2020 said:
    The energy transition has already taken place unheralded. First was the collapse of coal. Servicing the debt of new wind turbines now cost less than mining and transporting coal for existing power plants. There is no economic justification to use coal even before factoring the additional medical cost from pollution and other environmental costs such damage to agriculture, forestry, and even car finishes. It is not just the reduced costs of clean renewable generation but the diminishing cost of energy storage that make fossil fuel increasingly non-competitive.

    Now we have the collapse of oil soon to be followed by the elimination of Fossil Gas. I understand there are vested interests but the smart money has transitioned already, like DONG and STATOIL that are now known as Orsted and Equinor.

    Will Shell follow their steps? One thing that became clear during the COVID-19 crisis is the huge quality of life benefit from reduced pollution. Fossil fuels were a great idea of the past but their time is gone. I strongly support a responsible planned decommissioning to avoid a wildfire of bankruptcies. An orderly exit is to everyone's benefit.

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