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Pandemic Triggers Record $400 Billion Drop In Energy Investment

The COVID-19 pandemic will result in the biggest annual drop in energy investments on record—nearly US$400 billion, the International Energy Agency (IEA) said in its new World Energy Investment 2020 report on Wednesday.  

Before the coronavirus-driven crisis, the IEA had expected global energy investment to increase this year by 2 percent to what would have been the biggest yearly rise in investment in six years. However, the pandemic and the economic downturn resulting from it will lead to a 20-percent plunge in investments in the energy sector, equal to almost US$400 billion.

The oil and gas sector will see the steepest decline in investment this year compared to last year, the IEA has estimated. Investment in oil and gas is set to plunge by US$244.1 billion, or by nearly one-third, in 2020 compared to 2019.

“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% in 2020,” the IEA said in its report.

The slashed investments in the oil industry could lead to a tighter oil market than previously anticipated.

“For oil markets, if investment stays at 2020 levels then this would reduce the previously-expected level of supply in 2025 by almost 9 million barrels a day, creating a clear risk of tighter markets if demand starts to move back towards its pre-crisis trajectory,” the Paris-based agency said.

Consumer spending on oil is expected to plummet by more than US$1 trillion in 2020, which would mean there would be a historic switch this year in which electricity will become the largest single element of consumer spending on energy.

The renewables energy sector has also felt the disruption from the pandemic and shifting demand, but overall it is more resilient than the fossil fuel sector, the IEA said.

Global investment in renewable power projects is set to drop by 10 percent this year, while capacity additions are set to be lower than in 2019 as many project completions will be pushed into 2021. 

By Tsvetana Paraskova for Oilprice.com

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