The Writing Is On The Wall, But Have They Read It?
By Tim Pugh
September 30, 2021
The writing is on the wall, but have they read it? This is a question I have been asking myself for at least the last twelve months or so whenever I hear about another oil company stating that they are going to ride the green wave of renewables. “We have been working offshore for decades, we know what we are doing and if we get a problem, we can just throw money at it!”. When you hear this, and I have heard it stated a great deal at presentations of late, one must ask is this arrogance or ignorance? Having worked in both the Oil & Gas and Renewable sectors for several decades I would say it’s a bit of both but more of one than the other.
I am not an economist, strategist, or an accountant, just a humble geoscientist who has worked on a great many offshore projects and witnessed the differences in attitude between the industry sectors towards the success of the emplacement of offshore structures. I therefore wish to take you on a journey that will, I hope, highlight some of the reasons why I ask the question, The writing is on the wall, but have they read it?
What has triggered the oil companies to now wake up (if not a little late) and start giving the renewable sector attention rather than just lip service? Unless you have been living under a rock since the beginning of 2020 then you will know that Covid 19 was first detected in Wuhan, China, in late 2019 and has set off a global pandemic. This has been the first extreme widespread disease since the Spanish flu a century ago. It has infected over 132 million people and killed over 2.8 million as of April 8, 2021 (1). The result has been huge money-based and employment losses around the world and confining ~58% of the world's population (2). In January 2020, many governments began restricting travel and closing businesses to stop the coronavirus widespread disease. As a result, demand for oil began falling and oil prices collapsed in the middle of the money-based slowdown. In the first quarter of 2020, gas and oil use averaged 94.4 million barrels per day, a drop of 5.6 million barrels per day from the previous year (3). Brent oil prices fell to a 17-year low of below $26/bl on 18 March 2020, following the effects of Covid-19 on worldwide demand and oil price arguments between Russia and Saudi Arabia. The recent crash saw prices record the biggest daily loss since the end of the Gulf war in 1991. In 2020, Brent oil prices had fallen more than 60% since peaking at $69.75/bl in January when they hit a 17-year low of $26.33/bl. Gas and power contracts have so far followed the same trend, falling 32.7% and 21.1% respectively (4)
During this period, we have witnessed a greater uptake in the use of renewable energy. This increase in renewable power during the pandemic is not purely circumstantial. But Covid-19 may also have hastened the end of fuel derived from prehistoric organisms in the power sector. It would appear that Covid-19 has brought the era of energy from fossil fuels to breaking point. As the lockdown measures were introduced, global energy demand dramatically dropped to levels not seen in 70 years. The International Energy Agency (IEA) has estimated that overall energy demand contracted by 6% and energy-related emissions decreased by 8% for 2020. Oil demand is expected to drop 9% and coal 8% for this year, while crude oil is at record-low prices.
Previous energy crises provide a window into which we see what happens when the oil price crashes and how the use of fossil fuels has subsequently rebounded. However, the present crisis is different, as it is demand-led. The scale of the fall in demand, the speed of change, and how widespread it has been has resulted in what can only be described as a radical shift in the power sector and its demand for fossil fuels. With the fall in demand, renewable sources , mainly wind and solar, saw a substantially increase to record levels in many countries share of electricity. In less than 10 weeks, the USA increased its renewable energy consumption by nearly 40% and India by 45%. Italy, Germany, and Spain set new records for variable renewable energy integration to the grid. (5)
Although the pandemic is circumstantial and unexpected, the current outcome for the power sector is not. The ongoing increase in renewable energy into the grid results from a mixture of past policies, regulations, incentives, and innovations embedded in the power sectors of many forward-thinking countries.