Page 6 - AfrElec Week 13

AfrElec COMMENTARY AfrElec
demand could fall by a fifth due to travel restric- tions, global storage is likely to hit capacity over the next two-to-three months,” said Jack Allard- yce, oil and gas analyst at Cantor Fitzgerald Europe.
Rystad Energy said a note that the “mother of all oil market surpluses” will force production cuts in April and May. This could likely happen first at high-cost shale development in the US.
Indeed, the US saw its first casualty as shale producer Whiting Energy has filed for bankruptcy.
Emissions
The collapsed oil market and reduced spending by oil majors is leaving the energy transition in the balance.
Two schools of thought are emerging. One is that investment will fall, as the energy industry waters down its commitments to reducing emis- sions and green investors put decisions on hold as they worry about poor demand and falling currencies.
Rystad Energy said that solar and wind com- missioning growth would fall to zero in 2020, killing 18 GW of green additions, while green additions would then fall by 10% in 2021.
A second school of thought holds that falling power demand is actually increasing renewables’ share of the energy mix, and is showing how energy markets work with more green input. It is essentially a postcard from the future, the IEA said.
In addition, cheaper oil makes green projects a more attractive investment.
“Renewables projects suddenly look as attrac- tive as upstream projects at $35 a barrel,” said Wood Mackenzie’s Valentina Kretzschmar.
The rates of return offered by solar and wind projects can now compete with oil and gas pro- jects given the falling oil price.
Green investment
Since the start of 2020, major oil companies and investors led by BlackRock have announced a major shift in policy towards renewables. Oil companies from BP to Equinor to Shell have all announced commitments to decarbonisation.
The IEA’s was the first to flag up the threat posed by cheap oil, falling demand and invest- ment cuts to the energy transition.
“The combination of the coronavirus and vol- atile market conditions will distract the attention of policymakers, business leaders and investors away from clean energy transitions. Observers will quickly notice if their emphasis on clean energy transitions fades when market conditions become more challenging,” he said.
The oil industry’s commitment to dealing with climate change is now in the balance. Big Oil’s investment cuts mean that non-core, discre- tionary spending, which may well cover decar- bonisation and climate change mitigation, will go well down the investment agenda.
Energy transition
The world has an oil market crisis that is putting the energy transition in peril. Saudi Arabia and Russia’s actions may or may not be “economic warfare against the United States,” as a group of US senators said in a letter to US Secretary of State Mike Pompeo.
However, Riyadh is turning the screw on supply while talking of fostering stable energy supplies.
“As the world demands economic stability, Aramco remains committed to supplying the world with energy,” Aramco said in a statement on April 1.
What is clear is that low prices will reduce oil production, effectively shutting in more expen- sive producers, whether they be in the US or else- where. Less clear is how lower oil demand will affect the energy transition. Green energy is now a better investment bet if oil prices are low, but there will be less investment cash available.
One key role could be for governments. The IEA’s Birol stressed that governments now had a “historic opportunity” to invest in renewables and to put green energy at the heart of post-crisis stimulus plans.
Saudi Arabia’s output increase has magni- fied the energy crisis caused by the COVID-19 inspired fall in demand. The world does not know how long Aramco can continue to pump at will at an extremely high cost.™
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w w w . N E W S B A S E . c o m Week 13 02•April•2020