Energy Transition to Be Shaped by World Response to COVID-19

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May 04, 2020

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by Allison Good, Taylor Kuykendall and Dan Testa (S&P Global) ... The coronavirus pandemic may accelerate a shift from fossil fuel spending to investments in renewable energy, but the pace of that transition depends heavily on how governments direct economic recovery spending, and whether the consumer behavior changes induced by the outbreak become permanent.

S&P Global Market Intelligence interviewed some of the leading global climate and energy experts and all agreed that the energy sector will look different on the other side of the COVID-19 crisis. A struggling oil and gas industry will lead to fewer jobs in that field, while changes in commuting, air travel and manufacturing may encourage businesses and governments to reconsider air pollution and traffic congestion problems.

"We may find that going forward, this idea that a multitude of the population is going to get in their cars at 6 a.m. or 7 a.m. and struggle through traffic for two to three hours to get to work: in a field where remote working is acceptable, that paradigm might really go out the window over time," Amy Myers Jaffe, director of the Council on Foreign Relations' energy security program, said in an interview. "In the United States, for example, we waste 6 billion gallons of gasoline a year just in traffic congestion, so the consequences could be quite large."

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Mark Lewis, global head of sustainability research at BNP Paribas Asset Management and the former managing director of the Carbon Tracker Initiative, added that residents of smog-choked cities like Delhi, India, or Los Angeles, who are experiencing better air quality as a result of decreasing fossil fuel production might also decide they want a cleaner environment going forward.

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A recovery for oil, gas and coal may be even more difficult after this recession given how much cheaper renewable energy has become and more widespread adoption of electric vehicles.

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Lewis also has doubts about whether companies can justify new oil investment with prices between $20 and $30 a barrel. "By contrast, if you're looking at new renewable infrastructure that's going to ... give you a very visible stream of cash flows over the next 25 years ... in Europe, you'd be looking at prices typically of €50/MWh to €60/MWh for new renewable projects," Lewis told S&P Global Market Intelligence. "Those are still very good long-term investments."

One unknown variable is where governments will direct spending over the recovery.

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Proposals to include clean energy and other environmental measures in stimulus relief funding were shot down by the Republican-controlled Senate. In the European Union, the €1 trillion Green Deal climate package, crafted before the COVID-19 outbreak, is now being touted as a critical part of economic recovery.

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An April 19 online survey of registered voters conducted by Climate Nexus, a communications group focused on highlighting clean energy solutions and the impacts of climate change, found that when it comes to stimulus funding, 75% of respondents want their state to prioritize the "clean energy industry" over the "fossil fuel industry." The same survey found 67% of voters strongly or somewhat supported providing financial bailouts to renewable energy companies while just 44% and 39% felt the same way about the coal sector and the oil and gas sector, respectively.

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"One of the geologically strange things about shale ... is that you can stop drilling now in the United States onshore for a year, two years, three years, and then if you change your mind because the oil is needed, and you can amass the capital and some personnel, you can drill again, and you don't ever have to worry about the so-called reservoir condition," Jaffe said.

That is not the case for countries like Venezuela and Iraq, which are dominated by more conventional plays that could require billions of dollars to restart damaged fields, she noted.

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Still, American independent producers recognize that regaining investors' confidence will not be easy given how companies have mismanaged balance sheets in recent years.

"Our industry has created such economic waste that nobody will buy our stocks or own our stocks," Pioneer Natural Resources Co. President and CEO Scott Sheffield told Texas regulators as he pushed for production limits in Texas in April. "Nobody wants to give us capital because we all destroyed capital and created economic waste."

The solution for some oil companies could be a pivot to taking on more renewable energy projects, another step toward speeding the energy transition. READ MORE includes AUDIO

National Tracking Poll #2004100 April 29-30, 2020 (Morning Consult)

Green recovery can revive virus-hit economies and tackle climate change, study says (Reuters)

Digest Connect #7 May 5th - Green Recovery CEO of the Renewable Fuels Association, Geoff Cooper (Biofuels Digest/BioChannel TV VIDEO)

WHAT DOES COVID-19 ECONOMIC RECOVERY LOOK LIKE? CAN IT BE GREEN? (Diesel Technology Forum)

THIS IS NOT THE GREEN STIMULUS YOU'RE LOOKING FOR: (Poltico's Morning Energy)

How Renewable Energy Could Emerge on Top After the Pandemic (Yale Environment 360)

Relaxing coronavirus lockdowns to help ethanol demand - CropEnergies (Reuters)

Build Back Better: Rebooting the U.S. Economy After COVID-19 (World Resources Institute; includes link to WEBINAR)

Focusing the recovery on green infrastructure could create millions of jobs -- A $1 million investment in energy efficiency creates around eight full-time jobs, nearly three times as many as an investment in fossil fuels. (Fast Company)

Waste and recycling trade bodies urge European Commission to focus on ‘Green Deal’ for post-covid 19 recovery (BioMarkets Insight)

Global Support for a Green Recovery from COVID-19 (Environmental and Energy Study Institute)

Excerpt from Diesel Technology Forum: Renewable Biofuels: Under-Valued, Greater Opportunity
Moving the nation and economy forward with greater sensitivity to greenhouse gas and environmental impacts must include consideration of advanced renewable biofuels. One of biggest benefits of diesel technology is its ability to operate on a variety of advanced biofuels like biodiesel and renewable diesel fuel. Typically produced via recycled waste animal fats and vegetable oils, they are capable up reducing GHG emissions up to 80 to 85 percent, without expensive investments in refueling or recharging infrastructure or the purchase of new vehicles, equipment or engines. In targeted sensitive areas and regional applications, these low-carbon fuels can bring rapid impacts to the entire fleet of existing vehicles. READ MORE