By: Nana Amoasi VII, IES
The coronavirus (COVID-19) pandemic has become one of the biggest threats to the global economy and financial markets. The effect has already been felt in a wide range of energy markets, including coal and gas – but its impact on oil markets is exceptionally grave due to the constraint on people and goods from moving around, thus heavily impacting transport fuels demand. This may predominantly be real in China, the largest energy consumer in the world, which the Energy Information Administration (EIA) says accounted for more than 80 percent of global oil demand growth last year.
The International Energy Agency (IEA) in its latest oil market forecast suggests that global oil demand in 2020 has dropped around 90,000 barrels a day from 2019; against a February forecast, which predicted global oil demand would grow by 825,000 barrels a day in 2020. Also the price of oil is down by over 58 percent this year, on the back of what Rystad Energy sees as lower oil demand and slower expected economic growth.
Aside the energy market, the pandemic is having a damaging economic and business impact, affecting everything from tourism to the supply of parts to the automotive and technology industries.
The global financial markets have been volatile, with stock prices and bond yields plunging. The Chinese economy which today accounts for 17 percent of the global economy (Forbes 2020) is expected to slow, taking a significant hit on global brands that count on the Chinese market for a sizeable chunk of sales. There has also been a disruption in the global supply chain of parts that usually flows between two countries, thus impacting severely on the manufacturing, production, and services sectors. Tourism is one of the worst-affected industries worldwide, as cross-border travel is halted to control the spread of the COVID-19 pandemic.
Major institutions and banks have cut their forecasts for the global economy, with the Deutsche Bank, Barclays, and Moody’s being among the few to do so in recent times. They are forecasting that global economic growth in 2020 will be reduced by 0.2 to 0.3 percent, while in the U.S. first quarter growth could take a 0.2 to 0.4 percent hit. Moody’s Analytics and Barclays both estimate that the coronavirus is expected to lower global Gross Domestic Product (GDP) by 0.3 percent in 2020, while Oxford Economic forecasts a 0.2 percent reduction for the year (Forbes 2020). Emphasizing on the U.S market, Deutsche Bank on May 12 updated its U.S GDP expectations to a nearly 40 percent decline in the second quarter, from a previous forecast of a 13 percent drop.
Global recession appears widespread and intensifying as collapsing real GDP continues to spike in the face of economic cost add-ups, travel restrictions, slowing dinning outs, and souring unemployment et cetera.
In the mist of the economic turmoil created by the Coronavirus pandemic, one ever-present challenge that the world cannot overlook, is the issue of climate change. The month of April 2020 was on par for the warmest month on record globally, and 2020 is reported to be on track to be the earth’s warmest on record, beating the year 2016.
Recent Climate Data
Data released by the European Union’s Copernicus Climate Change Service, lends further support to the prediction that 2020 will rank among the top two warmest years recorded. Global temperatures were much above average in April 2020, making the month one of the two warmest Aprils on record. It was:
• 0.70°C warmer than the average April from 1981-2010;
• cooler than April 2016, the warmest April in the dataset, by 0.01°C;
• warmer by 0.08°C than April 2019, the third warmest April
According to the Climate Change Services, temperatures recorded were particularly above average over northern and central Eurasia, parts of Greenland and Antarctica, but markedly below average over large parts of North America. In Europe, temperatures were well above average in a number of western countries, but below average in the northeast. MeteoSwiss published an average April temperature for Switzerland that was 3 degree Celcius (3ºC) warmer than the 1991-2020 average and almost 5ºC warmer than the average for 1871-1900. Also Meteo-France reported the country’s third warmest April in a record extending back to 1900.
Temperatures elsewhere over Europe were reported as less extreme and much below average over central Canada. However outside Europe, temperatures were most above average over much of Siberia, northern and coastal central Greenland, and parts of Antarctica, the Alaskan coast and the Arctic Ocean. Temperatures were also well above average over Mexico, parts of central and north-western Africa, and Western Australia. Various other regions of land, including parts of southern and south-eastern Asia, were a little cooler than usual. And although temperatures were a little below average over regions in all major oceans, air temperatures over sea were predominantly higher than the 1981-2010 average.
Also in April, the National Oceanic and Atmospheric Administration (NOAA), using its own temperature monitoring data, reported that there is a 75 percent chance that 2020 will set a record for the planet’s warmest year since instrument records began in 1880; beating out 2016 for the distinction. NOAA’s projection is somewhat unexpected, since there is no declared El Niño event in the tropical Pacific Ocean, which tends to provide a natural boost to global temperatures that are already elevated due to the human-caused buildup of greenhouse gases in the atmosphere. The current projection is based on statistical modeling now that the first quarter of 2020 is off to a near-record warm start, coming in as the second-warmest January through March period since instrument records began in 1880.If the datasets from both the European Union’s Copernicus Climate Change Service, and the National Oceanic and Atmospheric Administration are anything to go by, then the lockdowns and social distancing from the coronavirus is unable to save the world from warming. It also means that the world must expect that “massive and more persistent natural disasters” are to an increasing extent expected to occur.
Two Birds And One Stone
Governments around the world are saddled with the huge task even now and after the pandemic have been brought under control, to rescue their economies and the global economy from recession, and produce measures that can ensure a more resilient and effective responses in the future.
While Governments takes extreme measures to limit both human cost and economic disruption attributed to the virus, now and the future, they must be mindful that the lockdowns and distancing may not necessarily be able to save the world from warming, and that there is a climate crisis. The world therefore has one opportunity to fight two crisis simultaneously to save future troubles, and build a better future.
Even as we count the human losses from COVID-19, we must also pause and remind ourselves that there are both financial and human losses attributed to climate change too.
Michael Hayes, Global Head of Renewables at KPMG recount some similarities between COVID-19 and climate change:
• Each crisis represents a global catastrophe that will require unprecedented global coordination where economic considerations become of secondary importance;
• In the case of both crises, there have been many warnings from experts which were not taken seriously until disaster struck;
• Each crisis will involve capital investment by the public and private sector totaling into trillions in order to achieve a positive outcome;
• Each crisis is a global public health issue. While this is obvious in the case of COVID-19, climate change will result in diseases that peak in the warmer months of the year, particularly vector borne infections. For example, the World Health Organization (WHO) estimates that, between 2030 and 2050, climate change will cause approximately 250,000 additional deaths per year from malnutrition, malaria, and heat stress. In addition, rising temperatures are leading to the melting of permafrost, in turn unleashing an untold number of sequestered pathogens each with their potential for pandemic implications (Newsweek, 2020).
• In recent years, many argued that climate change is not just a physical risk, but also represents a fundamental risk to our financial system (the so-called combination of physical and transition risks). It is now obvious that the implications of COVID-19 are not just physical and health related, but also financial.
According to Mr. Hayes, all of the similarities beg the question, “are we going to see a more urgent response from all levels of society to climate change once the more immediate threat of COVID-19 passes”, particularly given the potential scale of devastation and disruption caused by climate change
Given the weight of climate change crisis, all efforts to minimize the human and economic fallout from the COVID-19 pandemic present a momentous opportunity to step up the technologies required to speed the transition to cleaner energy, especially when there are available data to show that costs from all commercially available renewable power generation technologies keeps declining. According to the International Renewable Energy Agency (IRENA), the global weighted-average cost of electricity declined 26 percent year-on-year for concentrated solar power (CSP), followed by bioenergy (-14 percent), solar photovoltaic (PV) and onshore wind (both -13 percent), hydropower (-12 percent), geothermal and offshore wind (both -1 percent). The low and falling technology costs make renewables the competitive backbone of energy de-carbonization, a crucial climate goal.
Given the similarities, a more global coordinated effort and encompassing approach is necessary to fight the twin threat of the coronavirus crisis and climate change, and that at a minimum, global leaders must eschew protectionist approaches.
Written by Nana Amoasi VII, Institute for Energy Security (IES) ©2020
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The writer has over 23 years of experience in the technical and management areas of Oil and Gas Management, Banking and Finance, and Mechanical Engineering; working in both the Gold Mining and Oil sector. He is currently working as an Oil Trader, Consultant, and Policy Analyst in the global energy sector. He serves as a resource to many global energy research firms, including Argus Media and CNBC Africa