Will Oil Get Kicked to the Curb After the COVID-19 Sales Slump?
It wouldn’t have seemed possible at the close of 2019, but the global COVID-19 pandemic has forced the world to learn to operate using a lot fewer fossil fuels. People are successfully working from home, proving to employers and other skeptics that a telecommuting workforce can still get the job done — at least in some fields. Outside of work, they are still mostly staying home and traveling less, which continues to cut back on fuel consumption.
Now that many parts of the country (and the world) are starting to open back up and slowly return to normal, it begs the question of what our future need for oil and gas could look like moving forward. Some believe that we will simply return to our old gas-guzzling ways once the pandemic is over, but that really depends on how ingrained those behaviors are and how we feel about them compared to the new way of life we more recently adopted. Let’s take a look at some possibilities.
Developing Theories in Uncharted Territory
Right away, let’s be clear that there are no experts on fossil fuel industry recovery following a global pandemic. The last global pandemic occurred in 1918, just a few decades after the first "horseless" carriage was even invented. At the time, we were also only one generation away from the development of the first commercially viable oil well in the United States. This is the first global pandemic since humanity’s reliance on oil really began. Needless to say, we are in fully uncharted territory when it comes to developing recovery theories.
In April 2020, U.S. demand for gasoline, which makes up half of our overall oil use, fell to 5.33 million barrels a day. That is down from 9.47 million barrels during the same time frame last year. Is it possible consumption could fully rebound? While certain industries have floundered and others have completely collapsed due to stay-at-home restrictions, experts can’t ignore that some sectors have managed to come up with alternative ways to operate and remain profitable. It’s certainly hard to predict whether those businesses will want to do things the "normal" way ever again.
Barriers to Returning to the Same Level of Demand in a Post-COVID-19 World
When the global pandemic fully subsides, it won’t necessarily mean every office worker will head back to work in their former office buildings. Many companies made significant financial investments in work-from-home tools for their employees, which could easily mean setting up employees to work out of home offices could be here to stay for most of them. After all, if there is one positive thing the stay-at-home orders have proven, it’s that many jobs that companies wouldn’t have considered performing offsite can be done successfully from home.
The concept of working from home comes with some risk if communication isn’t very efficient, but it’s much more convenient for employees. Of course, the real sticking point for a business is the financial bottom line. Now that all the initial cost of home office setup is out of the way, companies are quickly discovering that it’s much cheaper for the long term to allow employees to work from home versus working in a commercial office. More people working from home diminishes the need for office space and all the equipment and other operating costs associated with maintaining large offices.
If large numbers of companies prefer the lower cost of stay-at-home workers and their productivity doesn’t suffer, it could lead to fewer people driving to and from work each day as well as lower energy consumption in commercial office buildings. Both of these factors could dramatically decrease long-term fossil fuel use.
Now that the world is aware of the risk of future outbreaks of the same or different viruses, we could see a significant decrease in the need for new commercial buildings. Decreases in building large, new structures would reduce the need for heavy machinery, which would reduce fossil fuel consumption. This could be the case until at least a generation has passed without further outbreaks. What was once considered paranoid thinking is now something people take very seriously.
Factors in Favor of Returning to the Same Level of Demand in a Post-COVID-19 World
On the flip side of the argument, some factors could cause an increase in oil and gas usage. As the world opens back up, people will be cautious and want to avoid identified risk areas where viruses tend to spread more rapidly. One of the most obvious germ hotspots is public transit. Some experts feel this could lead to more people driving cars instead of taking public transit, and this would lead to increased transportation-related emissions. To what degree this could happen is unclear, as many people take public transit due to financial necessity and don’t have the option to own their own vehicle.
From a slightly humorous point of view, many employees do not love the distractions and family disruptions that go with working from home. For some, the convenience simply doesn’t outweigh the challenges that inhibit their productivity, and that could lead many employees to push their employers to return to normal office hours and working conditions.
Personal travel is another solid reason oil and gas use could trend back up as the world reopens. People around the world are beyond stir crazy. If a vaccine becomes widely available, it could lead to a surge in tourism across the globe. Everyone who currently hates being stuck at home may be quite motivated to get out and see more of the world once it’s safe. Weddings, family vacations and even school trips that were previously canceled during the pandemic could be rescheduled. In fact, when all the deferred trips become a safe possibility again, we could see more people traveling than at any other time in history. Opponents of this theory point out that people could remain wary of traveling due to fear of getting stranded away from home in another pandemic. Without a real frame of reference for comparison, it’s impossible to say which attitude would prevail.
Taking the Opportunity to Tackle Climate Change
COVID-19 has left a trail of devastation in its wake, but it has also managed to do what no United Nations Convention on Climate Change has ever been able to do — improve global CO2 emissions. Whether you look at the Kyoto Protocol or the Paris Climate Treaty, voluntary emission reduction strategies agreed upon by global leaders had failed to achieve timely reductions in global CO2 emissions. The pandemic, on the other hand, brought global emissions down to 2006 levels in just a few weeks.
So, naturally, some experts believe the pandemic could give a lasting boost to efforts to curb CO2 emissions. The hope is that a renewable energy economy may have simply needed a pause to steady itself before forging a new trail of its own. The pandemic may have very well provided this pause. We can see this in countries like Spain, where government leaders have used this opportunity to draft laws banning all new coal, oil and gas projects in the wake of the pandemic. The country's ultimate lofty goal is to reduce emissions to net zero by 2050.
Another positive trend for the battle against climate change is that renewable energy use is continuing to grow in 2020, despite the pandemic. This will help make fossil fuel alternatives more economically viable, which is arguably the most important and potentially effective thing that needs to happen for us to tackle climate change.
Where Do We Go from Here?
The global pandemic has slowed our use of fossil fuels, but it hasn’t eliminated it. For that to occur, renewable energy resources must reach a point where they are financially competitive, or society must undergo a dramatic shift in opinion regarding paying a higher cost to eliminate fossil fuels.
The overall trend before the pandemic hit was that fossil fuel alternatives were consistently accounting for an increasing percentage of our energy use and becoming more viable as an enduring option. At some point — whether it’s 10 years or 200 — the shift away from fossil fuels will occur. The pandemic may have sped up the inevitable, but to what degree, nobody can really say for sure.