In the last couple of months, the global energy industry has been flipped on its head. As the novel coronavirus pandemic ravaged economies around the world, the energy industry took a particularly brutal hit, made infinitely worse by an oil price war between the leading OPEC+ countries of Saudi Arabia and Russia. In the severe global crude oil glut that ensued, oil supply soon threatened to overtake available worldwide storage capacity, plunging the West Texas Intermediate crude price well below zero, in a historic upset that sent serious shockwaves through global markets.
The severity of this oil price crash and pandemic panic means that ‘business as usual’ is no longer an option. The global energy sector is at a historic crossroads in which some big, world-altering decisions will have to be made and unprecedented international collaboration will be essential in order to stabilize markets. Until now, there has never been a disruption to the status quo large enough to enable any serious re-thinking of the way we power our world, but coronavirus has given us that unthinkable pause.
A report this week from the World Economic Forum highlights this unique opportunity, positing that “the crisis offers an opportunity to consider a new energy order to enable the energy transition in a sustainable way.” Critics of fossil fuels and Big Oil have been overpowered and drowned out by the momentum of the machine and the unshakable inertia of business-as-usual. Maybe an apocalyptic global pandemic is what it takes to truly divest from fossil fuels and redirect the sector.
“Though this is the worst possible way to begin a decade, the coronavirus pandemic and the collapse of oil prices also offer an opportunity to consider unorthodox intervention in the energy markets and global collaboration to support the recovery phase once the acute crisis subsides,” states the World Economic Forum. “This giant reset grants us the option to launch aggressive, forward-thinking and long-term strategies leading to a diversified, secure and reliable energy system that will ultimately support the future growth of the world economy in a sustainable and equitable way.”
Already, the COVID-19 pandemic and oil price crisis has fostered previously unseen levels of cooperation and collaboration between OPEC and the G20 international forum for governments and central banks. Saudi Arabia, Russia, and the United States, three petroleum powers that have no historically played nice, were able to reach a deal to mitigate the oil price crash, which “sets a precedent for future collaboration for global energy security and economic growth.” This could be pivotal for the development of meaningful policy and alliances for a global energy transition. “While the impact of this alignment in the short term has been low and insufficient,” says the World Economic Forum, “the medium- and long-term effects could be substantial.”
An energy transition away from fossil fuels isn’t going to happen overnight, of course, even in the middle of a pandemic and negative oil prices. The world’s infrastructure is set up to run on oil, the global economy is organized around it, and petro-nations and oil autocrats in countries like Saudi Arabia, Russia, and Iran will not go quietly into that goodnight. This crisis has shown, however, that the current system has serious vulnerabilities and diversifying the energy economy will be in the best interest of everyone.
“Threats to the infrastructure from extreme weather events, the increasing risk of cyberattacks, and the disruption to supply-and-demand balance from external shocks such as COVID-19 expose vulnerabilities in the system. This can be detrimental to society at large,” continues the World Economic Forum report. “Lasting and systemic outcomes can only come from a balanced approach, which values economic growth, security and reliability along with sustainability, and promotes stability in energy markets.”
We all knew that the end of oil was coming. Even Saudi Aramco admitted that they expect peak oil by midcentury. But the pathway to achieving an energy transition before reaching the tipping point toward catastrophic climate change has always been murky at best, with the private sector often dominating the decision-making. If there were ever a time to change that tune, it’s now.