Prospects for Energy Markets and Investment in Traditional Oil & Gas
| Date | 01 August 2020 |
| Pages | 174-178 |
| DOI | 10.3366/gels.2020.0023 |
| Published date | 01 August 2020 |
Arguably the oil and gas industry has never faced a more hostile environment. Already under intense pressure from the environmental lobby, the shock collapse of the markets, as demand evaporated following the twin events of COVID-19 and the Russian-Saudi price war, dealt another serious blow to the industry. Nearly six months on, with nascent recovery again threatened by a second wave of the pandemic, where do the prospects for one of the most crucial industries in our modern society stand?
Even before the crisis, the industry was under intense pressure on the environmental front. With environmental, social and governance factors (‘ESG’) driving the investment and financing criteria of investment funds, pension funds, private equity and banks, sources of capital for the industry were already being squeezed. The COVID-19 pandemic has only served to intensify these issues and some would argue accelerate the trend of capital flight away from the industry.
The collapse in energy demand, particularly in the transportation sector, coupled with tangible improvements in the environment has only fed the belief that the days of oil and gas are numbered. The Office for National Statistics notes that only 1.7 million people in the UK worked from home before the pandemic whereas during the lockdown this increased to an estimated 20 million people working from their homes.
Alongside the ethical pressure, the industry also faces challenges from the simple economics. Despite a remarkable recovery in oil markets since the March collapse and the unprecedented negative price event around WTI futures, the market is facing a potentially long and drawn-out road to sustained recovery, and $40–45 – or even $50 – oil does not make the economics of financing an industry which will always be both high risk and capital intensive overly attractive. Post-COVID, the state of the market balance will be critical in determining the future.
The...
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