The Big Picture
We are in a transformational moment. As the COVID-19 health crisis has worsened worldwide, it has sent ripples throughout the global economy and energy system.
People and communities are suffering now. That means our immediate response must be to support the people who are working to save lives during this crisis, and do what we can to suppress the virus’s spread. It is critical also to work to support people who are directly impacted by this crisis: those who are losing loved ones, jobs, and homes.
Last month’s OilWire described fossil fuel markets as being in turmoil. Since then, oil markets have faced successive unprecedented crashes. This week, the International Energy Agency (IEA) released its Global Energy Review 2020, finding that the COVID-19 crisis would wipe out fossil fuel demand to a degree not seen since World War II. Only renewable energy is projected to grow through 2020. Given the IEA’s history of underestimating renewable energy growth and defending fossil fuel production, this is a remarkable projection.
IEA chief Dr. Fatih Birol says “the energy industry that emerges from this crisis will be significantly different from the one that came before.”
What we do now will determine what new form this energy industry takes. As trillions of dollars are mobilised in stimulus and bailout packages worldwide, people and communities around the world have a chance to secure a just recovery, consistent with the ambition of the Paris Agreement, allowing us to build back better — powered by clean, renewable energy.
This is a critical opportunity to fund a just transition from oil and gas that protects workers, communities, and the climate, instead of tying our shared future to a sunsetting and volatile commodity.
At the same time, Big Oil and Gas have lobbied hard for bailouts and sweetheart deals — and some governments are listening. We need to take this chance to leapfrog ahead instead.
–The OilWire Team
The Data
The news is awash in data right now on the movements of oil prices, how much oil companies are slashing planned capital expenditure, and how fast global oil storage capacity is filling up, along with many speculative projections on what it all means.
So we thought it’d be good to take a break from hard numbers and remind ourselves of a basic truth: Governments have a chance right now to choose which of the following paths we head down next:
Right now, we’re in the economic chaos of a sudden, unmanaged decline in oil and gas. The only guaranteed way to get off that roller coaster and achieve an energy transition in line with 1.5°C is for governments to make a managed decline of fossil fuel production a pillar of their plans for a just economic recovery.
What We’re Tracking
Relief and recovery: Bailouts for people or polluters?
Trump administration seeks direct bailout for U.S. oil and gas industry
Oil, gas, and coal companies have already accessed billions in COVID-19 relief funds in the U.S. through general corporate bailout funds, while rumors continue to swirl about an oil- and gas-specific bailout. President Donald Trump has explicitly directed his administration to boost the industry however it can, and the most recent rumors are that the U.S. Treasury Department may offer special loans to the oil industry, while the Federal Reserve may extend emergency lending authority. While some of these loans may involve the U.S. government acquiring equity stakes in companies, restrictions on bailout funds mean these shares cannot be used to exercise voting rights — meaning this would be a straightforward bailout for Big Oil.
Meanwhile, the U.S. oil and gas industry has already claimed billions in existing public stimulus funds
Even as the U.S. oil industry continues to clamor for additional public aid, including a blanket liability waiver for any activities during the COVID-19 emergency, oil and gas companies have already moved quickly to take advantage of existing public funds. None of the U.S. stimulus packages passed in response to COVID-19 contain restrictions against the oil and gas industry, and thousands of oil and gas companies have already claimed billions of dollars in relief funds. The Trump administration is also moving ahead with expedited royalty relief for oil and gas corporations, while fossil fuel corruption continues unabated.
Canada avoids ‘Big Oil bailout’ but leaves room for billions in support through Export Development Canada
Following strong public outcry against a possible CAD 15 billion bailout, and Canadian oil and gas companies’ demands for regulatory rollbacks, the federal government ultimately handed down a much smaller package. The federal government announced CAD 2.45 billion in support for abandoned well reclamation and helping companies meet methane regulations. However, conditions tied to the support intended to avoid future unfunded liabilities appear unlikely to be enforced, making it a clear new handout to the sector. Even more important to emphasize, the changes to Export Development Canada (EDC) announced in late March could already amount to a multi-billion dollar bailout for the oil and gas sector — one with very little public oversight.
Pemex on brink of becoming ‘crushing financial burden’ for Mexico
Mexican President Andrés Manuel López Obrador came into office vowing to turn Pemex, the state-owned oil company, into a driver of economic growth and self-sufficiency. In reality, Pemex, already the most heavily indebted major oil company in the world, could become a “crushing financial burden” as Mexico faces its worst economic recession in decades. After major ratings agencies downgraded Pemex bonds to “junk” status, Fitch warned the company would likely require “extraordinary and proactive government support.” Already, the Mexican government has granted Pemex a tax break worth 65 billion pesos for 2020.
Perspectives on the COVID-19 and oil market crises
For a global recovery, rich countries must help finance developing countries’ transition off fossil fuels
On CNBC Africa, Ngozi Okonjo-Iweala, former finance minister of Nigeria, argues, “This is the time to invest in diversifying the economy, to build resilience to future shocks, not lock-in further dependence on fossil fuels.” But, she emphasizes, low-income regions that currently depend on oil and gas revenue “cannot do this alone.” For a just transition to a low-carbon economy, “rich countries must support the developing world in the pursuit of a healthy and prosperous future for all.”
Pushing for alternatives to Vaca Muerta and fossil fuel extraction in Argentina
The Guardian reported Wednesday that Argentina’s fracking megaproject in Vaca Muerta may be “among the most economically vulnerable fossil fuel projects in the world.” Energy analysts and advocates in Argentina have been warning of this for years. Here are some of their latest perspectives:
- As Fernando Cabrera of Observatorio Petrolero Sur put it, “We have long warned there was a lack of essential export infrastructure, weak global demand and over-dependence on subsidies which Argentina cannot afford due to its debt crisis. The pandemic deepens the problems.”
- Maria Marta di Paola of Fundación Ambiente y Recursos Naturales (FARN) wrote in the Bretton Woods Observer that the International Monetary Fund’s (IMF) “wildly-optimistic projections for Argentina’s oil and gas exports” contributed to the country’s current debt crisis. As the IMF now reevaluates Argentina’s debt, it needs to heed its pledge to take climate risks into account, rather than double down on fossil fuel exploitation as the answer.
- Observatorio Petrolero Sur (in Spanish) also offers a broader view of energy sovereignty as an answer to intersecting pandemic, economic, and climate crises. “Thinking about the transition to the world we want is urgent in order to untie the knot in which we find ourselves,” they write, arguing that access to energy, water, and a healthy environment must be seen as vital rights alongside health and housing, rather than products to be privatized.
A Green New Deal for Alberta?
Bronwen Tucker of Oil Change International and Climate Justice Edmonton argues that a Green New Deal is the recovery plan that Alberta needs to move beyond fossil fuels, even if the idea still throws Premier Jason Kenney “for a loop.” It’s a chance to respond to “the overlapping crises that have shaped how the pandemic is playing out — job losses in oil and gas, eroding public services, systemic racism, and climate change.” Will Alberta prop up a sunsetting industry, or seize the chance for a Green New Deal to protect people and communities through a just transition?
The Urgent Message of Negative Oil Prices
In The New Republic, Kate Aronoff makes a clear case for why COVID-19 recovery packages must include just transition support for the workers and communities bound up in the fossil fuel sector: Even if “the end is nigh” for oil, “without a plan, it’ll be chaos.”
The Climate Debt
Writing in Foreign Affairs, Mohamed Adow of Power Shift Africa describes his lived experience of the climate crisis in Kenya, and builds a compelling argument that rich countries, which have built their wealth in fossil fuel intense ways, owe people and countries in the Global South a profound “climate debt,” even as funding pledged at the UNFCCC and elsewhere has not fully materialised. This provides a useful context for the profoundly unequal ways that the current oil market crash and COVID-19 crisis are unfolding worldwide.
Fossil fuel giants put workers and communities in Mozambique at risk
In Foreign Policy News, Kate DeAngelis of Friends of the Earth U.S. shines a light on how oil major Total’s reckless choice to continue construction on a major LNG project in Mozambique created the country’s largest COVID-19 outbreak. She calls on the U.S. Export-Import Bank, a key source of finance for the project, to “use its leverage to demand that all work ceases on this and other projects like it, until the health and safety of the workers and local communities can be assured.”
Trends in the Right Direction
Especially now, we all need some good news. Here are some key signs of progress.
Irish parties under pressure to commit to fossil fuel phase-out
As negotiations continue to form a government in Ireland, the Green Party has received new commitments to stop fossil fuel expansion from top parties Fine Gael and Fianna Fáil, which need smaller parties to join them in a majority coalition. In responding to a 17-part questionnaire, Fine Gael and Fianna Fáil affirmed they are “committed to a pathway to phase out all fossil fuel exploration licenses,” including being “open” to extending the current ban on new oil licenses to include gas. The parties also affirmed “it does not make sense to build new large-scale fossil fuel infrastructure such as liquid natural gas import terminals,” albeit while hedging on the specifics of what that means.
Civil society groups are keeping the pressure up. This week, more than 130 Irish and international organisations wrote to all Irish party leaders, asking them to remove support for fracked gas infrastructure.
U.S. federal court invalidates significant permits for Keystone XL and other pipelines
A U.S federal court judge ruled this month that the U.S. Army Corps of Engineers broke the law when it approved Nationwide Permit 12, a key water crossing permit for TC Energy’s Keystone XL tar sands pipeline and many other pipelines nationwide. This major ruling prevents construction through hundreds of water crossings along the Keystone XL pipeline route. It could also have far-reaching consequences, prohibiting the agency from using this fast-tracked approval process for any pipelines nationwide.
Citigroup, Morgan Stanley are latest big banks to rule out Arctic drilling
During Earth Week, CitiGroup and Morgan Stanley agreed to rule out financing for Arctic oil (as well as coal), bringing the total to 16 major global banks (including 5 out of the 6 major U.S. banks) that have similarly changed their policies in the past two years. These moves have come in direct response to mounting grassroots pressure led by the Gwich’in and groups like the Sierra Club. This is part of a growing, broader trend of Wall Street and the global financial sector moving away from fossil fuels, generally, as they face increasing public scrutiny and dwindling returns from the flagging sector. Learn more about the campaign to Stop the Money Pipeline.
Norway’s Supreme Court agrees to hear case to stop Arctic drilling
Greenpeace and Nature & Youth in Norway got good news last week when Norway’s 19 Supreme Court justices agreed to hear their lawsuit against the country’s oil licensing. They argue that the government’s licensing of Arctic drilling violates Norwegians’ constitutional right to a healthy environment for future generations. Only one in ten petitions to the court are typically granted a hearing.
Campaign News
Indigenous peoples in Ecuador demand justice after major oil pipeline spill
On April 7, as Indigenous communities in the Amazon worked to protect themselves from COVID-19, the country’s primary oil pipeline system ruptured, contaminating the Coca River with the largest spill in more than a decade. In response, Amazon Frontlines has filed a lawsuit with the Ecuadorian Alliance for Human Rights, regional Indigenous federations CONFENIAE and FCUNAE, and several affected families. They are demanding that the government and oil companies carry out urgent environmental remediation, provide remedies for affected peoples, and repair or relocate the pipelines to avoid future spills. Learn more and take action to demand justice for impacted Indigenous communities.
African Development Bank says it will not fund controversial East Africa pipeline
The African Development Bank (AfDB) released a statement on April 18 claiming that it has no plans to fund the controversial East African Crude Oil Pipeline Project that would cut through Uganda and Tanzania. The press release responded to news coverage of a letter that more than 100 civil society groups sent to the bank last month, objecting to the project on climate, environmental, and human rights grounds. In its response, AfDB says it “is strongly committed to renewable energies.” However, as this post from 350.org points out, “the bank did not say that it would end funding for any oil and gas project,” a necessary step to align the AfDB’s policies with its climate pledges.
Industry News
Scarcity of oil storage driving wild swings in oil prices
As Reuters reports, the oil industry is “struggling to find enough ships, railcars, caverns and pipelines to store fuel” as an already oversupplied market meets an unprecedented drop in demand. Oil tankers sitting off the coast of California, where one refinery is already idling, are holding more than 20 million barrels of oil. More wild swings in prices can be expected, with analysts predicting that global storage capacity could run out as early as mid-May.
Big Oil starts releasing first quarter results; Equinor and Shell are first to cut investor payouts
This week and next, investors will be watching for oil majors’ reports of first quarter earnings. Eni, BP, and Shell led the way, with the first two reporting drops in net profits of 94 and 67 percent, respectively, and Shell reporting a net loss. But, as Reuters reports, these results are “only likely to be a prelude to a disastrous second quarter.” While most majors have thus far been taking on more debt to avoid cutting investor dividends, Equinor became the first to disrupt that trend, reducing its shareholder payout by two-thirds. Today, Shell also announced that it will cut its dividend, the first time it has done so since World War II.
Shell announces net-zero aim — but no credible plan to achieve it
Shell CEO Ben van Beurden announced this month that the company will “aim to be a net-zero emissions energy business by 2050 or sooner.” But, like BP’s, Shell’s net-zero pledge includes major loopholes and lacks concrete details as to how the company will meet it. As Richard George, head of Greenpeace UK’s climate campaign, responded, “A credible Net Zero plan from Shell would start with a commitment to stop drilling for new oil and gas.”
Moreover, Shell is only pledging a 65 percent reduction in the “carbon intensity” of products it sells by 2050. Theoretically, a company can decrease carbon intensity while increasing actual, total emissions. Such a weak target implies Shell plans to rely on massive amounts of risky negative emissions technologies to achieve “net zero” while continuing to extract and sell oil and gas.
New study confirms skyrocketing methane emissions from the Permian Basin
A study published last week in Science Advances finds that methane emissions from the world’s largest oil expansion site, the U.S. Permian Basin, are more than two times higher than federal estimates and, according to a study co-author, “the largest source ever observed in an oil and gas field.” The study estimates that 3.7 percent of all the methane produced from wells in the Permian basin is emitted, unburned, into the atmosphere, making its climate impact worse than burning coal.
Resources
Briefing: Governments Have a Choice: Resilient societies or fossil fuel bailouts?
This new briefing from OCI outlines energy-related “do’s and don’ts” to guide decision-makers when choosing policy pathways for recovery efforts, arguing that a managed and equitable phase-out of oil and gas production is key for a just, resilient recovery.
Report: Climate Action Tracker recovery scenarios
Bill Hare and the team at Climate Action Tracker have analysed the likely impacts of the COVID-19 crisis and recovery scenarios on both global GDP and emissions. Their analysis confirms that economic recovery decisions made in this moment will be crucial in shaping long-term emissions pathways and determining whether the Paris Agreement’s 1.5˚C temperature limit can be achieved. Whereas a recovery and stimulus strategy based around people and renewable energy could provide benefits for both GDP and climate, a rebound in fossil fuels could lead to even higher-than-projected 2030 emissions — and lower economic growth.
Pandemic Crisis, Systemic Decline: Why oil, gas, and plastic are a sinkhole for recovery funds
A new report from the Center for International Environmental Law makes the case that the oil, gas, and petrochemical industries showed clear signs of systemic weakness before the COVID-19 crisis. Government officials should not waste limited response and recovery resources on bailouts, debt relief, or similar support for companies already in long-term decline.
Tracking the impact of COVID-19 on the status of major fossil fuel projects
Global Energy Monitor is tracking the impact of COVID-19 on the development or sale of fossil fuel projects such as power plants, pipelines, mines, terminals, and other major parts of the fossil fuel economy.
The Big Oil Money Pit: How U.S. stimulus could prop up failing polluters
New analysis from Friends of the Earth U.S. exposes how oil majors and fracking companies are positioned to benefit from USD 750 billion in corporate debt-buying announced by the U.S. Federal Reserve, funding made available through U.S. stimulus legislation.
The Case for U.S. Public Ownership of the Fossil Fuel Industry
A new discussion paper from Oil Change International and The Next System Project examines the potential benefits of the U.S. government taking long-term ownership and control of the fossil fuel industry. Instead of bailouts for executives, this approach could guarantee near- and long-term economic security for struggling workers and communities, and the wind down of fossil fuel production to meet climate goals.
IEEFA update: Financial prospects falter for LNG projects
In surveying the status of the global LNG market, the Institute for Energy Economics and Financial Analysis notes that more than ten LNG projects have been put on hold or cancelled since the COVID-19 crisis and oil price collapse began. “If the price collapse continues, the financial value of LNG may turn out to have been overhyped,” writes analyst Clark Williams-Derry.
Tracking Fossil Fuel Lobbying in Response to the COVID-19 Crisis
- Amy Westervelt of Drilled News has launched a Climate-COVID-19 Policy Tracker primarily focused on industry lobbying at the U.S. federal, state, and local levels to “to stall or rollback regulations they dislike or push forward with policies favorable to them.”
- NoBigOilBailout.com is dedicated to tracking all the ways that oil, gas, and coal companies in North America are trying to profit from the coronavirus pandemic and government bailouts (with 49 examples to date).
- InfluenceMap provides an initial survey of The COVID-19 Crisis and Climate Lobbying, assessing industry efforts to secure measures that contradict climate goals or weaken climate policy. So far, “The oil and gas sector appears to be the most active globally, … demanding both financial support and deregulation.”