The Big Picture
We are in unprecedented times. The COVID-19 pandemic and its impacts are almost certain to become a defining generational event, felt the deepest by the world’s most vulnerable countries, communities, and people.
The global energy economy is in turmoil, and governments are rapidly developing responses.
In the oil market in particular, this turmoil is not just caused by COVID-19. Widespread social distancing, self-isolation and even lockdowns are further pushing down the demand for oil – even by as much as 10% to 20% worldwide. However, the precipitous drop in oil and gas prices on 9 March was triggered by a price war between Russia and Saudi Arabia and embedded in bigger challenges facing the sector in a world under pressure to decarbonize.
We are currently witnessing the chaos of an unmanaged decline of oil, with laid off workers and producing countries with the least resources to absorb the fallout paying the immediate price. Now it’s the job of governments to step in and manage this decline in a way that takes care of people, bolsters reeling budgets in developing countries, holds companies accountable, and protects the climate.
As wealthy governments like Canada, the United States, and the UK scramble to prepare and deliver bailout and stimulus packages, they should focus on supporting workers, not bailing out polluting sectors that should be phased out rapidly to stave off the worst of the climate crisis. Trillions of dollars will be needed to build a resilient economy through this crisis, but handing more public money to oil and gas corporations will leave us all more vulnerable instead. As Bloomberg’s Liam Denning asks:
“Would it really make sense to shovel more money into the top of this business model rather than into the hands of the laid-off workers at the bottom?”
In combination with the global health emergency, the volatile shocks of the oil price are especially catastrophic for developing economies highly dependent on fossil fuel revenues, where price crashes can lead to cascading destabilization and leave critical health and social services unfunded. As stated in the Lofoten Declaration, it is the urgent responsibility of wealthy, democratic fossil fuel producers to take the lead in a managed decline while supporting developing economies in an equitable transition. Money being spent to bail out polluting companies in wealthy places could instead be directed towards debt relief and international finance to support public services and economic diversification in places like Iraq and Nigeria.
What we – governments, businesses, and people – do now will shape the global economy and energy system for years or decades to come. The choices made now will have big long-term implications for addressing the climate crisis and the chance for a managed phase-out of the fossil fuel industry.
Stay safe. Stay healthy. Take care of your friends, families, and communities.
–The OilWire Team
The Data
As finance institutions consider how to respond to the COVID-19 crisis, banks urgently need a fundamental policy shift to prioritize renewable and resilient energy sectors. The 11th annual Banking on Climate Change report reveals that 35 global banks increased their finance for fossil fuels yet again in 2019, continuing to undercut the shift in flows needed to align with the Paris Agreement.
The figure below shows the top 10 banks that have funneled money into companies most aggressively expanding fossil fuel extraction. Despite the urgent need to immediately halt all fossil fuel expansion, financing for the top 100 companies planning new oil, gas, and coal expansion grew 40% from 2018 to 2019.
Top 10 Banks Financing Fossil Fuel Expanders since the Paris Agreement
Source: Banking on Climate Change: Fossil Fuel Finance Report 2020, Rainforest Action Network, BankTrack, Indigenous Environmental Network, Sierra Club, Oil Change International, Reclaim Finance, March 2020.
What We’re Tracking
Stimulus responses: Who benefits from bailouts?
From Iraq to Nigeria, oil price crash cuts into healthcare budgets
The current crash in oil prices is exposing the equity challenges of managing a just transition off oil production. Many lower-income producers are facing immediate budget crunches due to the sudden crash in prices, impacting their ability to address the pandemic. Iraq, which relies on oil for 90% of government revenue, is asking for emergency aid to fund its health system. In Africa, falling oil revenues in countries like Nigeria, Algeria, Angola, and the Congo Republic are stressing budgets and causing spending cuts as the coronavirus spreads across the continent.
These developments reinforce the need for wealthier producers like the U.S., UK, Canada, and Norway to move first in declining their production with a just transition for workers, and to provide support to lower-income countries that face tougher transition challenges. But that’s not what’s happening so far in response to the coronavirus crisis…
U.S.: ‘Massive payouts’ for Big Oil
Last Friday, the largest stimulus package in U.S. history became law. It received bipartisan support, with Senate Minority Leader Chuck Schumer telling colleagues in the Democratic Party that they had “eliminated a $3 billion bailout for Big Oil.” Despite this bold pledge, the stimulus package establishes a corporate bailout fund of up to USD 4.5 trillion administered by the Trump administration, with extremely weak guardrails to stop it from being used to prop up failing oil, gas, and coal companies. Furthermore, the stimulus package contains hundreds of billions of dollars in additional funds that fossil fuel companies can utilize, while extensions of tax credits and other support for wind and solar were cut out completely.
Nationalizing the fossil fuel industry: A better alternative?
In close parallel to efforts to stanch giveaways to the fossil fuel industry, there are growing calls for buyouts not bailouts. Kate Aronoff argues that an appropriate response to the recent shale oil crash, COVID-19-sparked recession, and ongoing climate crisis would be to buy out failing fossil fuel companies and take them into public ownership, rather than offering low-interest loans. This would allow governments to directly implement measures to secure a managed phase-out in fossil fuel production, while ensuring a just transition for impacted workers, instead of “corporate raiders – private equity and hedge funds – swooping in to cash out, leaving mountains of layoffs, devastated communities, and reckless excess production in their wake.” It would also reduce the fossil fuel industry’s political power, one of the single biggest hurdles to government-led climate action.
Alberta gives Keystone XL a huge public bailout, leading to Final Investment Decision
On Wednesday, Premier Jason Kenney’s Alberta Government announced a direct public investment of CAD 1.5 billion in the Keystone XL oil pipeline, as well as an additional CAD 6 billion loan fund fully guaranteed by the province. This massive public subsidy, which came just days after Kenney laid off over 20,000 public school workers, led directly to pipeline owner TC Energy announcing it would move forward with the project. The pipeline, which has been mired in delays and opposition for over a decade, still lacks several key state and local permits, and faces three ongoing federal lawsuits in the United States.
More Big Oil bailouts in Canada?
With a barrel of tar sands oil now worth less than a Barrel of Monkeys, the Government of Alberta has extended lease agreements, paid regulatory levies, and staked a huge investment in the Keystone XL pipeline for a total of at least CAD 7.7 billion in support for the industry. It is also poised to cut production levels. Canada’s federal government has meanwhile altered Export Development Canada’s rules to allow for uncapped levels of public finance at concessional rates, risking an under-the-radar fossil bailout given the agency’s oil and gas soaked history. There is speculation of even further oil and gas bailouts to come from both the federal government and the Government of Alberta. This has been met with strong calls for any federal government response to COVID-19 to prioritize just transition from the industry instead, including a letter from 265 academics. This includes ensuring the industry is held accountable for cleaning up thousands of depleted wells.
UK: Green stimulus, or a lifeline for Big Oil?
It’s not clear yet whether the UK government’s nearly USD 400 billion stimulus package for industry will provide a lifeline for Big Oil and Gas. Chris Stark, CEO of the independent UK Committee on Climate Change, has urged governments to prioritize investments in clean energy, asking: “Do we lock in the use of fossil fuels in our infrastructure choices […] or do we instead look to a green stimulus?” In contrast, oil and gas industry lobbyists OGUK have called for a bailout, citing risks of negative cash flow and insolvencies across the industry.
Argentina postpones bidding on Vaca Muerta gas pipeline, restricts imports
This week, Argentina’s government further postponed bidding on a major pipeline project intended to increase output from the Vaca Muerta fracking project. In response to the falling oil price, Argentina’s government had already restricted imports of most oil products except aviation fuel, seeking to shield state-controlled oil producer YPF. It is also expected to intervene to prop up domestic prices, a request from the major shale-producing province, Neuquén.
More responses to the COVID-19 and oil market crises
Calls for a holistic economic recovery plan
The co-founders of the Planetary Emergency partnership (Club of Rome co-president Sandrine Dixson-Declève and Potsdam Institute director Johan Rockström) have published a letter calling for European governments to make a Green New Deal as “Europe’s new Marshall Plan,” to respond to COVID-19 in the context of global ecological crises
Perspective: Link a global supply-side agreement for fossil fuels with emissions targets
In Policy Options, policy experts Vance Culbert and Philippe Le Billon argue that, “The current crisis presents an opportunity to push for an international agreement on oil, gas and coal production management” in line with climate objectives, echoing calls for a Fossil Fuel Non-Proliferation Treaty. The authors argue that Canada and the UK are well-positioned to take a leading role on an international production agreement, which would have the dual appeal of advancing market stability and climate action.
David Roberts outlines priorities for recovery, resilience, and renewal
In a long-form Vox article, David Roberts outlines principles for responding to the COVID-19 crisis in the short and long term. He argues that any big business bailouts – especially for fossil fuel companies – must come with strong strings attached, like verifiable emissions reductions, and support a long-term economic renewal that is green and just.
Trends in the Right Direction
Especially now, we all need some good news. Here are some key recent wins.
Standing Rock Sioux prevail in federal court
On 25 March, a federal court struck down federal permits for the Dakota Access Pipeline, ruling that the U.S. Army Corps of Engineers violated federal law by affirming permits originally issued in 2016. In particular, the Court criticized the Corps for failing to address the Standing Rock Sioux’s expert criticism of its analysis, and ordered the Corps to prepare a full environmental impact statement.
Swedish pension AP1 announces it will divest from all fossil fuels
In what could be the first commitment to completely divest from oil, gas and coal from a major national pension fund, Swedish national pension fund AP1 has announced that it will divest from all fossil fuels. AP1 board chair Urban Hansson Brusewitz said: “Divesting from fossil fuels is an efficient way for the fund to manage the financial risk associated with a transition in line with the Paris agreement.” In addition, the fund will also promote investment in companies that are actively contributing to the transition to clean energy.
Campaign News
Wet’suwet’en resist ongoing pipeline construction amid COVID-19
At the start of the month, a Wet’suwet’en hereditary chief and government ministers said they reached a proposed agreement on next steps regarding their opposition to the Coastal GasLink pipeline. However, the proposal will not be public until it is presented to the Wet’suwet’en people and signed, a process that is now postponed indefinitely. Meanwhile, TC Energy has resumed construction of the pipeline and the wave of Wet’suwet’en solidarity protests has continued. As people practice physical distancing due to COVID-19, this resistance has turned to digital tools – particularly stressing that the pipeline’s construction now not only threatens Wet’suwet’en land, water, air, and people – but also the lives of the workers who have been exempted from self isolation rules. Here is a look at who is funding the pipeline, and ways to help stop it.
False promise of oil extraction puts people and democracy at risk in Guyana
Three weeks ago, voters in Guyana, “the World’s Newest Petro State,” went to the polls. Results still have not been released – but there have been many irregularities, including unexplained discrepancies, threats against impartial observers, and a premature declaration of victory. People in Guyana continue to call for the election results to be released and honored. Over 100 civil society organisations worldwide have signed a statement calling all involved to respect the rule of law and ensure people’s safety and human rights, noting the role played by the oil industry – led by ExxonMobil – in exacerbating this constitutional crisis. The UK foreign secretary has warned of consequences for any party that uses illegitimate results from the March 2 election. Yet the World Bank is still committed to pay for Guyana’s oil laws to be rewritten by a law firm that has acted for ExxonMobil for four decades.
Massive social mobilization against fracking in Mendoza, Argentina
Mendoza, Argentina has seen strong public mobilization since late 2019 in defense of water and against the advance of fracking. This Spanish-language interview, “Energías extremas: ¿valen la pena?,” provides a community perspective on the battle against fracking in Argentina, and the urgency to oppose new growth in extreme fossil fuel extraction methods.
UK export finance targeted in world-first OECD complaint
Global Witness has lodged a complaint under the OECD Guidelines for Multinational Enterprises, against the UK’s export credit agency, UK Export Finance (UKEF). Global Witness alleges that UKEF, which gives 97% of its energy support to fossil fuels, is violating the OECD Guidelines by ignoring the Paris Agreement and having no plan to reduce emissions from the projects it supports. The complaint is a world-first against an export credit agency on climate grounds. It could set a new international precedent if the complaint is accepted by the OECD, as export credit agencies insist they aren’t covered by the rules. See coverage in The Guardian and Financial Times, and a Twitter explainer thread.
Industry News
Big Oil’s plan to profit from climate change
It’s useful to place the current crisis in context. In October 2019, Shell Oil invited Malcolm Harris of Intelligencer to attend an internal strategy meeting. He quotes Shell’s chief economist Steven Fries as saying: “We’re going to get as much out of [oil and gas] for as long as we can.” That is, recognizing a generational shift away from oil, gas and coal, Shell expressly aims to take billions in taxpayer money to grow its renewable energy divisions, while eking out as much profit from fossil fuels as it can for as long as it can.
Fossil gas industry puts Mozambique on track for disaster
Cabo Delgado in Mozambique hosts Africa’s three largest fossil gas projects, worth billions of dollars. However, Friends of the Earth Mozambique reports that the people of the area are yet to see any benefit. Some already suffer, with families being evicted and forced to move. People impacted say that their complaints have been ignored, and that compensation has been inadequate. Fishermen, for example, report being relocated from homes a few hundred metres from the sea to places over ten kilometers inland. These fossil gas promises have also fueled armed insurgencies, which have driven some 100,000 people from the province.
Rystad: Oil market turmoil could delay two-thirds of new project sanctioning in 2020
The combined impact of the oil and gas price war and COVID-19 “are poised to wreak havoc on new project development plans” for fossil fuels in 2020. Rystad predicts that companies are likely to reduce their project sanctioning by as much as 68% worldwide – reflecting a USD 131 billion cut from previous estimates.
Oil companies announce spending cuts
Reuters is tracking the announced responses from different oil and gas companies. Almost all are cutting operational and capital spending. Several have suspended some drilling or exploration activities. Many are canceling share buybacks, while scrambling to meet promises to investors to maintain dividends.
U.S. fracking companies: Oil majors could ‘pick up the scraps’
The financials of U.S. shale companies were already precarious before Saudi Arabia sent oil prices plummeting. In recent weeks, Moody’s downgraded Occidental Petroleum to a “junk” bond rating, and many companies are rushing to restructure their debt to avoid bankruptcy. Loads of debt and high borrowing costs could set up a scenario in which ExxonMobil and other oil majors wait for independents to go bankrupt and “pick up the scraps,” as Pioneer Resources’ CEO put it. In an extraordinary letter, several U.S. producers are asking Texas regulators, which oversee the flurry of fracking in the Permian Basin, to consider a system of production cuts.
Norway offers up new oil exploration blocks – but none in Barents Sea
On Monday, Norway’s government offered up 36 new oil exploration blocks for oil firms to bid for. However, for the first time in a decade, the annual offer did not include any new blocks in the Arctic Barents Sea.
Shell advertising under scrutiny in UK
The British Advertising Standards Authority has opened an investigation into a Shell Oil campaign subtitled “drive carbon neutral,” after 17 people complained that they found it misleading. A decision could be several months away. This follows a previous investigation into Equinor over a campaign that implied fossil gas was “low-carbon,” which was informally resolved after the company agreed not to repeat the claim.
Resources
Open access updates from Rystad Energy
Rystad Energy is providing regularly updated open access reports with projections on the impacts of the current pandemic on oil and gas markets and the industry’s activities over the coming year.
Carbon Tracker: The transition in a time of turmoil
Check out Carbon Tracker Initiative’s analysis of the implications of the current oil market turmoil and the key role of governments now to minimize future risk and volatility.
Fossil gas extraction decreasing in Vaca Muerta, Argentina
A new report entitled “Coyuntura Hidrocarburifera, enero 2020” (in Spanish) provides a snapshot of the fossil gas industry in Vaca Muerta before COVID-19. This shows that extraction was already declining before the current crisis. In January 2020, 10% less gas was extracted than in mid-2019.
Phasing out EU Member States’ fossil fuel funding
A recently published study in Climate Policy has found that 11 EU Member States, the EU’s budget, and public banks together provide at least EUR 21bn annually in support for oil, gas and coal. The study’s authors argue that it is vital for these countries and EU institutions to end their fossil fuel subsidies and fulfill their climate promises.
Global database of supply-side climate initiatives
In February, Climate Policy also published the Fossil Fuel Cuts Database which identifies 1302 initiatives from 1988 to 2017 to constrain fossil fuel production and achieve climate goals. This shows a rapid but highly uneven growth in such initiatives worldwide.
A model for a Green New Deal in Canada?
A new journal article on the Pact for a Green New Deal in Canada provides a useful case study for the complexities and opportunities that countries face in developing significant reorientations in the scale and direction of government spending.
A managed phase-out of British Columbia’s fossil fuel industries?
The Canadian Centre for Policy Alternatives has proposed a four-part framework for winding fossil fuel industries. This highlights the critical role of Indigenous peoples and the imperative to ensure that the phase-out of fossil fuels is managed, reflecting principles of climate justice and just transitions.