Strategies of oil and gas players: between COVID-19 and energy transition
Alexey Loza, EY Partner, Energy Leader (Central, Eastern, Southeastern Europe and Central Asia)
A decline in economic activity this spring caused by the COVID-19 outbreak and the ensuing massive lockdowns has led to a drastic fall in global demand, combined with a crash in energy prices, with the oil market taking the hardest hit. Due to the lockdowns, energy consumption in the transportation sector is now much lower: after falling 90% this April, passenger air traffic in Europe remains 50-60% below the level observed last year. With the already existing supply glut, a further 30% drop in energy demand in April has shaken the market to its core, pushing energy prices to record lows. Over the past five months, however, prices have been holding at $39-45 a barrel after oil exporters made major output cuts to address market imbalances, while a natural decline in US production, coupled with a partial recovery of demand to 91 million barrels in the third quarter, also helped prices to stabilize. Yet the COVID-19 crisis remains a major impediment to market recovery, with oil demand not expected to return to the pre-COVID level in the coming years; the IEA is especially pessimistic in its forecasts, saying that the recovery should not be expected earlier than in 2023, or even 2027 in the stress scenario.