Major oil companies, such as Exxonmobil and Saudi Aramco, have slashed investments on new projects.
In the past couple of weeks, several news articles, pictures and videos have depicted many countries around the world enjoying clear blue skies and wild animals roaming the streets in urban centres.
It is estimated that global CO2 emissions will go down by 8 percent or 2.8 gigatons - the largest drop ever recorded - as people stay indoors and burn fewer fossil fuels.
But there is another side to the story. There are concerns about oil and gas, both having taken a hammering from the coronavirus pandemic as lockdowns everywhere have dampened economic activity and energy consumption.
According to the latest report from the Energy Information Administration (EIA), countries are experiencing between 25 percent and 18 percent decline in energy demand, dependent on the severity of individual lockdowns.
Of the fossil fuels, oil has taken the biggest hit as a result of quarantines forcing cars off the roads and air travel being largely grounded.
“At the height of the lockdowns in April, when more than 4 billion people worldwide were subject to some form of confinement, year-on-year demand for oil was down by around 25 mb/d (million barrels per day),” the report says.
Last year, the world's oil consumption was around 100 mb/d.
Bad days for big oil
Energy firms including oil and gas giants have felt the full impact of the fall in the price of oil, gas and coal. Consequently, they have scaled back investments in various projects.
EIA says energy firms will scale back their investments by $400 billion this year.
In order to comprehend the severity of all this, one need only look back to 2019, when consumers around the world - all either driving, flying, or working in factories - spent a total of $3.6 trillion on oil. This year that spending is expected to fall to $2.6 trillion.
Oil majors such as Exxonmobil, Shell, Chevron, BP and Total have all slashed their investment budgets. The slide in demand for oil and gas is also having an effect on major oil exporting countries where state-run Petrochina and Saudi Aramco have made similar capital reductions.
The crash in oil prices to the present level of around $35 per barrel on the back of weak demand, is particularly challenging for Saudi Arabia, the world’s largest exporter.
Riyadh is vulnerable to a prolonged scenario in which the market remains depressed, as it needs a price of $80 a barrel to balance its national budget.
While low oil prices are good for major consumers such as China, India and Japan, it can spell trouble for exporting nations such as Iraq and Nigeria, which have few other products to export beside oil.
Lower oil prices are a good sign for American consumers as it makes it cheaper for people to take to the roads in their cars. In 2018, there were over 273 million vehicles registered in the US with over 17 million new light vehicle registrations that year. According to 2016 numbers, around 6.3 million new cars were sold per year.
However, a low oil price can spell disaster for US shale producers as they need at least $50 a barrel to make their investments viable.
US producers in the states of Texas and New Mexico already took a hit when prices dropped in 2014. Thousands of oil industry workers have lost their jobs, and many small companies have gone out of business.
The oil-dependent state of Texas stands to lose $85 million a year for every $1 fall in oil price.
“Some of the most dramatic cuts in the oil and gas sector – in many cases above 50% – have been among highly leveraged shale players in the United States, for whom the outlook is now bleak,” says the EIA.
The crisis also badly impacts the LNG (liquified natural gas) sector, which was already reeling under the effects of a glut. Massive investments in LNG terminals around the world in recent years means that supply exceeds demand.