Is this the perfect storm we are facing today, or does that one still lie ahead?
We are all presently caught up in a global crisis triggered by the Corona Virus (COVID-19), and the uncertainties of this and all the imposed restrictions have spread fear and levels of panic that the stock markets went into a “meltdown” mode.
Then we had the breaking up of the OPEC+ agreement of the amount of oil to be pumped with Saudi Arabia opening-up its supply to cause an oil price crash.
What will further happen in the next few days and weeks is anyone’s guess as more countries go into ‘lockdown’ to stop the spread of the virus. The response to this is governed by the protection of life and the health care systems, systems that are rapidly becoming overwhelmed.
The actions we all take to protect ourselves; and those around us will occupy much of our time in self-imposed ‘quarantine’ or company-imposed remote work. We will attempt to function as normal but let’s be honest these are not regular times, nor is the future going to go back to these. We are in new territory for where the world is going
“We are even not at the end of the beginning, certainly nowhere near the beginning of the end.”
As the societal impact weighs on us of all the restrictions to contain and deal with the virus, we also do need to think about the economic impact it brings on us as well. So many people have little or no reserve in cash or resilience to weather this period. There will be financial bailouts that will have a massive bill to pay, down the line
Countries to protect its citizens and health systems are crashing their economic policies. There is emerging talk about the bailouts of nearly every industry that is caught in highly leverage debt situations or were highly geared to cater to scale and optimization. Already industries involved in travel are putting their 1st bills into the government for bailouts.
Massive employers in Automotive, Energy, Oil & Gas, Utilities, Technology, and Consumer goods, the debt market and the sectors that have been borrowing goes on and on, will all be caught in and debt market slide at levels that has the potential that it will bring back the Banking Crisis of 2008 in very stark and similar ways.
My concern is this looming economic crisis is across the board in Europe and the United States. Certainly, where the Asian economies will be profoundly impacted is in their reliance on trade into the West. It is likely they might be in better shape than the Western is to handle the “after-effects” of this moment of global impact and social and economic upheaval.
We can all speculate, gossip, debate, and react as the impact of this period hits home. One area we must also think about is the energy transition we are at the critical stages of managing, and this needs “enormous” sums of money to bring it about. It must have a high level of intensity in these coming years to achieve the climate transition we require.
So why my early alarm bells? Our utilities and the oil and gas industry are in the highest debt leveraged groups, so are we going to go from a boom to a bust here, and if so, how does that impact the Energy Transition we are undertaking?
A future of uncertainty might be hitting us for any energy transition
We need to ask how will renewables and all of the future investments fair when we have a cratering of oil and gas prices for some months (or even longer)? What will get pushed back, as the worry over emission will be further kicked down the road? New investments at a time we need them so is the ambition for the energy transition going to change. Can we afford to let it, irrespective of what we all about to face in economic recessions, possible bankruptcies, etc.?
Even in this ‘moment of crisis’ we must not actually stop investing in the Energy Transition- we simply must not. We have a world loaded with carbon, and we need to do something about this, really, really quickly. Take a look at this visual provided by the Stanford Woods Institute for the Environment below.
This Global Carbon Project and Future Earth animation show the atmosphere as a “bucket” filling with greenhouse gas pollution, from 1870 to 2019. Concept by Rob Jackson and visualization by Alistair Fitter and Jerker Lokrantz. Read more: https://stanford.io/2rYnNI8
To quote from this, “The runaway train that is climate change is about to blow past another milestone: global fossil-fuel carbon dioxide emissions will reach yet another record high. Driven by rising natural gas and oil consumption, levels of CO2 are expected to hit 36.8 billion metric tons (40.6 billion U.S. tons) this year, according to new estimates from the Global Carbon Project, an initiative led by Stanford University scientist Rob Jackson.”
Once the animation gets to 2019, we see that the bucket is almost full; we have 9% of our global carbon budget left. That’s about ten years to go to our current emission rates. Does this year get written off due to the serious events we are presently facing?
We are at such an inflection point in our history
We have a runaway train that has increased its speed to a carbon world, that we will find is increasingly uninhabitable. Today as we “crash our economies” to deal with the Corona Virus and see the OPEC+ war, where cheap Oil floods the market, with gas prices equally trending (or nose-diving) down, we face a very stark future of where we need to invest and radically alter our habits and regain a new perspective.
How will investors in renewables take another look at the “return on new investments” and then attempt to go out to form coalitions for raising the new capital? When they will be facing some highly stressed capital markets grappling with some massive restructuring issues. I would argue bigger than the Financial Crisis of 2008.
We are in a time when Governments and the lending institutions are grappling with much of their current energy and utility portfolio to continue to finance in their belief of making the energy transition. will that political and institutional ‘will’ evaporate?
Many of these existing energy and utility players are heavily leveraged and they will be busy looking for bailouts. They will be forced to “re-engineer” their current debts.
Choices of expediency by the market sentiment or Governments, the lenders of last resort, will rule over much of the next months of investments, of what to merge, right off, or cut loose.
What happens to the longer-term Energy Transition in all of this potential chaos? Presently are all those energy giants possibly thinking, is it time to think about “how to row back” on announcements, recognizing survival is the name of the game in the coming 6 to 12 mnoths period.
Energy players and the utilities face a harder position to justify fresh investments, struggling to justify to their existing or new potential shareholders to move from its existing infrastructure invested in fossil fuels to the alternatives requires more significant investments and possible lower returns for extended periods. Shareholder appetite ‘growls’ at these times. The risks of the energy transition being pushed back are real in this time of unprecedented crisis.
We are naturally so caught up in the present, can we cast our minds out to those even more important things, the future for the environment that we live in when we are all caught up in life-threatening decisions now, under threat from this coronavirus?
We are facing a very, very chilling time that is indeed upon us.
We certainly are only at the beginning of a very volatile time for our own safety, as much of our everyday life gets shut down. Yet we do seem to be in the “perfect storm” ( a well-used phrase) of a global virus threatening us, a crash in Oil followed by gas prices, and our financial markets in meltdown but on top of this with the Governments of Europe at present “crashing our economic position.”
We are in a time where there will be a new normal. Can we change our behaviors, our collective ones, will the fear and panic we are presently facing be overtaken by what lies ahead?
Our lives seem to me, to be in a massive transition, as our world is even more in a repeating daily crisis that might actually get worse.
Do we have the resilience and ability to manage this short-term crisis and recognize there simply does need to be different world orders to deliver us back to a planet and environment we can recognize as necessary?
We have to think and act differently in our future world. Now is the time to reflect as well as worry.
