Global spending on oil to drop by $1 trillion in 2020 says IEA

Investment in energy sector will see its biggest drop this year says the agency

Abu Dhabi: Investments in the energy sector will see their biggest fall this year due to the COVID-19 outbreak, which has hit both demand and prices, with consumer spending on oil set to drop by $1 trillion in 2020 according to the International Energy Agency (IEA).

“The speed and scale of the fall in energy investment activity in the first half of 2020 is without precedent. Many companies reined in spending; project workers have been confined to their homes; planned investments have been delayed, deferred or shelved; and supply chains interrupted,” the IEA said in their World Energy Investment 2020 report.

“The larger effects on investment spending in 2020, especially in oil, stem from declines in revenues due to lower energy demand and prices, as well as more uncertain expectations for these factors in the years ahead,” the report added.

“Oil (50%) and electricity (a further 38%) were the two largest components of worldwide consumer spending on energy in 2019. However, we estimate that spending on oil will plummet by more than $1 trillion in 2020,” the report said.

The IEA estimates that energy investments will be down by $400 billion, with the majority of slashed spending coming from the oil and gas sector, with investments down $244 billion compared to 2019.

“Oil is bearing the brunt of this shock because of the curtailment in mobility and aviation, which represent nearly 60% of global oil demand. … For the year as a whole, oil demand could drop by 9 million barrel per day on average, returning oil consumption to 2012 levels,” the report said.

In the US, the IEA expects energy investments to fall by 25 per cent largely due to their exposure to the oil and gas industry, which has seen the shale industry heavily impacted on low oil prices. Energy investments in China is estimated to fall by 12 per cent, with Europe’s spending expected to fall by 17 per cent. Impact on green energy

While oil will see the brunt of reduced investments, the green energy sector is also expected to be adversely affected according to the IEA, with investments in energy efficiency and end use applications set to fall by 10-15 per cent.

“The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems,” said Dr Fatih Birol, the IEA’s executive director.

“The crisis has brought lower emissions but for all the wrong reasons. If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment,” he added, urging policymakers to integrate spending on clean energy in their recovery plans.