It was a tumultuous ride from top to bottom and then back up again. Oil prices spiked to nearly $70 in January, proceeded to collapse as Covid-19 spread from China and intensifying as the virus travelled west to the US.
By the third week of April, Brent crude traded at $16 (Dh58) and the US benchmark went negative for 24 hours. Seeing demand creep higher ahead of a second wave of the virus, members of the Opec+ group, co-chaired by Saudi Arabia and Russia, decided the time was right to ease back on the historic cut of nearly 10 million barrels a day, by bringing 20 per cent of those supplies back onto the market.
“There are still risks in this crisis like no other, as the IMF described it, and the world economy is still learning how to live with the virus. But we have shown the value of collaboration commitment and especially discipline in facing this extraordinary challenge,” said Prince Abdul Aziz Bin Salman, Saudi Arabia’s Minister of Energy.
It’s been an energy challenge like no other, with demand collapsing by nearly 30 per cent at the height of the pandemic, and nearly 10 per cent for the year, which would be the biggest drop in seven decades. Oil is the elixir for growth of the Opec+ countries, with revenues dropping by $270 billion this year according to the International Monetary Fund.
It also gave a glimpse of “what could be” if hydrocarbon emissions could be brought under control. The skies in Beijing, Delhi, London and Los Angeles showed immediate improvement as cars remained parked at home.
“The message is hopeful but is also sobering because it’s a reminder of the huge scale of the challenge we face,” said Meghan O’Sullivan, Director of the Geopolitics of Energy at Harvard’s Kennedy School of Government.
The International Energy Agency is out to leverage a once-in-a-generation opportunity to accelerate the transition. The Paris-based think tank for energy consuming nations put forth a blueprint of what needs to be done to heal the environment, asking leaders to act now with a $3 trillion plan to adopt cleaner energy policies and create nine million jobs over a three-year period.
Fatih Birol, Executive Director of IEA, is suggesting a multi-pronged approach by improving energy efficiency, especially in buildings, accelerating the adoption of renewables, and modernising electricity grids to reduce wastage.
It is starting to shape up as a 21st century version of the Marshall Plan, which laid the foundation to rebuild Europe in the aftermath of the Second World War. After nearly five days of arduous negotiations, the 27 members of the European Union agreed on a seven-year, $2 trillion budget that mixes a near-term stimulus plan with mandate to set the benchmark for a green revolution.
“It will link solidarity with responsibility. Solidarity because all 27 countries together bear and support next-generation of the European Union and responsibility. Because the next-generation of the EU doesn’t just point the way out of the crisis, but serves the very foundation of a modern and sustainable Europe,” said Ursula von der Leyden, President of the European Commission.
Europe is setting the benchmark for the energy transition. Germany announced a $45 billion package to wean the country off fossil power and gasoline cars. It plans to abandon coal by 2038 and cut greenhouse gas emissions by 55 per cent.
In France, President Emanuel Macron wants the country to become Europe’s clean car producer by putting forth $9 billion to transition to electric and hybrid vehicles. He plans to have Air France to become the world’s greenest carrier with a similar level of funding to make it happen.
And tiny Denmark is punching above its weight by passing landmark legislation to generate 100 per cent of its power from renewable energy in only seven years. It’s doing so by developing two offshore wind islands in the North and Baltic seas.
“I think it’s important to say that we don’t actually know how to achieve that target. If we knew it, then it wouldn’t be that ambitious,” said Dan Jorgensen, the Danish Minister for Climate, Energy and Utilities. “We’re saying, instead of asking what is possible, we ask what is necessary. Our task then is to make the necessary possible.”
While Europe’s green credentials are taking hold, there remain real concerns about whether the two biggest consumers of energy, the US and China, will make the global energy transition a priority.
“I worry that in China, we actually could see backsliding. In China, you have a tale of two proposals. On the one hand, you have infrastructure investment in electric vehicle charging, in digitalisation and in ultra-high voltage transmission lines. But on the other hand, you see a resurgence of coal power,” said Varun Sivaram, Senior Research Scholar, Columbia University’s Centre for Global Energy Policy in New York.
Sivaram and others remain concerned that China may utilise the pandemic to export its coal plant technology to Africa while the world is concentrated on rebuilding growth. US President Donald Trump has toned down his rhetoric to be the champion of America’s coal industry, but he remains a steadfast believer the country’s shale boom has provided greater energy independence.
The fracking revolution unlocked vast supplies of gas, which offers cleaner burning than coal and helped cut carbon emissions, but policy specialists argue it is not sufficient.
Sivaram has just completed a book called “Energising America” that, like the IEA, lays out a policy blueprint to accelerate change after the US presidential in November.
The speed of that transition is shaping up to be a key hot button issue at the polls. At a recent Rose Garden ceremony at the White House, President Trump suggested former Vice-President Joe Biden’s plans for the energy transition carry too big a price tag.
While Brussels could bridge policies differences and agree on the need to accelerate the green transition, the issue, like many others, continues to divide the US.
— John Defterios is Emerging Markets Editor at CNN Business.