The COVID-19 pandemic has caused energy and fossil consumption to plummet and has driven the oil price to historic lows. Production needed to be lowered and in some cases stopped to stabilize the market amid the crisis. The consumption of renewable energy products, however, has stayed at the same level.
While some believe the time is right to speed up the energy transition, others believe that the effects of the pandemic on the economy and oil prices will put pressure on investments and slow down the energy transition. Cheaper oil, for instance, could lower the appetite for electric vehicles (EVs) unless governmental pressure increases and the oil price bounces back soon.
The impact of COVID-19 is far reaching. Fuel demand has dropped with people traveling far less, but this has also lead to a positive impact on the environment, even raising moral and ethical discussions around hydrocarbons. However, the duration of the pandemic remains uncertain. If things do go back to normal, what will this new normal look like? There is a lot of scenario planning underway and many assumptions being made. Yet, analysts warn that the oil price shock could hurt demand for EVs and dim the appeal of energy efficiency measures.
Energy transition remains a top priority, but progress depends on policy measures
To gain a better understanding of the challenges our clients face, as part of the 2020 CGI Client Global Insights, CGI leaders met with oil and gas business and technology executives for in-depth discussions on their trends and priorities. Our conversations reveal that the energy transition and climate change remains one of the top 3 business priorities in terms of importance for the oil and gas executives interviewed.
In the European Union (EU), there is a better chance of the pandemic accelerating the transition, as large government stimulus packages are likely to include support for clean energy. The European Green Deal Investment Plan could be expanded further as part of other stimulus measures. In the U.S., the 2020 presidential election in November will have strong implications for the energy transition.
Cheap petrol poses a risk for EV demand and could weaken the argument for energy efficiency initiatives. But the link between oil prices and renewable energy is quite indirect. Ultimately, policy measures and the shape of future bailouts and stimulus measures will be key to determine the speed of the energy transition.
Industry commitment will support the energy transition
Leading oil and gas majors remain committed to the energy transition strategy. A number of them have publicly stated their commitment to net-zero emission plans, which they aim to achieve by 2050 instead of 2060. An added catalyst is banks and investors backing away from companies that do not have a green agenda and roadmap.
Currently, we do not see compelling evidence to suggest either an acceleration or slowdown of a post-pandemic energy transition, unless future government bailouts and stimulus measures change the game. However, with the energy transition and climate change continuing as a critical business priority, combined with the major oil and gas companies committing to net-zero emission goals and investment plans to increase their green footprint, we see the energy transition progressing.
Addressing new business realities
One thing is certain, as oil and gas companies begin to navigate through and beyond the pandemic, they will be faced with a new economic and societal reality—one that will require them to rethink their underlying business models, optimize their cost structures, establish new ways of working, and achieve greater collaboration to secure resilience.
As many oil and gas companies look to rebound and even reinvent their operations to address this new reality, we work with clients to help define the right transformation journey. This includes understanding and realizing the opportunities of the energy transition and providing greater value through our capabilities and solutions.
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