Energy investment will drop by $400 billion in 2020, IEA says

  • The International Energy Agency said on Wednesday that global energy investment will fall by almost $400 billion in 2020 compared to last year due to the coronavirus pandemic.
  • Before the pandemic, the global energy investment was on track for 2% growth, but now it fall by 20%. 
  • IEA is also forecasting that oil demand could drop by 9 million barrels per day by 2025.
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Global investment in the energy sector is expected to plunge by almost $400 billion in 2020 compared to last year as the pandemic takes a beating on the energy sector, the International Energy Agency warned on Wednesday. 

Before the pandemic, the global energy investor sector was on track for growth of around 2% which would have been its largest annual rise in spending in six years. 

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But now investment is expected to fall by 20%, some $400 billion.

In its World Energy Investment 2020 report, the IEA said: “The worldwide economic shock caused by the COVID-19 pandemic is having widespread and often dramatic effects on investments in the energy sector.” 

The IEA said lower investment in energy comes from two main factors. Spending cuts due to a hit in demand and earnings and “practical disruption to investment activity” caused by lockdown and restrictions on the movement of goods and people. 

If current oil investment stays at 2020 levels then this would reduce the previously-expected level of supply in 2025 by almost 9 million barrels a day, the IEA said. 

The IEA also noted that many national oil companies are “desperately short of funding,”

Mobility and aviation are leading the drop in oil investment which account for 60% of global oil demand. 

The IEA said global oil demand was down by about 25 million barrels per day in April when more than 4 billion people around the world were under some form of lockdown. 

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For the entire year, oil demand could drop by 9 million barrels per day and return to 2012 levels, the IEA said. 

Global investment in oil and gas is expected to fall by almost one-third in 2020, meaning almost $132 billion could be lost in the sector. 

Investment in shale is anticipated to fall by 50% in 2020 “due to loss in investor confidence” and the fact “access to capital has now dried up” according to the IEA. 

Earlier this week the IEA told Bloomberg that oil has yet to see its peak and oil consumption would return to pre-crisis levels

The latest forecast by the IEA comes despite China reporting last week that oil demand has returned to pre-crisis levels and rebounded back to 13 million barrels per day. 

Oil prices briefly turned negative for the first time in history in mid-April due to lack of demand during the pandemic and an extreme shortage of storage space, particularly at a key hub in Cushing, Oklahoma. 

Prices have recovered since, with both benchmarks — Brent crude, the international standard, and West Texas Intermediate, the US standard — trading at around $35 per barrel right now.

IEA’s report also projected big falls in coal consumption, after oil. Coal use could decline by 8% because electricity demand is expected to be 5% lower over the course of the year. 

Gas demand fell only about 2% in the first quarter, but the IEA said gas demand could fall much further across the full year due to reduced demand in power and industry applications.

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