Going into the
coronavirus crisis,
major oil and gas companies,
such as Royal Dutch Shell
and BP, had promised their
investors they could do it all.
They pledged to hand more
cash back to shareholders,
pay down debt, keep
generating even higher profits
from their hydrocarbon
businesses,
while also beginning to invest
in cleaner forms of energy.
Now they've been pushed
into cash conservation mode.
Crude prices fell
below $20 a barrel
in April as huge
amounts of oil supply
coincided with a
severe drop in demand.
As governments imposed
lockdowns and travel bans
to contain the
spread of the virus,
oil consumption collapsed
by as much as a third.
Even as prices recover
back above $40 a barrel,
oil companies are preparing
for more uncertainty.
Shell cut its dividend
for the first time
since the Second
World War, while BP
has announced it will sack
10,000 people as it accelerates
a corporate restructuring
under a new chief executive.
It is sinking in that the
pandemic's impact will endure.
From the coronavirus hit to
the airline industry and demand
for jet fuel to persistent
weakness in the broader
global economy, Shell
and BP have both
slashed tens of
billions of dollars
off the value of their assets,
aware that longer-term,
oil prices may not average
at those prior highs.
Some oil executives
are also saying
that they can't rule
out the possibility
that demand has peaked.
Demand has rebounded in Asia
and people are returning to cars
to avoid public
transport, but there
is a big question about
whether new consumption
habits, such as more remote
working and less business
travel, will stick.
In Europe at least,
there is a belief
that the pandemic will
only accelerate the energy
transition towards
cleaner fuels.
Shell, BP, France's
Total, and Italy's Eni
have reiterated their commitment
to greener investments
and cutting emissions.
The world does have
a carbon budget.
It is finite.
And it is running out fast.
Meanwhile, the US majors
are hunkering down
and seem to want to
carry on just as before.
Oil producing nations'
persistently lower prices will
put pressure on government
finances, while some economies,
such as Saudi Arabia, have
large foreign currency reserves
to lean on, others, such
as Venezuela and Nigeria,
are vulnerable.
Concerns are only mounting
that new coronavirus
cases could also undermine any
recent recovery in oil prices.
To survive, companies
and countries
dependent on oil
revenues need to prepare
for a more volatile future.
