The reports of the death of the oil industry are, to quote Mark Twain, greatly exaggerated.
Driving the news: Progressive leaders are pouncing on the current collapse in the oil sector as a sign this is the beginning of its end and a turning point for the climate-change movement. Not so fast.
The big picture: Yes, the coronavirus is throwing the industry into its worst crisis ever. Thousands of workers and possibly hundreds of companies could go bankrupt in the coming months and years.
- But no, our society’s structural foundations that run on oil have not changed — and that will become clear in the long term, after the crisis is over.
Where it stands: A lot of potential factors could make this moment in history the beginning of the end for the oil industry, but both history and experts suggest that absent explicit actions by governments, the long-term outlook for the oil industry is at least neutral, and even possibly positive.
Let’s look first at three factors suggesting the outlook will be positive for the industry, and then three that could change things.
Three industry positives:
1. Recessions put environmental concerns on the back burner.
- “What I worry about most is history suggests when the economy is suffering, the pace of environmental policy ambition wanes,” said Jason Bordoff, a former Obama energy official now leading Columbia University’s Center on Global Energy Policy.
2. Economic growth = oil demand growth
- Oil demand tracks closely with economic growth. It may not feel this way now, but history suggests the economy will eventually get better.
3. Unchanged government policies
- Why don’t you just stop eating if you want to lose weight? The ridiculousness of that question explains why the extreme drop-off in oil demand is not a successful strategy to get off oil.
- Much like a successful diet is achieved through time and gradual change to healthier foods and fewer calories, so too is getting off oil and transitioning to cleaner sources.
Three industry variables:
1. Coronavirus-fueled changes in society
- This pandemic could change our society for the long haul, with potential trends to increase our oil consumption (using more plastic) or decrease it (flying less). Regardless, they’re all tinkering around the edges of a massive oil market.
2. Stimulus plans
- If — this is a big if — countries around the world seek to infuse their economic stimulus plans with clean-energy policies that could create more long-term pressure on the battered industry.
3. Presidential election
- The most immediate and obvious impact of Joe Biden winning would be that he would likely infuse clean energy into any additional stimulus measures still needed by then.
The bottom line: We might not be going anywhere right now, but neither is the oil industry.