COVID-19 has led to an unprecedented drop in demand for natural gas, according to a the Gas 2020 report released by the International Energy Agency (IEA) released in June. In some ways, the slump presents an opportunity to pursue a new energy paradigm. Work-from-home has flattened the need for non-renewable back-up energy sources, for example.
When the world comes back online in full swing, can it be done with renewables?
The likely answer in the short term is… maybe.
While the world is asked to stay home, skipping vacations and unnecessary flights, the supply of natural gas globally is building. Why is this important? Natural gas is inexpensive, clean burning and abundant. The supply of natural gas has an usually large surplus as a result of the COVID-19 pandemic’s economic impacts.
Growing in popularity, the stage is set for even greater adoption.
Natural gas, which has been the preferred fuel for new electric power plants since the 1990s, powered 38% of US electricity generation in 2019. In a way it’s anticipated to serve as a bridge to full renewables.
In the post lockdown world of 2021, the demand for natural gas is expected to recover, particularly in mature markets, according to the IEA. It might do just that, and then some. All of this makes the diversified energy sector worth a look right now.
Why invest in diversified energy?
The unprecedented drop in demand in 2020, which amounts to a 4% decrease from the previous year, represents “twice the amount of demand lost after the 2008 financial crisis.”
What does this mean? “Historically low spot prices,” according to the IEA. For companies like Chevron and ExxonMobil, which are heavily invested in more traditional energy resources, it’s a reminder that oil and gas will continue to be in demand and require investment, even as alternative and low-carbon renewable energy resources gain adoption.
After all, even the traditional energy players have a vested interest in promoting sustainability and developing renewable energy resources at a broad scale. In fact, their market saturation gives them insights into the need and market for renewables.
For example, ExxonMobil has “a working interest in approximately one-fifth of the world’s total carbon capture capacity.” That makes it a leader in “one of the most important next-generation low-greenhouse gas emissions technologies, capturing about 7 million tonnes per year of CO2.” In fact, “since 1970, ExxonMobil has cumulatively captured more CO2 than any other company” accounting for more than 40 percent of cumulative CO2 captured.” The company anticipates a “marked shift towards cleaner fuels, particularly natural gas.”
The shift in demand also means increased price volatility. The price of natural gas was volatile even before the pandemic due to the fact that demand for the resource is seasonal and cyclical.
But the desire for clean energy is global and not going away.
In February 2020, ExxonMobil India LNG Limited “signed a Letter of Cooperation with Indian Oil Corporation Limited and Chart Industries, Inc. to establish a system of transportation infrastructure to expand gas access in India.” The move looks to expand access to cleaner energy via natural gas in India’s growing cities. This makes the market for expanded natural gas infrastructure global and therefore, a worthy addition to any investment portfolio.
Industry watchers expect to see natural gas prices on the rise again come fall when the weather cools and the path out of COVID-19 becomes clearer. Depending on how government stimulus packages impact energy policies, the demand for natural gas has the potential to increase at an unprecedented rate. Natural gas will be a key player in the future of energy, and the future could be here much sooner than we think.
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