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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.