It’s becoming evident the COVID-19 will disrupt the lives of the world’s 7.8 billion human inhabitants for much longer than we could have imagined. Already, millions are infected and hundreds of thousands dead, while the global economy could contract 3% this year in the worst downturn since the Great Depression.
Policymakers are responding by injecting trillions of dollars to help the sputtering economy. But for economic and environmental reasons, one sector should not receive a taxpayer bailout – the oil and gas industry.
A glimpse into an alternate reality
In cities from Beijing to Delhi to Los Angeles, the blue sky is once again visible as transportation-related emissions have been dramatically curtailed by lockdowns. The speed of this transition has been amazing:
We have lots of reasons to believe that, even once the economy picks up, we can work to keep and improve upon these environmental gains, starting with the accelerated adoption of digital tools. Global airline traffic has plummeted as we’ve begun “zooming” to business meetings, birthdays, and social get-togethers via the video conferencing company Zoom, which grew its customer base 50% to 300 million in the first three weeks of April.
With businesses forced to rely on remote working and video conferencing, it’s possible that many business customers will not return to flying. This would impact air pollution and greenhouse gas emissions; air travel emissions are one of the fastest growing contributors to climate change.
But it’s not just business that has been forced to adapt to lockdowns with digital tools. Schools are ramping up distance learning, telemedicine is replacing some doctor visits, and grocery delivery services are replacing trips to the grocery store. Fewer cars on the road will reduce greenhouse gas emissions and other noxious fumes.
The pandemic exposes the economic weaknesses of oil and gas
All these wins for Mother Nature are big losses for an arch nemesis: the oil and gas industry. For the first time in history, oil futures hit negative numbers as demand for oil demand dropped around the world and traders were effectively paying buyers to take the oil glut off their hands.
In this time of unprecedented levels of industry bailouts, it’s not surprising to see the oil industry with its hand out, and it’s even less surprising President Trump has signaled his support. Meanwhile, the industry is also looking for relief from regulations, including reporting of climate change related emissions. Of all the bailouts currently being considered or underway, propping up the oil and gas industry will provide zero benefits to taxpayers. In fact, efforts to “help” the industry will do more economic harm than good.
The oil and gas sector had been getting a free ride long before anyone had heard of Covid-19, benefiting from more subsidies and support than any other sector. While the industry accounts for about 3.8% of global GDP of $86 trillion – or about $3.3 trillion – a recent IMF study found that the oil and gas sector receives effectively about $2.5 trillion in subsidies, annually.
But even with these massive subsidies, the oil and gas industry’s economic outlook is bleak. The recent U.S. fracking boom was marketed as “energy independence” but it has carried a high cost to investors. U.S. oil companies owe $86 billion and the pipeline companies another $123 billion, much of it junk rated debt, all coming due between now and 2024. Plummeting air and land traffic have combined with global oil oversupply, leaving around 500 oil producers facing bankruptcy if oil prices remain below $20/barrel.