The collapse of the price of oil back in April was one of the most dramatic developments to have taken place so far during the coronavirus crisis.
After disagreement between Russia and Saudi Arabia over production levels back in March had already crippled prices, news that producers had run out of space to store the commodity proved to be the final straw.
By the close of trading on April 20, producers were paying close to $40 for buyers to take a barrel of oil out of overwhelmed storage facilities. It was the first time in recorded history that prices had gone into the negative.
The world has run on oil since at least the 19th century, meaning that demand is normally carried at a very high level – nearly $110 per barrel back in 2012 and more than $60 as recently as January this year.
With most of the world coming to a halt over the past two months, its most important resource is struggling to sustain itself.
But it’s not just oil that has seen demand collapse throughout the COVID-19 pandemic. Energy sources of almost every kind have plummeted this year.
A report by the International Energy Agency (IEA) shows that global energy demand as a whole declined by 3.8 per cent in the first quarter of 2020, with most of that impact felt in March as lockdowns were imposed in Europe, North America and other key markets.
In the period just before it went into negative prices for the first time, demand for oil was down nearly 5 per cent between January and March, as aviation and other oil intensive industries were curtailed.
Coal was also hit particularly hard, falling by almost 8 per cent compared to the first quarter of 2019. This was primarily because the world’s great coal-based economy, China, was brought to a standstill in January and has only just started to recover.
The impact on gas was more moderate, falling by around 2 per cent year-on-year. But this could well deteriorate further in the second quarter as more gas-intensive economies are impacted by coronavirus.
The picture for electricity was more confused, with big upticks in residential demand being far outweighed by reductions in commercial and industrial operations that fluctuated throughout the quarter.
All told, the only kind of energy that experienced an increase in demand in Q1 2020 was renewable energy, where growth was driven by longer term factors.
For example, the preferential access renewables have to many national grids and central power systems means that they are not as exposed to market fluctuations as other energy sources.
Moreover, the widespread growth in capacity means that operating costs are significantly lower than they were previously, making renewables a much more attractive offer for commercial as well as environmental reasons.
Growth in demand for renewables is good news for the North East, which as George Rafferty, chief executive of NOF, explains, “is a well-established hub for offshore renewables activity.”
He continues: “The expertise and innovation that has been developed in the region, and field-proven in the majority of wind-farms across the world, ensures that we will be well-placed to play a pivotal role in the growing prevalence of renewable power generation.
“This increased demand for renewable energy has the potential to see more job creation in the region and cement our place in this expanding global sector.”
The IEA expects that global energy demand could decrease by 6 per cent in 2020, the largest fall for 70 years in percentage terms and the largest ever in absolute terms.
Renewable energy, however, is expected to continue to diverge from this overall picture, as advanced economies try to move towards low-carbon energy sources to meet their targets on CO2 emissions.
On that side of things, the collapse in global energy demand we’re experiencing right now could reduce CO2 emissions by 8 per cent this year – levels not seen since 2010.
This unintended consequence of the coronavirus pandemic can only be sustained though, if we ramp up our renewables capacity – something that the North East, with its fast-growing offshore hub, is well-place to do.