Will Turmoil Lead to Transition?
"The positive message for both shipbuilders and shipping investors is that the shipbuilding industry enters this recession at the end of a long period of contraction, so we may be looking at a (relatively mild) recession. The climate crisis could also be a positive supply side influence... So, the real focus in the scenarios going forward is on the economic management of the pandemic and continued focus on climate change. I4 and new propulsion technology will also create new opportunities for adventurous investors."
Dr. Martin Stopford. Coronavirus, Climate Change & Smart Shipping: Three Maritime Scenarios
Two of the sectors hit early on before coronavirus became a global pandemic were shipping and energy. This is primarily because China - where COVID-19 began - is the largest shipowning country in the world. The maritime sector, which moves 90% of the world’s goods, came to a standstill and this greatly affected the usage of oil as well. The International Labour Organization tells us: "With 384 sailings cancelled, the first half of 2020 could see a 25 per cent reduction in shipping, with a 10 per cent annual fall in 2020." And the World Economic Forum says that: "Maritime shipping has seen COVID-19-associated drops in activity of up to 30% in some regions."
Another major impact of the COVID-19 pandemic has been the drop in oil prices. Although, as Infiniti Research states: "The current oil price war could be short-lived owing to the increased economic dependence on the sector." Nonetheless it has sent waves through not only the energy sector, but through every sector on the Globe, as Jeff Meli, Global Head of Research at Barclays said in their press release: “COVID-19 will accelerate this trend [towards ESG] even further — creating a greater sense of urgency and responsibility toward everything from consumer behavior to climate change, supply-chain practices and the future of work and mobility — and potentially alter the nature of the investment process as a result.” Deloitte offers that "Some of the larger, healthier (oil, gas & chemical) companies may alter or accelerate their plans to diversify into other energy segments."
We cannot forget the human element, however, as Nick Chubb so aptly reminds us "there will always be a need for people". This July, in response to the over 200,000 seafarers stranded on about 50,000 ships all over the world due to COVID-19, the IMO declared that seafarers should be considered "key workers." Maritime journal Workboat quoted Quintin Kneen, president and CEO Tidewater, Inc.: "Shipping moves 80% of the global commerce and is an essential part of keeping the global economic recovery going. So my call to action is this: Please join us in supporting the formal recognition of these individuals as key workers. This would exempt mariners from travel restrictions and enable them to travel to and from ships."
As with other industries, COVID-19 has had the effect of speeding up some phenomena already in place, such as decarbonization and digitalisation. Digital transformation in shipping and maritime has been both tested and sped up during this crisis, emerging as a "silver lining". And that is not the only silver lining from this crisis, as some say we may also see a speeding up of the transition to renewable energy. In fact an IRENA study found that "renewable energy could power an economic recovery from COVID-19 by spurring global GDP gains of almost $100tn (£80tn) between now and 2050". Power Technology weighs in with more positive news for renewables fans: "Since the start of the year, returns from renewable energy investment have stayed well above those from fossil fuel projects, and slightly above US industrial averages. In many areas, investment in oil and gas has fallen below the rate needed to replenish existing reserves. Since the same is not true of renewables, they will gain a larger share of the generation as a result of the pandemic."
Energy company BP which employs 70,000 people worldwide announced in June that they would be cutting 10,000 of those roles, all office based; with a significant portion of roles cut being senior level. Electrek writes: "This (cut) is a result of the coronavirus impact on the economy, and also CEO Bernard Looney’s plan to shift the fossil-fuel company to green energy." Just two days after those layoffs were announced, the BBC reported that as of midnight June 10 "Britain's electricity grid will not have burnt any coal for 60 days... by far the longest period since the Industrial Revolution began more than 200 years ago" more evidence that COVID-19 could be the environment's "big moment".
Many analysts, however, don't believe the future is bleak for the largest oil companies and see in fact that they may benefit from a COVID-19 induced "fire sale" environment. The Washington Post, in their article Big Oil could end up even bigger by the end of the coronavirus pandemic, explains: "the oil giants... have wells around the world and the cash on hand to weather the turmoil" and "the largest petroleum industry players to scoop up more wells on the cheap – and leave them with more reserves after all the market tumult."
