Price War, Climate Change and COVID-19: Shift of Power in the Global Energy Industry and Resource Curse

Abstract

Even before the price war in March, 2019 it was evident that the oil and gas industry faced a new energy order. First, the “shale revolution” in North America has created a more flexible source of oil and gas, undermining the Organization of the Petroleum Exporting Countries (OPEC) and their ability to manage production. In 2014-15, Saudi Arabia tried to damage the shale industry in the United States (US) by increasing production and driving down the oil price. But this strategy ultimately failed as the shale industry reduced its costs and was able to recover and secure the finance needed to expand production. In September 2016, Russia and Saudi Arabia reached the so-called OPEC+ agreement, involving 24 oil-producing countries, to manage oil production to support the price of oil. This worked briefly, but it also incentivized the US shale industry to increase production. Output surged, reaching record levels in early 2020. The emergence of the US as a major exporter of liquefied natural gas (LNG) has had an equally destabilizing impact on global gas markets. Second, following the Paris Agreement in 2015, there has been an increased determination to address climate change and accelerate the de-carbonization of the global energy system, alongside a desire to reduce urban air pollution. This has been aided by the rapid fall in the cost of renewable power generation and a growing acceptance of the need to reduce fossil fuel consumption sooner rather than later. In this context, the COVID-19 pandemic and resulting unprecedented fall in oil and gas demand preview an inevitable, more definitive shift that presents an existential threat to so-called “Producer Economies”.