Global energy investment crunched by COVID-19

Global investment in energy infrastructure is expected to fall by 20 per cent or $400 billion in 2020 as the social and economic fallout of the COVID-19 pandemic cuts demand and energy prices.

The global transformation of energy will decelerate with investment in renewable generation expected to fall by 10 per cent, according to the latest World Energy Investment report by the International Energy Agency.

The pandemic has turned anticipated strong growth in 2020 on its head, with the biggest investment cuts expected in fossil fuel projects – coal and gas fired power stations and new gas developments.

Investment in new coal fired power stations will fall by 11 per cent and gas fired by 15 per cent, as many oil exporting nations shelve projects in the face of collapsed revenues following a bruising oil price war in March. Supply of some renewables components for existing projects may be impacted by delays caused by lockdowns in China and some European countries.

According the International Monetary Fund China is still expected to avoid recession in 2020 with increased spending on both new coal and renewables still expected to proceed this year.

The deepest cuts in investment are expected in upstream oil and gas, with the IEA predicting cuts of more than 30 per cent this year. Oversupplied gas markets were already softening before the pandemic, and prices could weaken further later this year as near-full gas storages force a more drastic market response like oil faced in April and May.

Oil prices are slowly recovering after some prices briefly went negative in April, with the rally led by slowly recovering demand and the shut down of some highest cost producers.

While some activists have predicted the pandemic will lead to the accelerated death of coal, the IEA suggests coal mining will be one energy sector less impacted by the pandemic. Coal prices spiked in 2018 with record demand driven by China and Asian demand prompting a sharp increase in new supply in 2019.

The resulting softer coal prices have fallen further with weaker demand in 2020, which is likely to slow supply in 2020 and 2021. Demand for coal is now increasingly centred around Asian demand as the US and European generators continue to exit coal to manage growing carbon risks.