The coronavirus has sent oil demand plummeting, and it may never return to where it once was. In a stunning admission, Shell CFO Jessica Uhl told investors she sees “major demand destruction that we don’t even know will come back.”
There are countless metrics that show how absolutely bonkers and unheard of the current crisis is. Oil traded for negative dollars last week. Demand has dropped while production continues, which has led producers to store the equivalent of a fifth of all pre-pandemic daily offshore on supertankers. A trillion dollars in oil company revenue—more than the entire GDP of Shell’s home country, the Netherlands—is projected to disappear this year. These are changes that could permanently alter the industry.
Chesapeake Energy, the company that led the American fracking boom, is preparing to file for bankruptcy, according to Reuters. And even monster companies like Shell are watching the ground shift beneath them.
Lockdowns mean people are traveling less. Job losses have created less demand for almost everything. Because everything from fast fashion to Star War-themed sex toys requires oil to produce and ship, demand just isn’t there. For better or worse, this is forcing society to reevaluate what really matters and what we value. When we get to the other side of the pandemic, we may well value oil-intensive products and experiences less than we have in the past. Shell is all too aware of this and what it could mean for their bottom line.
“I think a crisis like this has the potential to capitalize society into a different way of thinking, much as the Paris Agreement has had,” company CEO Ben van Beurden told investors.
Uhl said Shell expects an “L-shaped recovery” in the wake of the pandemic. That implies demand for oil will stay at the levels it’s plummeting to—about 9 percent below last year according to a recent International Energy Agency forecast—rather than rebounding sharply for the mythical V-shaped recovery or slowly in a U-shaped one.
What the world really needs is a backward-slash shaped recovery where oil demand and production keep falling. Unplugging the economy from oil and other fossil fuels is essential to protecting the climate and, by extension, society. We’re not headed there (yet), but there were signs oil was already in trouble before the pandemic.
American fracking companies saddled themselves with massive debt that set up the house of cards and major energy companies have seen their stocks fail to keep pace with other large industries. That’s led companies and CEOs to lash out in increasingly desperate ways and turn toward plastic as a way to keep juicing demand. This isn’t to say oil companies still don’t have massive amounts of political power or money at hand. But that power was starting to erode, and the coronavirus has been like a tidal wave speeding that process along. While some governments (cough, cough, Trump) are doing their damnedest to keep the industry afloat, society may have different plans. So does the climate.
Therein lies the biggest issue for the industry. Demand drop isn’t going away, and the government making it rain while wearing a blindfold is not going to change that. That will lead to more chaos. Huge corporations hate uncertainty almost as much as they hate not making money. Uhl warned that the “relatively disorderly way in which all systems start to shut down is also going to affect us in ways that are very hard to predict.”
With that in mind, I’d like to once again offer up an increasingly popular solution that would provide some certainty. There’s no better time to nationalize the industry, bring production in line with demand, and begin setting it on that backward-slash trajectory needed for a habitable planet.