The coronavirus pandemic has dramatically curtailed all forms of transport as consumers are told to stay home to slow the spread of the virus and offices remain closed.
The economic fallout of the virus is reverberating through the transport industry with many players, especially airlines, particularly hard hit. The corresponding impact on energy markets has been severe, with transportation accounting for 25 percent of world energy demand, according to Refinitiv data. In April, US oil prices took a dramatic turn, moving into negative pricing as demand for fuel evaporated due to the coronavirus pandemic.
“It’s going to be some time before we can put sensible numbers on [transportation fuel demand decline] beyond saying there has been a dramatic fall in energy use in the transport industry,” said Professor Paul Stevens, distinguished fellow, Energy, Environment and Resources Programme at UK-based policy institute Chatham House in a webinar on Wednesday organized by Refinitiv.
“This is true also not just in energy data, but also the macroeconomic data,” he added.
Stevens noted that there are two key uncertainties that will dictate how the energy and transportation sectors will respond to the coronavirus crisis, the first being how sustained the pandemic is and when a vaccine may be available.
“I think a lot depends on how soon a vaccine will emerge,” he said.
Secondly, Stevens pointed to the dramatic change in consumer behavior due to a combination of government policy and individual responses to the pandemic.
“The pandemic has led to significant behavioral change from consumers … the question in my mind is does this represent a blip … or is it likely to represent a major discontinuity?” Stevens explained.
This argument was echoed by fellow panelist in the webinar John Simlett, global leader future of mobility at accounting firm EY.
“We see behavior beginning to change … We think that certainly for a number [of people] that are working from home, the change in mobility patterns around work and leisure is likely to occur and they seem to be indicating that,” he said.
The way in which consumers may think about transportation, as companies have been forced to rely on work from home practices, will be particularly impactful on younger generations, Simlett explained.
“[In] younger generations it’s more reinforcing current digital behaviors and engendering some of the patterns of mobility and how they may or may not want to buy or consume vehicles in the future,” he said.
Recovering energy demand?
With demand so low and consumer behavior changing, energy demand recovering remains a large question mark.
Energy demand has fallen significantly this year as a result of the coronavirus pandemic. Fellow panelist Marcus Willand, Partner – New Mobility at MHP, estimated that demand would fall globally in 2020 by 5 percent, “with renewables the winner,” he said.
“It is produced anyway – the sun is shining and the wind is blowing … but we see a decline in all other types of field produced worldwide,” Willand added.
The likelihood of global energy demand returning, however, is compounded by the sheer uncertainty of the coronavirus crisis, the panelists noted.
In particular, China, which is the world’s biggest oil importer and has been an engine for global economic growth over the past decade, may not be able to return to its previous growth trajectory, Stevens said.
“China’s energy consumption was very much driven by its economic progress and its economic progress was very much driven by its export strategies,” he said.
“But the problem is if we’re moving into a global recession aggravated by trade wars it’s going to make it difficult for China to recover the economic growth it has had over the last 10 years … I’m not convinced we’ll see a return to energy demand,” Stevens explained.