Every crisis is different. This saying is also true for the current turmoil. There are similar things compared to the past, but unique dynamics are developing within this crisis. How it will shape the energy landscape is not certain yet, but economies will not prosper from it.
The first question is regarding the demand. It is two folds. The first one is whether demand is like a light bulb; you can just switch it on or off. The alternative is whether demand has inertia like a big truck. Demand takes time to slow down, and it takes time to ramp up. The consumer side may hit the brake, but the slowing down is not an instantaneous event but a process. This process will probably create new kinds of behaviors and attitudes on the consumer side. It will take time for the consumer to forget this trauma-induced learned behaviors.
The second question is the definition. That is not a financial crisis or a banking crisis. But it may have elements borrowed from both. At the most basic level, the building tensions point to a “cash flow crisis.” If there is no certainty in cash flow, consumer confidence will be hurt dearly. The whole problem is a pandemic induced government-controlled economic suppression that may lead to a cash flow crisis. Whether the oil price war was triggered by the fear of an upcoming demand drop or not is a question demanding an answer.
The third question is the status of expertise. You can watch and read all sorts of experts, but they can not help themselves, and the best idea that may come out of them is not something new. Experts are the experts of a particular domain. During disruptive events like these, they can not extend their domain knowledge easily or say something other than what they studied in the past. If we concur that these crises are something different, experts are also victims of these crises. In layman terms, their expertise collapses.
The fourth question is how responsibilities shift. The modern state is a beast in between a scapegoat and leviathan. Nevertheless, it is a collective mechanism that provides and carries the responsibility to provide essential services or to assure basic services are provided. It can handle extreme events. This intense event is way beyond a state’s carrying capacity, whether it is China, the US, or Italy. So it calls the citizens to take their responsibilities to run current carrying capacity without collapsing basic services effectively. Contrary to the sentiment of state dominance, coordination and enforcement become the significant issues.
The fifth question is the need for coordination and resolving information asymmetries. In all crises, the most common pattern is the need for information. In fact, in most of the past energy crises, we see the creation of new information or statistical data warehouses or processes. Since a crisis hits all sides of civilization and responsibilities fall back to the people, everyone has to have the same information to act effectively. States’ information awareness is not enough; everyone should be informed.
The six questions are the complexity of the solution at first glance. Since expertise collapse and information vacuums had to be filled, a new kind of expertise and knowledge has to be built quickly. Even with the urgency, it always takes time to find solutions. The system that the crises shook is tuned for years of studies and intensive testing to come up with a solution. So there is the inertia of “information building.” Therefore quick and easy expectations are nothing more than a mirage.
The seventh question is the dynamics of extreme events. Like the double pendulum in physics, this is chaotic. Extreme events generate chaotic futures.
The oscillation of economy changes. Human activity attached to economic changes. The expectations attached to human activity changes. All three arms of this global pendulum are now oscillating detached from past patterns. So future projections need a different vision and methodology like more risk management than risk forecasting.
As there may be more questions, the reader needs answers too. I am not an expert on the whole economy, and even if I am an expert on something, this writing may have taught you that my expertise is also no use for the current event.
Energy demand slump globally will persist for some time. The inertia of energy demand is significant, and it takes time to stop. This energy crisis -or energy industry crisis - is a mixture of past events, but cash flow is also an essential part of the energy industry, which is very capital intensive. So if this a global cash flow crisis, oil and gas sectors will be hit hard, more cash injections, if done by government programs, may mean fewer markets. The market brutality, as seen from the collapse of OPEC+ is severe, and there will be a call and push for regulation or regulatory mechanism.
Oil crises created emergency stocks for OECD countries, and these crises may create a different kind of obligatory stock -maybe cash or renewable equipment?- for an emergency because emergency and stock planning are brothers in arms.
New kinds of institutions like OPEC+Texas may not look like a possibility, but there are always different paths to the same results. Public expectations from renewables and clean technologies will change. To become mainstream, they have to carry as much weight as the fossil fuel industry. So we will probably see maturation in clean energy.
The energy events to follow Covid19 may continue for 3-5 years. Examining past events, such extreme situations generally trigger different things in different parts of the world, and they happen with random delays. If an oil market regulation comes before these events, we may be safe to talk about a price band. Otherwise, there are no limits to imagination.
Most importantly, a new energy landscape is formed. The biggest question for me is whether a “Green Development” plan is more feasible or less likely. Employment wise these crises strengthen the position of coal. The fear factor in all crises makes it harder to move forward initially despite the increased urgency for new policies. The solutions for a green future has to adapt to the Covid19, and that will take time. Because priorities will shift from “closing” or “shutting down” to “increasing employment,” the narratives of the past may fall on deaf ears. If effective roadmaps and innovative policies find their ways to the parliaments around the world, not in the short run but the long term, another energy transition will be gaining more steam than pre Covid19 world.