Unprecedented is a term that has been among the most used words for the year that we have just left behind. Surely a pandemic is an occurrence that has happened before but it has been probably the largest shock in modern times with far-reaching implications on every aspect of society.

Of course, the energy industry could not have been left unaffected from the shock that COVID-19 had on the world. It was, in fact, an industry badly hit as it is estimated that world energy consumption fell by 5% compared to 2020 (IEA WEO 2020). To put that into perspective, the world's primary energy consumption has grown about 2% every year since 2008 (BP Statistical review of the World Energy 2020).

Consequences have been dire for energy producers and this article aims to highlight the key events and developments in 2020 that have the potential to shape the energy industry of the future.

Oil price can become negative

In a year like this with energy consumption declining and nationwide lockdowns, oil price has seen huge declines, from a ~50$ per barrel WTI in January 2020 to a -37$ per barrel on April 20, 2020. A combination of weak demand, WTI fundamentals (landlocked with limited physical storage) and trading contracts reaching settlement dates have pushed oil price to negative levels for the first time in history.

Net-zero was never more popular

In 2020, 5 out of the 7 oil majors have declared their ambitions to become Net-Zero energy companies by 2020. Shell, BP, Eni, Equinor and Total have all revised their long-term strategic agendas to transition from Integrated Oil Companies to more wide spectrum energy companies or as BP calls it: “Integrated Energy Companies”. And to no one’s surprise as these companies have already been active into the New Energies space driving towards more sustainable business models. The real surprise here though is that even traditional oil heavyweights like ConocoPhillips and Occidental have also joined the Net-Zero club, though without giving more details about their action plans.

Oil dividends are not to be taken for granted

As the COVID-19 impacts were starting to be felt in oil majors' income statements, companies were looking everywhere to find cash to preserve liquidity. Project cancellations and capital expenditures cuts were the first to be announced but 4 out of 7 oil majors also proceeded to dividend cuts with Shell, BP, Eni and Equinor all slashing their quarterly dividends – some of them for the first time in their history.

4. OPEC+ has opened more room for negotiation than ever

In a market shocked by negative oil prices, OPEC+ acted swiftly to take significant production off the market in an attempt to rebalance oil’s fundamentals. This however, has always been the case with OPEC+ in all shorts of market swings. The difference this time was that the oil exporting countries’ organization sought the help of the G20 as, “as noted in thousands of articles”, this time the price shock was unprecedented. United States, Canada and Norway were among the countries that agreed to production cuts to help rebalance the oil markets and send the oil price back to more reasonable levels.

The way forward

Last year may have initiated a paradigm shift in the way energy companies look at the future. Consensus among oil companies is that we may have reached peak oil – the year of peak demand - while others like OPEC and IEA believe that oil demand will recover to 2019 levels within the next 2-3 years.

Either way, oil companies – IOCs and NOCs - are planning differently for the future. We expect to see more and more leaning towards ESG from pure oil companies and moves into new energies to continue attracting investors.

We also expect more consolidation - fewer and larger oil companies. Already, 2020 has seen some mega merger announcements of large-cap independent oil producers, something that was seen in the 80’s after a different kind of oil price shock.

For national oil companies the way forward looks bumpy. They cannot just leave their nation’s wealth in the ground. What we expect them to do is move towards improving public perception of their operations. Petronas was the first NOC to announce that it is considering Net-Zero while even Saudi Aramco has openly talked about interest in decreasing carbon content in the products they sell.

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