Photo: A refinery in Houston, Texas. Still photo from ‘The Story of Plastic’ film.
As countries and communities race to address the massive health and economic impacts of the COVID-19 pandemic, oil, gas, and petrochemical producers are lobbying aggressively to secure government bailouts and regulatory rollbacks from governments around the world. A new report by the Center for International Environmental Law (CIEL) warns that meeting the industry’s demands would waste vital and limited resources on a failing sector.
Pandemic Crisis, Systemic Decline: Why Exploiting the COVID-19 Crisis Will Not Save the Oil, Gas, and Plastic Industries exposes the array of interacting forces that have put the oil, gas, and plastic industries under sustained financial stress over the last decade and examines how the COVID-19 pandemic is exacerbating those weaknesses.
The report weaves together the seemingly disparate threats converting these interwoven industries — from the oil price war, to the failure of fracking to turn a profit, to single-use plastic bans — to show that they are all part of one story: the oil, gas, and plastic industry in long-term decline.
“Oil, gas, and plastic were facing profound and pervasive risks even before COVID-19 emerged. And every day, their future prospects look worse,” says CIEL President Carroll Muffett. “The pandemic has triggered a cascade of events that is accelerating the sector’s ongoing decline.”
The report examines how COVID-19 and resulting economy-wide shutdowns have collapsed demand for oil, gas, and key petrochemicals, including by shutting down the transport industries that are the lifeblood to petroleum sector revenues. It highlights the challenges that will make a return to pre-COVID-19 levels of consumption in these sectors slow, uncertain, and in some cases, unlikely. The impact of this massive supply glut on a global storage capacity that was already nearing its limits for both oil and gas is forcing companies and entire countries to cut production and freeze expansion plans. And the convergence of a market collapse with an industry facing more than $200 billion in corporate debt is pushing a growing number of companies into bankruptcy — or receivership.
“Shoveling money at the oil, gas, and petrochemical industries will not change the fundamental weaknesses they faced before this crisis began and will face moving forward,” says report co-author Steven Feit. “These industries already faced an interlocking set of financial challenges, catalyzed by a financial sector growing increasingly skeptical of fossil fuels. Oil, gas, and petrochemical companies are already asking for bailouts, and governments should not be fooled into, at best, postponing their inevitable decline.”
Recognizing that COVID-19 is more likely to exacerbate than reverse the long-term trends confronting the sector, the report recommends that public officials, institutional investors, frontier countries, and local communities across the planet respond accordingly.
“The pandemic adds to mounting and now overwhelming evidence that this sector has reached its end game,” says Muffett. “No amount of government intervention or taxpayer money can save these companies in the long term unless they fundamentally transform their business models. For governments to continue dumping money into these industries is throwing money down a hole at a time when every moment and every dollar needs to be used effectively for the greatest possible public good.”