World Energy Investment 2020
The worldwide shock caused by the coronavirus (Covid-19) pandemic has drastically altered the course of the global economy and energy markets. In response, this year’s World Energy Investment (WEI) has expanded its coverage to integrate the latest data and insights on the unfolding crisis in 2020, in addition to a full review of 2019. As the International Energy Agency’s (IEA) annual benchmark for tracking energy capital flows, the focus in this report is on investment and financing trends across all areas of energy supply, efficiency, and research and development (R&D). IEA's aim is to provide timely and authoritative data and analysis to policy makers, investors and other stakeholders, as well as insights on risks to energy security and sustainability, and what can be done to mitigate them. Broadening the scope of the World Energy Investment to include a perspective on 2020 requires a view on the severity and duration of the ongoing public health crisis and economic slowdown, and recognition of the huge uncertainty that surrounds these factors.
The assumptions that underpin this analysis follow those of the IEA Global Energy Review 2020, released in April (IEA, 2020a), which assessed energy and emissions trends for the year. The baseline expectation for 2020 is a widespread global recession caused by prolonged restrictions on mobility and social and economic activity. With a gradual opening up of economies currently under lockdown, the recovery is U-shaped and accompanied by a substantial permanent loss of economic activity. Global gross domestic product (GDP) is assumed to decline by 6% in 2020, an outlook broadly consistent with the International Monetary Fund (IMF) longer outbreak case (IMF, 2020).
The effects on energy investment in this scenario come from two directions. First, spending cuts due to lower aggregate demand and reduced earnings; these cuts have been particularly severe in the oil industry, where prices have collapsed. Second, the practical disruption to investment activity caused by lockdowns and restrictions on the movement of people and goods. IEA's assessment of 2020 trends is based the latest available investment data and announcements by governments and companies, as of mid-May (including first-quarter company reporting), tracking of progress with individual projects, interviews with leading industry figures, and incorporates also the latest insights and analysis from across IEA work. IEA estimates for 2020 then quantify the possible implications for full-year spending, based on assumptions about the duration of lockdowns and the shape of the eventual recovery.
There is some potential upside to this assessment if medical and macroeconomic crisis management efforts are more successful than in IEA's base case, allowing for a more rapid V-shaped economic recovery and a more pronounced pickup in investment activity in the latter part of the year. By the same token, there is also the distinct possibility of an even more profound slump in investment spending, especially in the event that a second wave of infections later in the year prompts renewed restrictions and lockdowns. Whichever ways events unfold, policy responses – whether targeting energy or the economy at large – will have a major impact on the outcome.
Download the report below.