Oil and gas companies exploit coronavirus to roll back environmental regulations | Environment| All topics from climate change to conservation | DW | 16.04.2020
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Environment

Oil and gas companies exploit coronavirus to roll back environmental regulations

The collapse in fuel demand caused by the pandemic means countries across the global south should rethink decisions to let energy companies extract oil and gas, a new report says.

Struck by a fall in demand for their fuel and anxious about a volatile energy market, oil and gas companies are lobbying governments for public funds and weaker environmental regulations. 

Leading firms have lost an average of 45% of their value since the coronavirus crisis started and are demanding government bailouts, buyouts and regulatory rollbacks that strip away environmental protections, a report published Thursday by the Center for International Environmental Law (CIEL) has found.

Even before the pandemic struck, the authors wrote, the industry showed "clear signs of systemic weakness." Now, the twin shocks of collapsed fuel demand from the pandemic and low oil prices from a price war could push it to breaking point.

Analysts fear the crash could wreck the economies of oil-reliant countries like Nigeria and Angola. In countries at the frontier of fossil fuel expansion, like Argentina, Mozambique and Guyana, it could render unexploited reserves unprofitable to the point of leaving them in the ground.


Nigeria Port Harcourt: A worker inspects facilities on an upstream platform at the Total oil platform

Oil and gas companies are cutting back expansion because of the coronavirus crisis

The coronavirus pandemic is a warning about the risks of getting on "the oil and gas rollercoaster," said CIEL president Carroll Muffett, who worked on the report as lead author. "Countries that were being sold the myth that extracting their oil would make them wealthy are facing the early reality — that an oil-dependent economy really means your entire government and revenue base is potentially dependent on short-term and very steep, unpredictable fluctuations in the market."

That bleak outlook has unleashed a global backlash of corporate lobbying from an industry already threatened by renewable energy and electric vehicles.

'Political agenda'

In Canada, petroleum producers are negotiating a multibillion-dollar bailout package and calling to delay a rise in the federal carbon tax. In Australia and the UK, oil and gas lobby groups argue that protecting their industries is an essential part of responding to the pandemic.

In the US, home to energy giants like ExxonMobil and Chevron, the American Petroleum Institute has lobbied President Donald Trump to waive environmental reporting requirements. Republican lawmakers have asked the Treasury to financially support oil and gas companies.

Opaquely funded groups linked to the fossil fuel industry have asked the US Congress to exclude support for renewable energy from its coronavirus stimulus package.

In a letter incorrectly denying that climate change is an immediate threat to humanity, a coalition of right-wing think tanks said that "taking advantage of a national emergency to pursue a political agenda is unconscionable and immature political opportunism."

An analysis of climate lobbying by non-profit group Influence Map found the oil and gas industry has been the most active sector in using the coronavirus pandemic to increase fossil fuel production and remove climate regulations.

This is not a big surprise, said Edward Collins, director of corporate lobbying at Influence Map "It's just an opportunistic phase of an ongoing strategy by the sector to hold back progress on climate change globally."

Global fuel demand collapsed in March as lockdowns to contain the coronavirus forced people to stay at home, triggering a price war between Russia and Saudi Arabia that has flooded the market with cheap oil and threatened to bankrupt smaller companies unable to compete.

A man rides a camel through the desert oil field

A price war between producers Saudi Arabia and Russia has pushed oil prices to record lows

A deal to cut output, reached on the weekend between oil-producing countries, is not expected to send oil prices back to pre-crisis levels but will end the price war. President Trump tweeted that it "will save hundreds of thousands of energy jobs in the United States." Trump had hosted leading oil and gas executives seeking special provisions under a coronavirus stimulus bill in the White House two weeks earlier.

Compounding weaknesses

The CIEL report details how the industry crisis builds on existing pressures on oil expansion in countries like Guyana, Argentina and Mozambique.

In Guyana, it adds to legal challenges to an offshore development that would need higher oil prices to break even, while in Argentina, home to some of the largest oil and gas reserves in the world, it has exacerbated problems caused by a lack of infrastructure and price controls that have seen the number of oil rigs fall, the report says.

In Mozambique, where oil fields are already threatened by growing internal conflict, "The door is likely shut to new developments," the CIEL report predicts. Energy giant ExxonMobil announced last week that it would delay investment in a $30 billion (€27.7 billion) liquefied natural gas plant amid a "lower-cost environment." Globally, the oil and gas giant is reducing its capital spending this year by 30% because of the pandemic.

Fossil fuel companies operating in Africa have highlighted their work in bringing energy to a continent where only half the population has access to electricity at all. A survey from pan-African research institution Afrobarometer published last year found only about four in 10 households enjoy a reliable supply of electricity.

A South African woman installs a solar water heating unit on the roof of a home outside Cape Town

The shock to the oil industry could make renewable energy more attractive for countries across Africa and the global south

But in a country like Mozambique, the vast majority of the gas produced by new plants would be exported to richer economies anyway, said Jonathan Gaventa, a senior associate at climate think tank E3G who lives in the capital Maputo. "Supplying rural areas with electricity isn't fundamentally dependent on building new gas power plants or extracting new gas off-shore," he said, adding that off-grid energy solutions are faster and more viable.

Still, the effect of the crash could devastate export-dependent economies that had betted big on oil and gas for government revenues.

"Clearly the pandemic is hurting people everywhere across the world, but in a lot of African countries and elsewhere in the global south, some of the economic repercussions will be as damaging as the illness itself," said Gaventa.

The CIEL report recommends that frontier countries "urgently reassess" the prospects of oil and gas extraction in light of the collapse in oil prices and demand, as well as its "fundamental incompatibility" with climate action.

A previous version of this article stated that Shell is a US company. This has been corrected with Chevron.

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