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Breakbulk July 2020

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Editorial: 'Follow the money' Janet Nodar WAS YOUR BUSINESS sufficiently future-proofed for 2020? Nope? Well, you're not alone. The oil and gas industry, devastated by a perfect storm of massive oversupply and plummeting demand due to the COVID-19 pandemic, may never be the same. The energy cycle now playing out is anything but normal. No one thinks the oil and gas sector — worth trillions of dollars and essential to modern transport, energy generation, and industry — will fade away, but competition from shale, climate change, and now the effects of COVID-19 seems to be altering the global energy equation and accelerating change in ways we are just beginning to understand. The oil majors, assuming lower oil prices and extended demand destruction thanks to the pandemic, are cutting their capital spending plans and writing down asset values by billions of dollars. For breakbulk logistics providers, capital spending cutbacks in the hydrocarbon sector foreshadow a painful lack of oil- and gas- related project cargo down the road, underlining the importance of diversification. The solution, according to Marco Poisler, CCO for global energy and capital projects with forwarder UTC Overseas, is relatively simple. "Follow the money," Poisler advises. As noted in this issue's cover story ("Clearing the bar," p. 6), so-called rich-world countries are expected to spend $17 trillion in creating stimulus to ward o a global economic depression in the wake of the COVID-19 crisis. Early indications are that a large portion of those trillions of dollars will be spent in ways that create project and breakbulk cargo. According to a July 6 report from DNV/GL, COVID-19 stimulus packages will not have an immediate impact on the global energy mix, as money will go to both fossil fuel and low-carbon projects. At the same time, the Denmark-based registrar and classification society said it expects the COVID-19 pandemic to trigger lasting behavioral changes that will affect long-term energy demand: working from home, concomitant cuts to commuter transportation spending and car purchases, and a long-term and painful impact on aviation. DNV/GL predicts transport energy use will never again reach 2019 levels. Iron and steel production, an important industrial use of hydrocarbons, may also stay below pre-COVID-19 levels, affected by lower demand for office construction, among other things. And according to a report released by the International Energy Association (IEA) June 18, many of the governments planning massive stimulus programs have requested the IEA's help to design sustainable recovery spending. The IEA is recommending that they spend across several sustainable sectors, including low-carbon electricity generation — i.e., wind and solar; clean transport; sustainable production and use of fuels; and support for innovations in new technology, such as low-carbon hydrogen production and modular nuclear reactors. DNV/GL expects natural gas to become the world's largest source of energy during the coming decade, but it notes that many investors, wary of the eternal volatility of hydrocarbon prices, may see renewables, with their low operating costs, as a better choice. Government policies and tax regimes will also drive decision-making. Halfway through 2020, the idea of "future-proofing" feels more hubristic than ever. DNV/GL predicts that the pandemic will "take the wind out of the sails of the world economy for many years." Though the global economy will still double in size by 2050, the society predicts energy demand will be about the same as it is now, thanks to the changes brought about by the COVID-19 pandemic and continued improvements in energy efficiency. email: janet.nodar@ihsmarkit.com twitter: @janet_nodar

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