A recession is a business cycle contraction: a deceleration of economic activity. As a result of this deceleration, often quite sudden, the ripple effect of a “bubble burst” can be staggeringly apparent in the global economy. The 2008-2009 Recession is a major obstacle, despite being in the past, for energy companies globally. It is believed that competition between lenders for revenue and market share contributed to this crisis along with the state of distributive inequality in the United States. Middle class wages remained as a constant low, causing homeowners to draw from their home equities to accommodate for a rising standard of living in the United States (i.e. the Housing/Real Estate Bubble). As a result of this severe economic decline in the world’s largest oil consuming country, national production (GDP), employment, investment, household incomes, and business profits all fell.
The heterogeneous analyst view on the Energy Industry is one focused on one thing: prices. Oil prices represent the current view towards our economic future: growing economies need more oil while shrinking economies need less, and so the price of oil indicates whether the majority believes we are headed for good times or bad. Oil and petroleum power manufacturing as well as food and commodities production, fuel transportation, and are essential for industries like plastics and electronics. When oil prices stay too high for too long, they choke out economic growth. Oil and coal combined represented over 60% of the world energy supply in 2008, and this has remained so since then. At first glance, the recession hasn’t affected corporate balance sheets at all. Upon further investigation, the blow financial balance sheets took is astounding.
The FDI (Foreign Direct Investment) flow reached a historic record of $1.9 trillion in 2007. Following the economic crisis this flow declined by 20% in 2008 and an additional 13% in 2009. The reason this is so important is the corporate need for investment. Energy companies need funding in order to finance fixed costs in their energy acquiring endeavors, and this drop in financing severely depleted any company’s ability to expand or develop new technology. In the age of efficiency, the propensity to expand came to a screeching halt. Due to a lack of access to financial resources, the one thing keeping the United States ahead in the energy industry (innovation) is being held in a limbo. The companies turning profits are those who think outside the box and explore, little by little, new avenues of farming energy. The 2008-2009 recession not only decreased production of energy, but also the consumption by households. This global crisis has decimated companies’ balance sheets and has driven cut-throat competition to new heights in the energy industry.
The following URLs are my sources for statistical data and can provide further information on this topic:
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/14/AR2008101403343.html
Yes. I think the recession won't have too much impact on the energy industry. Because the energy is the most basic industry to some point, we need energy everywhere. So no matter we are in the prosperous economy or in the recession, the demand of oil or natural gas won't decrease very much.
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