(July 20, 2020)
Over the past few months, several geopolitical factors have influenced the decline in American energy consumption. For the average consumer, this meant lower costs because they using less of commodities such as oil and natural gas. Although these slight savings helped consumers reduce costs, it demolished businesses operating in the oil and gas industries. Many businesses laid off part of their workforce and some even shut down.
The easing of lockdowns and stay at home orders for Americans has helped energy consumption rise back to normal levels. With consumption, businesses are seeing increasing revenue from oil and gas operations. Liquid fuel consumption has increased from 15.7 million barrels per day in Q1 to 18.4 million barrels per day in Q2 of 2020. This rise in energy consumption is projected to continue in Q3 where consumption levels will be similar to Q3 of 2019.
What does energy consumption indicate?
During the first few months of the COVID-19 pandemic, U.S. energy consumption took a steep dive. This indicated that the amount of business activity declined significantly as many employees were forced to stay at home.
This is important because energy consumption is a key indicator for several factors used to measure the health of an economy. Vibrant and thriving populations tend to have access to more energy resources and consume much more energy in comparison to destitute populations. These factors include:
- Economic activity
- Climate conditions
- Energy performance
Business energy indicates economic activity
Energy consumption levels indicate several aspects of a country’s economic activity. Although residential energy consumption increased during the COVID-19 lockdown, business energy consumption levels took a rapid decline. This is because the main outlets for business energy consumption such as factories and commercial buildings were unoccupied.
Since the goods and services normally provided by businesses weren’t being produced, businesses did not expend much energy from the end of Q1 through the beginning of Q2. As businesses return to work and to producing goods and services, their energy expenditure will continue to increase. This is why energy consumption levels are a good indicator of economic activity.
Cooling and heating needs indicate climate conditions
Energy consumption levels also indicate the climate conditions of a certain region. During the summer months, energy consumption levels hit their peaks because there is more energy needed to provide cooling for residential and commercial buildings. The demand on electricity grids will reach their maximum during the summer months because many institutions are using energy at peak levels simultaneously.
As the world continues to get warmer each year, the demand for energy needed to keep communities cool will increase over time. Energy consumption trends are one way of tracking this temperature increase.
Energy consumption and energy performance
Finally, energy consumption is a good way to analyze how specific energies are performing to meet energy demands. These specific energies include natural gas, petroleum, and renewable energy, which make up a significant part of U.S. energy consumption.
When energy consumption decreases significantly, it is an indicator that something is going on with the main sources of energy for a country. In today’s climate of COVID-19 and international tensions, acquiring petroleum with favorable negotiations has been difficult. It took several months of ongoing negotiations between OPEC nations to reach a reasonable agreement for all parties involved. The increase of energy consumption and rebound of petroleum and natural gas levels indicate a return to a more normal level of activity in this sector.
Energy consumption is constantly changing, and these changes are a good measure of the U.S. economy outlook as a whole. To explore current trends on energy consumption in the U.S., visit the EIA’s consumption database.
Dhoof Mohamed writes about energy and IT topics for various clients. His academic interests include solar energy initiatives and the future of sustainable energy. His articles have appeared on SiteProNews, ChooseFlorida and the office of the U.S. Embassy. You can reach him at dhoof@dhoofmohamed.com.
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