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How Is Covid-19 Affecting the Energy Sector?
The coronavirus (Covid-19) outbreak, which supposedly started in a wet market in Wuhan, China, has not only caused global panic and claimed thousands of lives, it has also hurt numerous business sectors. This includes the fossil fuel energy sector, which is in deep trouble.
Oil Prices are in Freefall
The prices of crude oil dropped to their worst level since the 2008 global crisis. On Friday, March 13, U.S. West Texas Intermediate was up 0.7 percent, or 23 cents to stand at $31.73 per barrel. Meanwhile the price of Brent crude oil dropped by 2 percent, or 67 cents, to $32.55 per barrel after plummeting by 7 percent on Thursday, March 12.
Covid-19 has spread to more than 140 countries and killed around 6,000 people globally, although more than 75,000 people have recovered. It is a virus with symptoms like the common flu and SARS (Severe Acute Respiratory Syndrome).
Russia vs. Saudi Arabia
Saudi Arabia has announced it will cut prices for all its markets. However, Russia opposed this decision. Riyadh’s discount on oil has led to the breakup of the Saudi-Russia alliance. In addition, Saudi’s oil giant Saudi Aramco openly announced its oil discount of up to $3.75 per barrel for all its Asian and Oman markets, meaning that the oil price the company is offering is down to $7 per barrel compared to March’s prices.
Russia Retaliates by Flooding the Market
Russia responded by saying that it will increase its oil output by as much as 500,000 barrels per day, as the country’s Energy Minister Alexander Novak said. Such a step will send the country’s oil production to 11.8 million barrels per day, a new record.
A Russia-led non-OPEC alliance was asked to contribute to the production cut of 500,000 barrels per day. However, Moscow ignored this idea.
Also, starting from April 1, OPEC will likely use the strategy to boost its market share instead of stabilizing prices, meaning Saudi Arabia may produce oil at its maximum capacity up to over 12.5 million barrels per day.
Before the collapse of the Saudi-Russia alliance, the Covid-19 outbreak had severely hit the energy sector as well as other industries. The International Monetary Fund (IMF) cautioned that the pandemic would ruin this year’s global economic recovery.
What About Renewable Energy Investment?
Indonesia’s Ministry of Energy and Mineral Resources (ESDM) recently stated that the Covid-19 pandemic would not likely disrupt investment in renewable energy given that this project is a long-term one.
The Director of Energy at Directorate General for Renewable Energy and Energy Conservation Harris is still optimistic that the investment target for the renewable energy sector worth $20 billion still makes sense.
However, some companies are expecting delays in their renewable energy projects. India’s solar firms — which rely heavily on China — are facing uncertainties due to the business slowdown caused by the coronavirus.
Raman Nanda, chief executive at SoftBank’s renewable energy arm, S.B. Energy, told FT: “Coronavirus will impact projects to be commissioned in the next three to four quarters as we and other developers scramble to meet commissioning deadlines. We have a plan to deliver on time, but given the rapidly changing situation, no plan is 100 percent guaranteed.”
The U.S. has also experienced delays to its solar projects due to the Covid-19 outbreak. Some companies are considering canceling their plans amid the growing uncertainties.
“I think you’re going to see a lot of force majeure claims under the coronavirus, up and down the supply chain,” Sheldon Kimber, CEO, and co-founder of Intersect Power told CSO Magazine.
How Long Will the Outbreak Last
The impact of the outbreak will depend on how long the pandemic continues and how widespread it becomes. If it continues to spread in China for weeks or months, the virus will disrupt companies relying on Chinese materials, as, Josiah Neeley, senior fellow of energy policy at the R Street Institute, told Utility Dive, whereas if it can be contained and stopped in the near future the outlook is brighter.
