EnergyQuest’s March 2020 Quarterly report has indicated that the COVID-19 (Corona virus) outbreak is now having major global and local impact on the energy sector.
The report shows that the spread of COVID-19 is having impacts on trade, travel, energy prices and companies.
The report states, “It has had an immediate impact on oil prices and spot LNG prices. Brent started January at US$67.05/bbl (A$96.03/bbl) and rose to US$70.25/bbl (A$101.34/bbl) on 6 January but then fell steadily to US$49.67/bbl (A$76.41/bbl) on 2 March.
“There has been a dramatic fall in the Platts JKM spot price, dropping to below US$3.00/MMBtu. Spot prices have fallen as high inventories, warm winter weather, increased supply and the virus all take their toll. Australia exports relatively few spot cargoes but according to Platts (7 February) Ichthys awarded a spot cargo for loading 17-19 March at a price in the low US$2/MMBtu’s.
“The fall in the oil price will affect prices realised under oil-linked LNG contracts. This will probably not become apparent until Q2 2020 due to lags in contract prices but lower prices due to lower oil prices were already apparent in Q4 2019.
“There is potential for delays in LNG cargoes although our tracking data suggests that Australian exports to China have been largely unaffected, at least so far. No vessels appear to have been unduly delayed by being held at sea.”
Though LNG exports still appear to be holding up well, COVID-19 is having some effect in addition to the suffering from the ramp-up in global supply. Tanker charter rates (Tri-fuel Diesel Electric) quoted by shipping broker SSY have fallen from US$85,000/day at the start of January to US$37,500/day at the end of February.
The virus is affecting travel to progress development of new projects. Both Woodside and Santos have commented on the impact of travel restrictions on the progress of their respective Scarborough and Barossa projects.
It has also been recently reported that one of the world’s major annual energy events, CERA Week, has been cancelled for 2020 due to the virus.
The virus has impacted share prices of energy companies, getting to the point in the sell-off where equity analysts are recommending buying. In a note on 2 March Saul Kavonic of Credit Suisse said, “Even assuming the current spot price persisted into perpetuity, we see Beach as clearly oversold and we see upside from current levels even if oil prices never recovered. Woodside also appears oversold in our view. Cooper Energy and Strike Energy have also taken hits despite minimal exposure to near term oil or gas prices”. The Santos share price has dropped from $9.00 in mid-January to $7.00 now.
The report states, “Nobody knows how COVID-19 will pan out, whether it will be quickly contained or become a true pandemic but it is likely to hang over the energy sector for most of this year.”