The impacts of the COVID-19 pandemic, also known as Coronavirus, are being felt all over the world, with countries in lockdown, positive diagnoses increasing and major shocks to economies, including Australia’s.
The story is changing rapidly, with new developments each day. Energy is keeping a close eye on these changes and will inform you as they’re happening.
The first cases of the novel coronavirus were identified in Wuhan, China, in late 2019 before other cases outside of China started to be confirmed from January 2020.
On 11 March the World Health Organization (WHO) characterised COVID-19 as a pandemic.
As of 16 March 2020, there have been 298 confirmed cases of COVID-19 in Australia. Of the confirmed cases, five people have died from COVID-19.
On the morning of 16 March, Victoria and the ACT declared states of emergency, with the national and global focus now on slowing the spread of the virus.
As well as the serious health concerns for the community, COVID-19 is causing major disruption to the Australian economy.
A vast amount of major industry events have been cancelled or postponed including APGA events and the Energy Networks 2020 Conference and Exhibition (EN2020); citizens are in isolation or practicing social distancing and supply chains have been significantly impacted, especially materials that were previously imported from China.
Modelling undertaken by KPMG Australia on the impact of COVID-19 on the Australian economy suggests that, in the absence of the Federal Government’s stimulus package, the COVID-19 pandemic would reduce Australia’s GDP in 2020 by about 0.9 percent.
KPMG’s report said these impacts would amount to a hit to Australia’s GDP of more than $17 billion by the end of 2020, with a partial rebound of around $12 billion during the next 12 months.
The report states that the economic damage will continue for some time and in all likelihood will escalate in intensity.
The Federal Government released its Economic Response to the Coronavirus on 12 March 2020, which includes a stimulus package of $17.6 billion of fiscal support measures across the forward estimates period.
How is Australia’s Energy sector coping?
COVID-19 is having major impacts on energy operations, especially renewable projects such as solar and wind turbines – globally and in Australia – due to supply chain disruption. Many critical renewable project components come out of Asia.
EnergyQuest’s March 2020 Quarterly Report has indicated that the COVID-19 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.”
COVID-19 and the solar industry
PwC has released a report looking at the impact COVID-19 is having on Australia’s renewables and solar sector, which found that the virus outbreak will impact manufacturing and the supply of key equipment and materials used in the construction of solar energy facilities in Australia.
The report found, “Contractors under Engineering, Procurement and Construction Contracts (EPC Contracts) are currently dealing with the delay or disruption in procurement of the necessary equipment and materials, with PwC aware of some EPC Contractors notifying Project Owners of delays to construction timelines, milestones and completion dates.”
PwC has provided guidance to project owners and other solar industry participants on how they can adopt a measured approach in the face of supply chain disruptions caused by COVID-19. These steps include developing a mitigation plan, assessing contractual options, and negotiating to manage risk.
The report states, “The outbreak of COVID-19 in the Hubei province of China is having a significant impact on solar projects worldwide given approximately 63 per cent of all solar modules required by these projects, as well as associated hardware such as inverters and trackers, are supplied by China.”
In Australia, it found that solar projects are experiencing delays in the supply of key equipment, as well as short term price increases.
This is a rapidly developing story. More to come.