Markets

Halts in production and collapsing sales have hit Germany’s carmakers at a crucial time of transitioning to electric vehicles. Sales of e-cars are projected to fall by at least 20% this year, impacting electricity demand, while bailouts for manufacturers and suppliers could cost billions of Euros.

Industry lockdowns, caused by the coronavirus, have slashed electricity demand in most countries by around 15%. In Spain and California, where grid operators have to balance a substantially higher share of variable renewables, the lockdown “fast forwarded these power systems 10 years into the future,” the International Energy Agency (IAE) commented.

Though short-term profits of power and water utilities are hit by the lockdowns of energy-intensive industries to contain the coronavirus pandemic, investors are seeing energy companies as “safe havens” as a recession looms large and stock markets plunge. Amid falling bond yields, investors turn to steady payouts from regulated utilities.

North American shale-focused oil and gas producers are found to have spent $189 billion more on drilling and other capital expenses over the past decade than they generated from selling oil and gas. Wild-caters are struggling to pay off their debts which could trigger write-downs or bankruptcies, analysts warn.

Manufacturing is resuming in China but the recovery from the coronavirus lockdown still needs to translate in a substantial rise in energy demand. The rebound is patchy, Kpler data shows, with LNG imports having rebounded to 1.5 million tons in the first week of February – just to fall off again to less than 0.5 million last week.

Economists see the corona-struck German economy shrink between 4.5% and 9% this year, pushing down energy demand and fuel use which lowers emissions well below targets. Though the German government pledged some €550 billion in ‘virus aid’ to shore up companies, economists at IfW and RWI still anticipate a full-blown recession.

India keeps snapping up distressed cargoes for cheap. Coal-to-gas switching allows Indian power generators to absorb a large share of cargoes left uncommitted as the coronavirus dampens demand in China, and analysts see India’s annual LNG imports to rise by up to 15% this year.

Corona-struck Italy has seen demand for natural gas plunge 8% from the previous week, with similar declines likely in other EU countries as national government impose lockdowns to contain the virus. Industrial demand is “particularly volatile,” while gas generators will “bear the brunt of demand loss,” Wood Mackenzie says, as a carbon price decline is bolstering coal.

Fallouts of the corona pandemic could slow South Korea’s electricity consumption by nearly 2% this year as manufacturing, exports and private consumption grind to a near-halt. Fitch Solutions says that Korea’s manufacturing sector is hit hard due to its large exposure to Chinese supply chains in the first half of 2020.

Volatility in oil and natural gas trading has risen sharply after OPEG and Russia failed to agree on production cuts – despite demand destruction due to the Covid-19 outbreak. Traded volumes for energy futures at the derivatives marketplace CME reached a daily record of 6.8 million as traders strive to hedge their positions.

Germany's largest coal power plant operator RWE has shifted to invest in renewables as earnings from its 2.9 GW lignite and nuclear portfolio may fall to €200 million, or even net zero from 2023 due to mandatory plant closures. RWE said it wants to add 4 GW of wind and solar capacity by 2022, at a cost of €5 billion.

Saudi Aramco is taking steps to rationalize its planned 2020 capital spending after posting a 21% plunge in 2019 net profits due to faltering oil prices and sluggish demand. CEO Amin Nasser underlined the “importance of agility and adaptability” while responding to the world’s “rising desire for cleaner energy.”

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News in Brief

American ISOs to delay grid investments

March 27 – North America’s independent system operators (ISO) are considering delaying investments in grid upgrades and enhancement as electricity demand weakens due to industry shutdowns to contain the coronavirus pandemic. PJM Interconnection, the largest U.S. bulk power market which spans 13 Mid-Atlantic and Midwestern states, revised its daily forecast of about 100,000 MW of load but actual demand came in at 95,500 MW.

Wärtsilä starts combustion trials using ammonia

March 26 – The Finish technology group Wärtsilä has initiated combustion trials using ammonia in an effort to reduce emissions. Based on initial results, the tests will be continued on both dual-fuel and spark-ignited gas engines, followed by field tests in collaboration with ship owners from 2022, and potentially also with energy customers.

Xodus sees growth in cable services

March 25 – Xodus Group has stepped up services related to subsea power cables over the last twelve months. The number of new consulting assignments grew by more than 50%, resulting in more than 70 active work streams that are handled by more 30 permanent staff.

Electricity “more indispensible than ever”

March 24 – Disruptions caused by the coronavirus crisis lay bare how much modern societies rely on electricity, according to the International Energy Agency (IAE). Millions of people are mandated to stay home, causing a surge in teleworking, e-commerce and video streaming which pushes up domestic electricity use.

U.S. frackers cut Capex

March 23 – Sharp cuts in capital spending among Appalachian gas producers are now being replicated in other U.S. basis, with Energy Aspects anticipating the deepest impact on production and earnings to take place starting from the second half of 2020. So far, E&P companies just hedged 52% of this year’s expected production even though some Appalachian producers are seen “lock in some pure gas volumes at prices above the curve.”

EV makers face bankrupcy

March 20 – Electric vehicles (EVs) remain particularly exposed to the corona effect of supply-side constraints and demand erosion. Gigafactory facilities are likely to be delayed and fledging EV manufacturers could face bankruptcy, Wood Mackenzie warns. On the flip side, declines in EV sector demand may be gains for the stationary energy storage segment.

Manufacturing rebounds in Asia

March 19 – Asian-dominant supply chains for solar and energy storage are gradually rebounding after contractions in February. Moving forward, Wood Mackenzie expects near-term development activity and local logistics in leading European and North American markets will outweigh lingering supply issues.

Italy’s gas demand plunges

March 18 – Corona-struck Italy has seen demand for natural gas plunge 8% from the previous week, with similar declines likely in other EU countries as national governments impose lockdowns to contain the virus. Industrial demand is “particularly volatile,” while gas generators will bear the brunt of demand loss, Wood Mackenzie says, as a carbon price decline is bolstering thermal coal.

Nexif raises funds for Rayong CHP

March 17 – Nexif Energy, a joint venture between Singapore-based Nexif and Denham Capital, has raised project financing for the Rayong gas-fired cogeneration project in Thailand. The 92 MW plant is being developed project with Ratch Group, based on 25-year power purchase agreement with Electricity Generating Authority of Thailand (EGAT).

ADB provides $10m loan for Afghan IPP

March 16 – The Asian Development Bank (ADB) has agreed to provide $10 million in debt financing for a gas-fired power unit in Mazari Sharif with a capacity of nearly 60 MW. Phase-1 of the Independent Power Project (IPP) will get another $10 million loan from the Leading Asia's Private Sector Infrastructure Fund (LEAP).

IEA models 50% Carbon-Free Generation

March 13 – Analysts at the U.S. Energy Information Administration (EIA) have drawn up the 50% Carbon-Free Generation case - assuming a stark shift in state-level policies. In this event, the U.S. would have 19% more nuclear power generation, 10% more wind power and 17% more solar PV contribution than in its Annual Energy Outlook 2020 (AEO2020) reference case.

E-charging market to top $15bn by 2030

March 12 – By 2030, the U.S. market for energy-optimisation in support of charging electric-vehicles could be worth $15 billion per year, McKinsey finds. The consultancy expects high demand for home-charging appliances as residential power tariffs are comparatively cheap and most charging can happen overnight when off-peak electricity prices are lower.

Oversupply builds up

March 10 – Energy Aspects’ end-March forecast has added on another 100+ billion cubic feet of natural gas supply while demand remains subdued. In the U.S., the seasonal decline in heating degree days nearly halved the natural gas withdrawal rate. Gas-burn in the power sector and residential/commercial demand are forecast to fall by 1.7 billion cubic feet per day (bcf/d) and 4.0 bcf/d, respectively.

Small-scale LNG cuts cost for power plants

March 10 – Decentralized gas power plants in remote locations can source cheaper fuel from small-scale LNG regas terminals than from trucking the super-chilled gas across long distances. “Trucking LNG further inland would entail additional costs as well as logistical challenges,” IEA analysts noted. For example, a 100 MW baseload power plant would require, on average, around 20 daily deliveries from tanker trucks.

Abu Dhabi investor expands Uzbek CCGT

March 9 –Some key Uzbek energy infrastructure is being modernized with foreign monies. Abu Dhabi-based Mubadala Investment Company recently agreed with JSC Thermal Power Plants and the Uzbek government to acquire, finance, develop and operate the 1.7 GW Talimarjan Power Complex.

Oversupply keeps growing

March 6 – In its fourth quarter report, Awilco LNG warned that demand is now unable to keep up with strong gas production growth. Gas demand from China’s industry and power utilities, the world’s second largest LNG importer last year, has fallen by 10-14% thus far in 2020.

Simatic IOT2050 gateway launched

March 5 – Siemens’ newly launched Simatic IOT2050 links cloud, in-company IT and production. Energy companies, and others, can retrofit the solution in existing plants, where it then harmonizes communication between different data sources, analyzes the data, and passes it on for evaluation to a cloud.