Stockpiles of domestic U.S. gas production will reach an all-time high in 2020, as drilling companies keep producing record volumes even though the coronavirus crippled domestic demand. Exporting excess LNG is not easy as Europe is in lockdown, but the first US LNG cargo for more than a year is heading for the Chinese port of Tianjin.
Rapidly falling oil prices since March 18, when Saudi Arabia started to flood the market, have pulled down seasonal gas and wholesale power prices in the UK. According to Cornwall Insights, Brent crude oil prices plunged over 60% so far in 2020, with seasonal gas and power contracts shedding 32.7% and 21.1%, respectively.
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.
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.