International Policy Digest

Aramco
Business /11 Sep 2020
09.11.20

Understanding the Pandemic’s Impact on the Energy Sector

The pandemic is coming up on a full year of affecting the world. Industries of all kinds have taken hits and had to alter plans for the future.

The energy industry, in particular, has faced unique challenges. With COVID-19 and power sector patterns up in the air, following the trends becomes more difficult for leaders and citizens alike.

Changing Trends

The pandemic reached the United States in February, and states went into lockdown in mid-March. During this time, commerce shifted. Quarantines and stay-at-home orders mandated that people must social distance, telecommute, and limit contact with the outside world. These changes then led to drastic shifts in the energy industry.

With large portions of the country no longer commuting to work, gas prices dropped — as did the oil market. Oil reached negative prices in April, which raised questions about its future. Investors shy away from anything that does not bode well.

Oil trends have continued to fluctuate. Prices rose when states reopened but started to decline due to fears of spiking cases. These trends will continue — as states reopen, close, and reach various stages of handling COVID-19, energy prices are sure to fluctuate. Oil is a case study in what is possible for other power sources, too. The pandemic’s unstable handling leads to an overall shaky energy sector.

Energy Performance

Based on oil’s performance, it is evident that COVID-19 and energy sector trends go hand-in-hand. It reached negative $4.47 per barrel in April and could see similar numbers with a second wave. With crude oil prices hitting lows and hitting an average of 13% skew, the future could be dismal.

Coal, too, took a hit from the initial closings. In fact, the U.S. Energy Information Administration (EIA) predicts that it will fall by 25% by the end of the year.

A collapse like that could be the final nail in the coffin for coal. The same EIA report projects that renewables will outperform coal for the first time this year. Although it predicts a drop in green energy performance this year, 2021 should increase global integration — just under 200 GW of usage.

Based on the fluctuations, renewable energy shows the potential for growth — especially since the pandemic showed a reduction in air pollution is possible. However, there are still too many uncertainties for the energy industry because of COVID-19.

Unpredictable Factors

The changes in energy markets are only the beginning of the industry’s challenges. The U.S. unemployment rate reached 8.4% in August, and many Americans are still unable to support themselves. Without a source of income, energy distribution may look different — bringing evictions and notices.

Additionally, hurricanes and California wildfires have led to various blackouts. Natural disasters bring power outages that require maintenance and updating. The energy sector will need to keep up with the unpredictable supply and demand necessities across the country.

This dynamic extends throughout the world as well. The supply chain is a global connection — the U.S. depends on other countries for resources, like China, for renewables. If the U.S. or other countries see a resurgence in cases, the energy supply chain could weaken. Then, oil, coal, renewables, and natural gas would all see similar reductions in usage once again.

Energy Challenges

What happened with the U.S. energy sector at the beginning of the outbreak influences how experts and officials respond in the present. COVID-19 and energy sector trends will mirror each other. The effects of the novel coronavirus can make or break production — like with coal.

These consequences then trickle down to consumers, who are struggling with a lot at this point. Although it’s impossible to predict what the future holds, it helps to be prepared for anything.