Board Member View: Covid-19 Impact on Energy

Written by Mr Shigeru Muraki, Executive Adviser for Tokyo Gas Co Ltd and World Energy Council Vice Chair for Asia Pacific/South Asia

Covid-19 Impact on Energy

Covid-19 will continue to drive impact for at least another quarter, and possibly through the end of the year. Sharp declines of energy demand and oil and gas prices are having considerable impact on the energy industry, financial market, global economy and society.

Energy demand forecasts by the Institute of Energy Economics Japan shows 2020 oil demand will be 9.3 million bbl/d – a 9.3% decrease from 2019 – with second quarter demand declining to 8.33 million bbl/d. Natural gas demand will be 3682 billion m3 – a 7.2% decrease from 2019 - and LNG demand will decrease by 7.9% to be 325 million tons.

The Covid-19 impact will lead to structural changes in society and the energy industry and will result in a “new normal”. In society, digitalization will be accelerated, distributed and remote work systems and lifestyles with higher resilience will be implemented as more common practice, and urbanization will be slowed down.

Certain level of nationalization will become a trend, and new types of international cooperation and collaboration will emerge which are more regional and aligned by common interests, and global organizations will need to accommodate those new interests in the global community. Increasing tension of conflict between US and China and a decline in the reliance and presence of China in the global community will have a significant impact on international relations particularly in the Asian region.

In the energy industry, a restructuring of industry such as mergers and acquisitions will emerge. This will in turn create new business models such as best-mix portfolio management of fossil fuels and renewable energies, combinations of energy supply and value-added services to market and consumers, distributed energy systems with community services, and the involvement of AI and IOT business in energy like block chain technologies. BCP of business and resilience of energy systems will become a higher priority.

Societal changes will accelerate electrification and introduction of distributed energy systems for higher resilience, and the load curve of power demand will be changed, and those changes will have an impact on infrastructure developments.

Covid-19 risk will push resilience against pandemic and natural disasters to become a top priority for policy and lower the priority of climate policies for some time.

Financial weakness and depression will decline funding for the developments of renewable energies. This combined with increased utilization of low priced oil and gas under the sluggish economy will result in the slowing of the switch from fossil fuels to renewable energies. The decarbonization process will be slowed down for some time. Therefore, a clean energy investment push is essential to emerge from Covid-19 shock and to accelerate successful energy transition.