BAKU, Azerbaijan, May 1
By Leman Zeynalova – Trend:
The energy sector that emerges from the Covid‑19 crisis may look significantly different from what came before, Trend reports citing the Global Energy Review of the International Energy Agency (IEA).
“Low prices and low demand in all subsectors will leave energy companies with weakened financial positions and often strained balance sheets. Business lines that are insulated to a degree from market signals, including those with renewable electricity projects, will emerge in the best financial position. Private firms that are the most exposed to market prices will experience the most severe financial impacts. Market concentration and consolidations are likely,” reads the report.
Across the energy sector, the Covid‑19 crisis will have a significant impact on investment, according to IEA.
“This could raise concerns about energy security because investment is necessary even if global energy demand takes a long time to return to the pre-crisis trajectory. A considerable proportion of global energy investment is devoted to just sustaining existing levels of energy supply: maintaining oil and gas production at current levels, replacing aging power generation capacity – often with a capital-intensive combination of renewables and flexibility sources – and reinvesting in aging electricity networks. Investment in these activities will have to remain robust even with a subdued recovery,” the report says.
IEA report shows that the energy industry is feeling the financial impact throughout value chains, with most energy companies losing substantial revenues.
“In effect, they are being hit twice, first by lower demand for their products – including oil, gas, coal and electricity – and again by lower prices for these products. Average oil prices fell sharply, with West Texas Intermediate hitting negative prices for the first time in history as excess storage became scarce.”
LNG prices have declined to all-time lows in European and Asian markets, which were abundantly supplied even before the Covid‑19 crisis depressed demand, according to IEA.
“Natural gas prices have gone negative in parts of the United States, where storage is full. The smallest impact is on coal: as the supply chain is less affected by logistical constraints than oil and natural gas. A combination of cheap gas and weakening demand have also led to power prices declining by one-third to one-half in liberalized wholesale markets. Market prices for electricity have dipped below zero in the United States and a number of countries in Europe, including Germany, Denmark, France, Belgium, Sweden, Finland and Switzerland,” reads the report.
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