When the first US astronaut Neil Armstrong landed on moon on 20 July 1969 the first words said from the moon by mankind was, One small step for man, one giant leap for mankind. Today we say, “One small Coronavirus and whole world has come to a standstill”.
At present the global New Coronavirus (COVID-19)outbreak has compelled USA to declare emergency, while Italy is in complete lockdown and totally in shambles. Europe is the worst affected continent. So, nothing is certain. This pathogen does not understand borders. Bangladesh is no exception. Many countries have closed its borders, but its outbreak is increasing.
The coronavirus has destabilized oil markets and disrupted global supply chain(s). The virus is also casting a shadow over renewable energy markets as solar and wind developers face an uncertain global supply chain and many more. As a result, energy consumption and demand are diminishing.
Coronavirus and the Oil market
With the advent of New Coronavirus (COVID-19)at large scale from early 2020, it has sent global stock markets tumbling and reversed nearly all the positive momentum in oil prices. As the virus spreads from one country to another, the oil market continues to suffer losses due to lesser demand. But how much and for how long it would go?
Coronavirus affects the oil market in two ways. Due to travel restriction, the use of jet fuel and supply chains slow down and industrial activity declines as companies send workers home – which means less oil demand and less oil-based products are being used and produced which also includes electricity. The stock market also becomes volatile due to sudden decrease in demand with prices falling continuously. It may be a long-term disaster. The virus also reduces Chinese oil demand and broader jet fuel consumption that indicate significant impacts on global economic growth for 2020 and may be onwards.
Global oil demand has been already in downward trend in 2020 due to massive impact of New Coronavirus (COVID-19) around the world. As per IEA, the situation remains fluid, creating an extraordinary degree of uncertainty over what the full global impact of the virus will be. The demand has dropped this year for the first time since 2009 because of the deep contraction in oil consumption in China and major disruptions to global travel and trade.
“The coronavirus impact on oil markets is particularly severe because it is barring people from moving around and goods movement has drastically minimized. All these led to heavy blow to demand for transport fuel. This is especially true in China, the largest energy consumer in the world, which accounted for more than 80% of global oil demand growth last year. While the repercussions of the virus are spreading to other parts of the world, but due to first and major impact of the coronavirus in China, it is still isolated which led to major implications for global energy and oil markets.” Even Bangladesh Biman had to close many of its routes and Bangladesh has restricted flights to/from major affected countries.
Barclays projects that global oil consumption will decline by approximately 200,000 bpd due to COVID-19 outbreak. Simultaneously International Energy Agency (IEA) revised its projected oil consumption downward by 365,000 bpd. But all are assumptions and still premature to come to a valid conclusion.
The oil market is in a mess. The difference between OPEC and non-OPEC members on controlling oil output due to decrease in demand and use has bought the prices further down. This has also affected further stock markets of all major locations. The OPEC and Russia oil price war unequivocally started from March 2020. OPEC and its allies failed to reach an agreement to extend the oil production curtailment, which further shook the already volatile oil price. Oil giant Saudi Arabia slashed its official selling prices with its oil output above 10 million barrels a day when demand has sharply declined. Saudi Arabia is already affected due to restriction in Holy Umrah and other issues. Russia disagrees with Saudi Arabia and sees as oil blackmail, sending signals of the price war which may continue for much longer period. This threatens to push the price per barrel around $20.
Electricity Disruption
Due to disruption in supply chain, the industrial production has been affected in almost the whole world. Again, most of the industrial production is dependent on China as part of the supply chain. Chinese have the credit of controlling global supply chain of mass production items due to its efficiency, quality, cost control and market competitiveness. Because of present isolation, China's industrial energy demand in 2020 may decline by as much as 70 billion kilowatt-hours (kWh), as the outbreak of the new coronavirus has bound to stop or minimize industrial output. Also, the workers had to abstain from work because of this epidemic.
The cut represents about 1.5 percent of industrial power consumption in China. But, as the country is the world's biggest electricity consumer, the loss is equal to the power used in the whole of Chile and it illustrates the scope of the disruption caused by the outbreak.
If the virus epidemic continues after March 2020, then China's economic growth rate could drop to around 4% during 2020, down from the initial forecast of around 6%. When the world can control the virus, spread is uncertain.
The main uncertainty is still how fast the virus will be brought under control, which cannot be predicted within next one or two months as it is still travelling from one country to another affecting new areas and people.
Only in Hubei province, which was the main centre of the virus outbreak, the peak power demand was 21% less than planned. Industrial operating rates point to a substantial reduction in power consumption in China. The industries were running 10% to 50% less than normal production.
Bangladesh was quite safe in respect to coronavirus. But unfortunately, whatever is the spread is due to people coming from virus-affected places and their ignorance. The virus is also a part of this disruption in industrial supply chain. Bangladesh’s main revenue, garments may be affected for two reasons – first, a break in supply chain and second, abnormal decrease in global demand due to coronavirus. Its actual situation in 2020 can be known after another 2/3 months or even more.
So far, many garments, leather and other related industries have reduced their production as their export has become uncertain because of delay on the part of buyers. The small industries situation is worse. As garments is labour-intensive industry and is the main driving force in Bangladesh’s economy, so the spread of coronavirus if not controlled on ground could lead to closure of these labour based industries ultimately affecting its economy. So far, the utilities have found electricity consumption reduction of many industries, but overall statistics and its impact may be found after a month or so.
Corona and Solar Supply Chain
China is the world leader in renewables, especially solar. It is the largest producer of solar modules in the world. With the coronavirus, supply chain of renewable has been disrupted. For Bangladesh’s rooftop solar, both OPEX and CAPEX model have landed in uncertainty. Even the tenders that called for renewable energy-based power plants are at an uncertain stage. It is unclear how soon the controls both in China and globally will be lifted; however, if they remain in place, production from Chinese manufacturers will be reduced. Whether the factories are in China or outside, all depend on supply of components from China. Unless it is settled soon, the entire renewable cycle may be affected. Many Asian countries like Vietnam, Malaysia, Philippines, etc. have imposed visa restrictions on visitors from China, including workers at solar manufacturing facilities in those countries. This affects the subsidiaries of Chinese module manufacturers in south-east Asia, causing a drop in module production. All this may lead to price increase. Alternate manufacturers are costlier and again may depend on partial supply from mainland. So far, developers waiting for module delivery from mainland China in April will not see the orders delivered on time; solar project construction schedules in third and fourth quarter of 2020 placed-in-service dates will also be hit particularly hard.
The Storage Industry
The storage or electricity storage supply chain is totally dependent on China because the quality and price are unbeatable. The European and other giants had to ultimately depend on China as well. But because of coronavirus many industries in China have announced work stoppages, which could lead to possible shortages that could cause ecosystem pricing to go up globally including USA. Meanwhile, the country's battery storage production capacity could drop by 10% or more which means minimum 26 GWh.
The impacts of the virus on China's power sector will depend on how long this outbreak will continue which is affecting Europe, USA, Asia and many more. But it will have adverse effect on Chinese economic output across the board. USA power sector will not have any major setback as electricity generation comes from either domestic or non-Chinese sources, like coal, nuclear, natural gas and renewable energy.
Further, restrictions on labour movement within China may impact EV manufacturing which is expected to require 162 GWh of battery cells only in 2020 in BAU case. Moreover, domestic flights, trains and public transportation to affected areas have been cancelled which will also affect the energy sector supply chain.
In US and Europe, the timing of the constraint may lead to non-lithium ion technology provider to further make their case that their technologies are worth investing in from a domestic economic standpoint, and also from a supply chain exposure standpoint. Hydrogen storage technologies will have better opportunity.
Skilled Expert from China
Many of developing countries in Asia, Africa, etc. not only depend on materials but also expertise from mainland China. The virus has led to almost stoppage of human movement to and from China. It may continue now in the coming months which will delay progress of energy and other sector related developments. Bangladesh is heavily dependent on China for expertise due to its vicinity and pricing. The mega power plant projects may be affected and delayed as well as other infrastructure projects.
The Positive Impact on Global Warming
It appears that the rate of carbon processed by photosynthesis is estimated to have risen by about 30% since 1900, but the causes for this increase are not well known. According to peer-reviewed research, it is possible that rising atmospheric CO2 concentration is the dominant driver. For example, California in USA had its driest February on record in 2020.
With almost standstill of mankind: industries, transport, export, etc., the pollution scenario of the earth has changed. The February satellite readings in the troposphere (the lower atmosphere) of nitrogen dioxide (NO2), a pollutant primarily from burning fossil fuels, show a dramatic decline compared to early January when power plants were operating at normal levels.
Since the coronavirus outbreak, scientists have reported a decrease in air pollution and nitrogen dioxide levels around the world. The World Health Organisation recently declared coronavirus a pandemic. At the same time, scientists from around the world have revealed a decline in air pollution and nitrogen dioxide levels.
At the beginning of March, NASA revealed that pollution levels in China, where the outbreak started, had dramatically reduced. NASA's pollution monitoring satellites detected significant decreases in nitrogen dioxide (NO2). In addition, the coronavirus has temporarily reduced China’s carbon dioxide emissions by a quarter.
Italy, where cases have dramatically increased and is now the country with the largest number of cases outside of China, has also experienced a decline in air pollution.
New data from the European Space Agency found a reduction in nitrogen dioxide emissions. The reduction is particularly visible in northern Italy, which coincides with its nationwide lockdown.
Air pollution levels have dropped by roughly a quarter over the last month as coal-fired power plants and industrial facilities have ramped down and employees in high-risk areas are to stay home.As China is a significant contributor towards emission at global level so it will have impact at global level on greenhouse gases emissions.
Force Majeure and Bangladesh
The doctrine of Force Majeure (Superior Force) refers to contractual terms that excuse a party from performance should extraordinary events occur that are beyond either party’s control. Eventualities are catastrophic in nature like wars, riots, famine, floods, earthquakes, natural calamities, etc.
Such a devastating effect coronavirus has created on the global markets was completely unprecedented and has taken the global economists, leaders, think tanks by surprise. There had never been such travel restrictions in the past. People are not buying clothes, perfumes or any other luxury items nor dining in posh restaurants. Tourism has almost come to minimum level. Factories, transportation, hotels, airlines have all been swept away by this Superior Force. A deep plunge of oil prices resulting from this market crash put the red arrows pointing downwards on the stock markets all over. The inflation evened out as there is no demand of any item which is not considered as a bare necessity in today’s living. With drop in inflation, the interest rates have gone down. Banks are keeping their hands tied as the money lent to the tune of billions is stuck in the various projects and only a miracle now can save them from a total collapse. The phenomenon exposing the inherent fragility of this system we know as capitalism has brought down the entire world on its knees.
The brighter side of the picture for us is that the fear of sanctions is no more. Nor any anxiety of country’s economy if any hot money is withdrawn like Padma Bridge funds by World Bank. Well, Bangladesh proudly took the challenge and started Padma Bridge with its own money. Sowhat if we could not become an economic giant? The giants have been turned into dwarfs by the Superior Force.
In the current situation those nations will not thrive that have large industrial base or have black gold (oil) to export. The nation that has agricultural base, livestock, poultry, cattle and dairy farming and own salt mine is more likely to pass through these difficult times with fair ease. Just see the long queues outside grocery stores even in USA in contrast to no such rush in any store in Bangladesh. Today we are surplus in agriculture and have sustainable food security and excellent electricity-based irrigation. One of the reasons for food security is that Bangladesh has surplus electricity.
“Death is a great equalizer, no rich no poor, no big no small, no superior no inferior: All equal – Force Majeure”.
(This is the first article of the series on impact of coronavirus on energy sector and Bangladesh. It is based on information from various sources and the author’s experience.)
Shah Zulfiqar Haider, PEng;
International Energy expert,
Engr. Fahad Haider, MSc RE-Australia;
Renewable Energy expert from Australia
fahad.haider99@gmail.com
