19 March The impact of coronavirus on the energy and resources industry March 19, 2020 By AMPLA Admin General, Industry, Resources and Energy COVID-19, Resources and Energy 0 The last few weeks have seen the world face an unprecedented disruption with the novel coronavirus (COVID-19). First reported in China, we’re now seeing many countries shutting down for periods of time to try to contain the spread of the virus. Australia is facing a particularly difficult year given the bushfires that ravaged the country recently. Now with COVID-19 adding to the pain, the energy and resources industry is being impacted in several ways outlined below. Transport is restricted With borders closed and transport restrictions in place in many countries, this is impacting both freight and people movements. Reduced airline and other transport mean lower demand for oil and gas, which is likely to have a direct impact on prices and the industry more broadly for the next few months. Transport restrictions are also affecting raw materials, by-products (like sulphuric acid in copper production, for example) and final product, with some reports indicating that smelters and refinery productivity is being impacted as a result. It’s not clear as yet how long productivity reductions will be in place, and with the increased amount of shutdowns globally, the impact is likely to be felt in multiple regions. Quarantine is impacting productivity As people are quarantined to slow the spread of the virus, this will no doubt have a direct impact on productivity. As a result, more projects are expected to be delayed and demand for machinery reduced. It’s also expected that retail activity will reduce, with fewer people purchasing cars and appliances. The demand for many resources may also be reduced as a result and the stock levels increased. How some are responding The government has already stepped in offering relief to some industries, most notably the airline industry received a $715m package this week which will certainly help reduce the impact. According to the Minister for Resources, Water and Northern Australia, Keith Pitt, last week “It is clear resources exports are holding up with companies activating contingency plans to ensure their supply chains are maintained.” This view is no doubt being challenged by the recent volatility seen in the Australian Stock Exchange coupled with new restrictions on transporT. Some facilities are responding to a decline in production by bringing forward periodic maintenance work. While others are reviewing contractual terms and insurance policies to determine if they have any recourse or can trigger force majeure clauses. Some contracts simply may not allow companies to reduce production which may be frustrated further by transport issues and lower demand. For those organisations that are currently negotiating arrangements, specifically ensuring that COVID-19 and any other pandemic are specifically covered is also prudent. In particular, addressing who bears the cost and risks associated with shutdowns, oversupply or inability to supply are all contingencies that now need to be addressed. The issue with COVID-19 is that no one knows how long the shutdowns will continue. If the virus can be brought under control quickly, the long-term impact may be able to be absorbed over the course of the year. But if it’s prolonged in major production centres, we may soon face shortages that will have a ripple effect across multiple industries and economies. It’s still too early to say how long it will be until life returns to normal, but we’re keeping a close eye on the situation. Related Articles Energy industry and government response to COVID-19 In response to the coronavirus (COVID-19) crisis, government and industry have come together to ensure the community, economy and industry are supported. The Council of Australian Governments Energy Council (COAG Energy Council) has formed the Energy Coordination Mechanism (ECM) which is expected to have a complete plan by the end of April. The immediate focus of these efforts has been on four areas How foreign investment changes may impact the mining and energy sector In early June 2020, the government announced a review of the foreign investment rules, expanding them to apply to all foreign investors in anything deemed a ‘sensitive national security business’. The changes are scheduled to come into effect on 1 January 2021. There are concerns that this will impact foreign investment in the mining and energy sectors, and in particular the critical minerals space. Why hydrogen is becoming an important energy source Hydrogen as an energy source continues to grow in popularity. Once confined to industrial processes such as refining crude oil, it is now being recognised as a potential solution to the problems of electricity generation, transportation and storage. Over the next thirty years, global energy demand is predicted to grow by at least 30-40%. At the same time, the share of energy generated from fossil fuels has stayed almost static at 81%. While renewable energy technologies such as solar and wind are getting cheaper, they can only be generated on an intermittent basis. To make them commercially practical to use, they must be combined with high-energy batteries and backed with other energy sources. Digital transformation in mining and energy As the global shift to remote work gathers pace, it is more important than ever that the mining and energy sector embraces technology. But a digital transformation offers more than flexible working arrangements. It has the potential to drastically cut down on industrial accidents, optimise operational processes and slash costs. What law firms and in-house legal are doing to combat the threat of coronavirus The novel coronavirus (COVID-19) is drastically changing how we live, work and even play. For law firms and in-house legal practitioners, that means balancing the concerns of your clients with safeguarding your own staff. In some ways, small firms have an advantage over their larger counterparts. Moving to remote or online work is simpler with fewer moving parts to accommodate. On the other hand, it can be challenging to meet the increased needs of your clients at this anxious time. For in-house legal services, the size of the challenge becomes one of risk management for their organisation. But even those with strong governance and business continuity plans in place are struggling to manage many of the unprecedented issues they’re facing today. Dealing with market volatility in the oil and gas industry The oil and gas industry is experiencing unprecedented volatility since prices slumped in March following the collapse of the OPEC+ supply pact. In the past week alone oil prices have reached historical lows with West Texas crude reaching approximately -US$40 a barrel in future trades. Volatility has been driven by reduced output from Russia quickly followed by lockdowns associated with the COVID-19 pandemic. This is impacting economic growth across the world, with the OECD already lowering its global economic growth estimate for 2020 from 2.9% to 2.4%. The longer the outbreak continues, the greater the decline in global growth and the corresponding fall in demand for energy. Showing 0 Comment Comments are closed.