How the Energy Economy Has Been Affected By COVID-19
Energy supply and demand patterns of crude oil and liquid fuels, natural gas and electricity have been directly affected by COVID-19 mitigation efforts e.g. travel restrictions, and stay-at-home orders. U.S. gross domestic products (GDP) will decline by 7.4% in 2020 due to the U.S. COVID-19 mitigation impacts on the economy.
The United States Natural Gas Consumption and Production
Natural gas production and consumption in the U.S. are estimated to decline by 3% and 4% respectively in 2020. Expect a 2021 recovery, although U.S. production and consumption will lag behind 2019 levels.
U.S. Manufacturing Activity
Reduced U.S. manufacturing activity and lower exports of liquefied natural gas lowers the U.S. consumption forecast in 2020. Weaker natural gas demand will keep prices relatively low in 2020. Rising demand into the winter, with lowered production, will exert upward pressure on natural gas prices at the end of 2020 and into 2021.
Electricity Consumption Decline
We can expect 5.7% less electricity consumption in the United States in 2020 than in 2019. Although the commercial sector represents the largest decline, all sectors will purchase less electricity in 2020. Residential customers are experiencing overall milder temperatures in 2020 compared with 2019, reducing the need for space heating and cooling. Milder temperatures offset the increased use of residential electricity as more people work at home and spend more time at home while social distancing guidelines remain in place. Retail electricity prices for the residential sector will increase slightly. Commercial and industrial sector retail electricity prices will fall by about 1% in 2020.
Coal Production
U.S. coal production will fall by 25% in 2020, caused by a decrease in demand for U.S. coal exports and a decline in coal-fired electric power generation in the United States. Appalachian metallurgical coal mines slowed production due to reduced demand for coking coal for global steel production. Production in the West declines due to the slowing demand for steam coal from crucial importers such as India.
What’s Happening in Energy Markets
Changes in petroleum product demand and slower crude oil production led to rapid increases in U.S. petroleum inventories in March and April, straining storage capacity and increasing market concern.
Natural Gas and Electricity
Working gas in storage was 3,525 Bcf, according to EIA estimates, representing a net increase of 70 Bcf from the previous week. Stocks were 528 Bcf higher than last year and 409 Bcf above the five-year average of 3,116 Bcf. At 3,525 Bcf, the total working gas is above the five-year historical range.
Domestic Consumption of Petroleum Liquids and Gasoline
Domestic consumption of petroleum liquids and gasoline are estimated to decrease by 13% in 2020, and diesel consumption will decrease by 10%. Consumption levels will not return to 2019 levels by the end of 2021. Forecasts show that global consumption of petroleum and liquid fuels will decrease by more than 8 million barrels per day in 2020. Most reductions occurred Q2, 2020.
Due to changes in demand and supply, global liquid fuel inventories will grow by an estimated 2.2 million barrels per day in 2020. Inventory builds, estimated to peak during April, resulted from a sharp decline in global oil demand due to travel limitations and reduced economic activity.
The oil price has a strong influence on international economic development since it is urgently needed in all industrialized countries when supplies are limited.
Summary
COVID-19 mitigation efforts, such as travel restrictions, and stay-at-home orders, have resulted in reduced domestic and worldwide economic activity due to fluctuating energy supply and demand patterns.
Sources:
Statement by Stephen Naley, Deputy Administrator, U.S. Energy Information Administration U.S. Department of Energy before the Energy and Natural Resources Committee United States Senate in June 2020, https://www.eia.gov/pressroom/testimonies/nalley_06162020.pdf
The Energy Outlook - https://www.eia.gov/outlooks/aeo/
Petroleum and Other Liquids - https://www.eia.gov/petroleum/supply/weekly/wcrudeoilstorage_notice.php
Weekly Petroleum Status Report - https://www.eia.gov/petroleum/supply/weekly
Gasoline and Diesel Fuel Updates - https://www.eia.gov/petroleum/gasdiesel/
Weekly Natural Gas Storage Report - https://www.eia.gov/naturalgas/weekly/
The Hourly Electric Grid Monitor - https://www.eia.gov/todayinenergy/detail.php?id=40993
Business Insider - https://www.markets.businessinsider.com/commodities