Blog Post

The Post Covid-19 Energy Forecast: What Comes Next?

Richard Simmonds • May 18, 2020

The end of the UK’s lockdown is in sight. As the nation takes stock of the impacts of the Covid-19 pandemic in both the lives tragically lost and the economic fallout, we look ahead to what could happen to the energy sector in the post-pandemic world.

Wholesale energy prices

The crisis has seen wholesale energy prices crash to record-breaking lows. Oil and gas prices were hit hard as a sharp reduction in demand combined with a glut of supply already on the market.

Natural gas prices are much lower and fell through much of 2019, and dropped further in the first quarter of 2020, associated with the pandemic-induced economic downturn.

For energy suppliers, the decline in wholesale energy prices is both good and bad. Good in that they can purchase energy for reduced costs and bad in that consumers will be expecting reductions to their energy bills.

In the post lockdown world, we can expect wholesale prices begin to tentatively begin to rise as more of the global economy comes back online.

Depending on how deeply impacted the economy is, we could see industry and manufacturing dramatically increase their production and in turn raise demand for oil and gas.

If the economic fallout is as dire as some forecasters are predicting, then this rebound could be muted.

A deep recession or a depression could devastate businesses and producers across the globe and result in mass shutdowns and job layoffs. Already we have seen several airlines go bust and the ongoing weak demand for air travel could well spell the doom for many more.

On the more optimistic side of things, we could see the global economy rebound strongly once lockdowns are lifted.

However, as we don’t yet know for certain when restrictions will be lifted and as the virus continues to ravage parts of the world this is uncertain. Fears of further waves could see lockdown measures being imposed again at later dates.

Environmental impacts

The Coronavirus pandemic has revealed that despite much of the world shutting down at a potentially devastating economic and social cost, carbon emissions have not fallen as dramatically as many suspected they would.

In fact, carbon emissions are forecast to only be down by 6-8%. Such a small decline will have no impact on the world’s rising temperatures or carbon concentration.

“You’d need about a 10% drop to have a noticeable effect on the rising CO2 concentrations, but even then, concentrations would still be rising. The rate of rising CO2 varies from year to year anyway, as the natural carbon sinks get stronger and weaker because of natural processes such as EL Nino. That effect is probably more important than the small drop in emissions we’re seeing now,” said Richard Betts, head of climate impacts at the Met Office.

One plus for the environment is that renewable energy has shown that it can stand toe to toe with the fossil fuel energy creators. So much so that some market analysts believe that the coal industry may never recover.

The fall in demand for electricity during the pandemic has led to many utilities cutting back on coal as it’s more expensive than gas, wind and solar. The move away from dirtier fuels has increased during the lockdown resulting in several coal power plant closures across the globe.

We could see an increase in consumer demand for greener energy tariffs as well as electric vehicles.

Changes to codes and regulations

To help tackle the challenges posed by the pandemic Ofgem has agreed to alter some regulations and industry codes.

It is likely that once the COVID-19 crisis has abated these changes will be reversed. Energy suppliers will need to be aware of this and be able to reverse any changes as soon as they can.

The performance of the energy sector throughout the crisis will likely be assessed which in turn could lead to more alterations and/or the introduction of new policies and rules.

Geopolitical events

With the world focused on battling the virus, geopolitical events have taken something of a back burner.

However, once this is over, we can expect there to be something of a reckoning. The Chinese Communist Party has made few friends during the crisis and has even been openly blamed by some nations as being directly responsible for allowing the virus to spread from a Wuhan wet market.

In what form this reckoning will take is unknown but a shift away from their over-reliance on China for cheap goods and labour by western economies could be on the cards.

The CCP never take criticism well and as seen has openly tried to pass the blame onto the USA and has even made veiled threats to Australia and Canada due to them openly questioning the CCP's story of events.

One thing is for certain. Once this is all over, the world will never be the same again.