COVID-19 Is Shaking Up the Energy Sector, with Disputes on the Horizon
May 15, 2020
COVID-19 Is Shaking Up the Energy Sector, with Disputes on the HorizonDownload Article
COVID-19 is dramatically affecting the global energy markets, with drastic demand and price reductions since the crisis outbreak. Uncertainty is prevailing on the evolution of the energy markets. Energy companies need to adapt to what would be the new “normal”.
These companies and investors will put more emphasis on exceptional risk, requiring extensive mitigation provisions and stronger credit support in contracts, especially when they underpin large investment in projects. Adapting to the new reality will also mean that current contracts and projects are to be reviewed and re-assessed, which could lead to a new wave of energy disputes.
If one still needed an emblematic example to illustrate the impact of Covid-19 on the energy market, there could not be a better one than the negative prices for West Texas Intermediate (WTI) crude oil on 20 April 2020.
All economic sectors are impacted by the virus. In the energy sector, this has translated into a significant reduction in demand for energy: industry, commercial spaces and offices are closed, commuting and travel have been drastically reduced.
The worldwide spread of the virus has led to immediate and significant impacts on the energy sector. However, these impacts and consequences also have a longer-term reach. Everyone agrees there will be a "before" and an "after" Covid-19 in the way we live, affecting our personal and professional lives.
The energy sector will not escape this, and due to the inertia created by the current economic crisis, the sector will be affected for many years ahead.