Coronavirus (COVID-19)—Impact on the energy sector
<article><section><p>Energy analysis: Although it is too early to tell the full impact of the coronavirus (COVID-19) pandemic on the energy sector, some early issues and trends are emerging. Silke Goldberg, partner, Reza Dadbakhsh, partner (London), Will Breeze, partner (London), Mathias Dantin, counsel (Paris), Matthew Job, partner (London), Lorenzo Parola, partner (Milan), Ignacio Paz, partner (Madrid) and Kingsley Boateng, associate, at Herbert Smith Freehills examine this impact on, and some future challenges for, the upstream oil and gas sector, the European power sector and the EU ETS, and the recent actions of the regulators across Europe. The effects of the pandemic on energy infrastructure, energy sector M&A activity and the timetables for renewable energy subsidy tenders across Europe are also considered, alongside summaries of the legislative support measures for vulnerable customers in some of the worst affected European jurisdictions.</p></section></article><section><section><h2><mark id="CITEID_816399"></mark>Upstream Oil & Gas</h2><p>The outbreak of the coronavirus pandemic has heightened the challenges facing oil & gas producers navigating an already challenging business terrain. Saudi Arabia’s dramatic policy reversal to increase its oil production at discounted prices and its resultant price war with Russia has flooded the industry with oversupply.</p><p>When considered in tandem with OPEC’s failure to reach a decision on reduced supply caused by demand constraints arising from coronavirus, producers are having to take active steps to simply preserve their position in a market experiencing strong downward price pressure. As recently as 17 March, for example, the Brent Crude futures price had fallen to US$29.77, the first time it had drifted below US$30 since January 2016.</p><p>Mitigating price volatility is part of the modus operandi for producers. Many producers therefore have hedging arrangements in place, which are likely to expire by the early part of next year and, importantly, only alleviate price and not volume exposure risks.</p></section><section><h2><mark id="CITEID_816400"></mark>Need for increased storage capacity?</h2><p>Storage rates are rapidly increasing as producers seeking to stock their excess supply compete for limited onshore and offshore storage capacity. The International Monetary Fund (IMF) </p></section></section>
Source: LexisNexis Purpose Built
Coronavirus (COVID-19)—Impact on the energy sector
