|Energy Analytical Update | May 19, 2020
Authors: Shay Wester, Kim Yaeger, Angga Antagia, J-Ren Ong & Minh Vu
|The Impacts of COVID-19 on the ASEAN Energy Sector|
Demand in the Energy Sector has declined significantly due to the ongoing COVID-19 pandemic. The rapid spread of the virus has led to each ASEAN Member State to implement movement restrictions within countries and between borders. Consequently, the government closures of manufacturing plants and restrictions on travel and transportation have led to a drop in energy demand. Meanwhile the global market is oversupplied, and construction activities, including energy projects have stalled. The COVID-19 pandemic has disrupted the entire ASEAN energy industry, impacting electricity, oil & gas and renewable sectors.
Movement restrictions in ASEAN, such as border closures and work stoppages have caused a significant slump in electricity consumption. For example, during the Philippine's Enhance Community Quarantine (ECQ), the Luzon grid recorded a 30 per cent drop in energy consumption, primarily due to the closure of industrial worksites and commercial outlets. Moreover, the National Grid Corporation of the Philippines' Daily Load Profile reported a 40 per cent decrease in electricity demand from 2186 megawatts (MW) in January 2020 to 1728MW on March 28, 2020. Similar trends can also be seen in Malaysia, where many industrial and commercial sites were shut as a result of early phases of the Movement Control Order (MCO). Malaysia's state-owned utility provider, Tenaga Nasional Berhad (TNB) observed a 45% decrease in electricity consumption during Malaysia's MCO.
Decreased electricity demand and supply chain complications due to government restrictions on movement, have also led to the stalling of power plant projects in the region. The Philippines' ECQ has caused the Department of Energy (DoE) to delay the commercial commissioning of the 1336 MW Dinginin coal-fired power plant which was targeted for June 2020. Cambodia's 100 MW Lvea Em district fuel oil power plant has also been affected by COVID-19 disruptions. The Ministry of Mines and Energy indicated that project delays were caused by problems with machinery imports, delaying the completion of the U.S.$380 million facility from April to June 2020.
Overall, utility providers are left suspended between adjusting to the sudden drop in electricity demand and the necessity of revising their power development plans once the pandemic subsides. ASEAN Governments are also in a bind between diverting assistance towards affected citizens struggling to afford utilities like electricity and supporting power service providers who are experiencing a decline in revenue.
Oil & Gas
A consequence of the demand fall stemming from the Saudi-Russia price war has been the cutting or downsizing of refinery activities in ASEAN. In Thailand, oil refinery run rates have been reduced by 10 to 20 per cent. Meanwhile, PetroVietnam warned of possible refinery closures in response to the drop in transport fuel demand and collapsing oil prices. Singapore's waterways have become congested with oil supertankers waiting to offload millions of barrels of unwanted oil as its on-shore storage facilities are at maximum capacity. ASEAN countries that rely heavily on the oil and gas sector have been impacted the most, including Malaysia and Brunei. Malaysia estimates an RM30.9 billion (US$7.1 billion) loss in fiscal revenue per annum from its oil and gas sector if prices stay low. Malaysia and Brunei Darussalam are also cutting its production in line with the OPEC+ countries which will negatively affect its oil and gas revenues.
Despite this gloomy outlook for exporters, record low oil product prices could be a boon for importers of Liquified Natural Gas (LNG). The Government of the Philippines identified LNG imports as a substitute for the countries diminishing natural gas production in Malampaya that is expected to be depleted by 2027. Several firms have submitted proposals for LNG regasification facilities to improve the Philippine’s LNG import capacity. One such facility is a gas-to-power project by Australian firm Energy World Corporation (EWC) in Pagbilao, Quezon. The facility has a 4.1 billion cubic meter capacity and is expected to start commercial operations in the next two years.
COVID-19 has also shelved several Renewable Energy (RE) projects in ASEAN. Solar power is becoming the fastest-growing source of RE in ASEAN, but the region is reliant on equipment manufacturers and raw materials from China. Chinese plants had halted operations as early as January 2020, causing supply and material shortages for solar projects in ASEAN. The Philippines has delayed a 135 MW solar project as most of its Photovoltaics (PV) modules are sourced from China. In Indonesia, demand for commercial PV panels was down by 70 per cent in the March-April period year-on-year as businesses aborted installation plans and, most importantly, the government cut back electrification project plans. Meanwhile, demand for residential PV systems dropped by up to 100 per cent during the same period as consumers reallocated funding to groceries, bills and savings.
Biofuel production has also diminished. Malaysia, the second-largest exporter of palm kernel shells, faced a nationwide closure of its palm oil plants during early phases of the MCO. Plant closures undermined the global supply of biofuel.
In the Mekong, hydropower projects are at risk as well. The Government of Lao PDR suspended all hydropower construction throughout the country. Similar measures have been taken in Cambodia, which postponed the completion of two hydro projects in March.
However, optimism still shines within the RE market as governments could look towards the RE industry in spearheading the regions clean energy initiatives during the post-COVID-19 period. For example, Vietnam successfully launched its second Feed-in-Tarriff (FiT) scheme for solar projects in April to achieve 20 per cent of the nation's power source from RE by 2030. Additionally, Vietnam's FiT scheme for wind projects is potentially being extended for another two years until 2023, due to COVID-19 disruptions. However, this demonstrates Vietnam's commitment to reduce the impact of COVID-19 in both solar and wind industries.
As ASEAN Member States begin easing and lifting movement restrictions, their governments are considering plans for the post-COVID-19 pandemic, including efforts for both developing and transforming the energy sectors. As competitive sources of human capital, digital technology and capital, U.S. energy companies will have opportunities to engage ASEAN governments and other stakeholders to support regional economic recovery.