Coronavirus: tracking the impact on European gas, power and chemicals

Our experts have been closely tracking the impact of the coronavirus pandemic, delivering rolling updates and analysis on a global and regional level. Peter Osbaldstone, Research Director, Europe Power and Renewables, and Patrick Kirby, Principal Analyst, EMEARC Olefins, share a snapshot of our view of three key markets.

European gas markets: 16.9 bcm of gas demand at risk

Coronavirus containment measures have had a major impact on gas demand. Colder-than-average weather offered some short-term upside in late-March, but in April demand fell below the five-year average in Europe’s three largest gas markets – Italy, the UK and Germany.

The residential sector has been more resilient than the commercial and industrial sectors, due to the number of people now working from home. However, with milder weather comes the end of the heating season, which will put further pressure on demand.

Our weekly update provides detailed country reports for Germany, UK, Italy, France, Spain, Netherlands and Belgium – which together account for over 70% of European gas demand. If current containment measures persist for three months, we now estimate that 16.9 billion cubic metres (bcm) of gas demand will be lost across these seven markets.

Strong storage injections are helping to balance falling demand so far. But at the end of March, Europe had 57 bcm of storage in place – a record-high for the time of year. Could Ukraine hold key to Europe’s gas storage crunch?

Visit the store to read this week’s detailed ‘Coronavirus: Impact on European gas markets’ update.

European power markets: renewables exert a greater influence

The ongoing lockdowns have led to weak power demand across Europe. Year-to-date demand is down between 3% and 10% across major markets – but early signs of an upturn have been seen in Spain.

Electricity demand in Spain has fallen sharply since March 16th, when nationwide lockdown commenced. But with the government easing restrictions on certain sectors – including constraints on energy-intensive construction and manufacturing activities – last week saw a change, with demand increasing by 7% week-on-week.

At the same time, generation from wind varied from 887 MW to over 10.3 GW with a distinct mid-week upturn in production. Output from solar peaked at 6.9 GW. As the contribution of wind and solar rose, the market was balanced by reductions in power supply from hydro, gas and net imports (with exports seen in some hours).

Increases in renewable supply have been seen across all major power markets in 2020. This, in combination with low demand, has put coal and gas generation in decline – and enhanced the influence of renewables on prices.

Variable renewable generation, particularly wind and solar, pays no heed to whether demand is high or low – it’s produced whenever the resource is available. And when high levels of low-carbon electricity are supplied into a smaller market, prices are pushed down. With demand as weak as it is, periods of higher renewable output increase the pressure on market balance. Episodes of low and negative prices have become more frequent – with a low of -78.2 EUR/MWh seen in Germany last week.

But renewable production is not the only influence on market prices. Towards the end of last week, forward power prices rose in response to EDF’s announcement that output from its French nuclear fleet will fall to 300 TWh in 2020, down from 380 TWh in 2019. Lower nuclear output will impact the volume of power France exports to its neighbours, offering potential relief to some thermal generators.

Our weekly ‘Coronavirus power and renewables market impact update’ is a detailed look at the global wind, solar, storage, and electric vehicle supply chains, as well as regional power markets. Find out more in our complimentary key findings and report brochure.

Chemicals: three consumption boosts – but recession looms

Before the shockwaves of the coronavirus outbreak, growth prospects were robust for petrochemicals. The energy transition meant it represented the fastest-growing part of the oil barrel, attracting significant investment as a result. However, too much capacity, added too quickly, put the threat of a supply-driven downturn on the horizon.

Coronavirus has altered the picture. Amongst its effects are three near-term demand boosts. First, widespread stockpiling of packaged items such as cleaning products and bottled water. And while the stockpiling is abating, the increased use of delivery services is providing a secondary boost – again, particularly to packaging. Medical and hygiene products are providing a third uplift, as global communities fight the spread of the virus.

Linked to this, we’re also seeing a pause on the cultural shift away from single-use plastics. Caution around transfer of the virus is driving a short-term move back to disposable usage and lower recycling.

These near-term demand boosts are a positive. But they could be overshadowed by the threat of a deep global economic recession, given the strong correlation between GDP activity and petrochemical consumption. On the supply side, overcapacity could be significantly exacerbated by a recession-driven drop in demand.

Against this economic backdrop we expect to see some diversion of focus away from large petrochemical investments. Project delays could further intensify or ease the overcapacity situation longer-term, depending on how the balance of consumption versus capacity-build plays out.

Our ‘Coronavirus and polymer demand’ report provides a weekly update from our global experts. The latest edition takes a focused look at PET resin markets.

Alternatively, you can access a complimentary copy of the introductory report by reading Setback or shock: when will plastics demand bounce back from coronavirus?