GECF Joins Discussion on the Economic and Financial Impact of Coronavirus on the Natural Gas Market
The Gas Exporting Countries Forum (GECF) Secretariat participated in the webinar organized by Refinitiv (Thomson Reuters) on the Economic and Financial Impacts of Coronavirus (COVID-19).
The webinar reviewed the economic impact of COVID-19 on the global economic growth with highlights on natural gas and oil markets, followed by a comparison between the economic impact of COVID-19 and the SARS on the Chinese economic growth and some highlights of the economic stimulus packages announced in the US and Europe. Finally, the economic impact on the oil and gas industry, that suggested monitoring of the level of oil storage and companies balance sheets to assess the full economic impact that could lead the oil price to go through another wave of free-fall.
COVID-19 forced a global lockdown, causing the fastest economic shock in the history. JP Morgan quantified the economic impact to cause the global economy to shrink by 1.1% in 2020.
On the national level, according to China International Capital Cooperation, China’s growth in 2020 has been revised down to 2.6% compared to the prosperous predictions of 6% in January 2020. Expectations for the US economy after the sudden economic stop is more severe. Goldman Sachs forecasts the economy in the US to shrink by 25% in Q2 and by 3.8% over 2020 with expectations of having positive economic signals starting from Q3.
JP Morgan expects the US economy to shrink 14% in Q2 and 1.5% over 2020. Europe, the new epicentre of the speared of the COVID-19, is projected by JB Morgan to have its economy to shrink by 5% in 2020 while Morgan Stanley expects 22% shrink in the Eurozone economy in Q2. The UK has the worst shrink in Q2 of about 30% as predicted by JP Morgan. The GDP contraction is attributed to the reduction of demand on non-food goods and distribution of supply chains over almost all industries (mining, transportation, employment, tourism, and manufacturing).
The economic impacts of COVID-19 are more aggressive than the impacts of SARS in 2003. During the SARS outbreak in Q2 of 2003, the GPD of China decreased by 1% which can be considered as minor compared to what had happened and what is happening by COVID-19.
The US Federal Reserve and the European Central Bank have cut interest rates to zero. Besides, stimulus packages have been introduced by governments over the world to lessen the impact of the economic recession. In the US, $2 trillion stimulus deal was approved by the White House and Senate. In Europe, the European Bank announced €750 billion to be injected in the European markets. However, the World Economic Forum argues that the impact of these moves could be limited and may not be suitable to contain the economic impact of COVID-19.
Impact, caused by the COVID-19 on energy markets triggers various discussions and disputes, which the GECF Secretariat actively participates in.
In an earlier interview, HE Dr. Yury Sentyurin, the Secretary General of the GECF stressed that the virus is harming heavily the global economy. To mitigate this negative footprint, the global community has to provide a well-balanced and adequate response.
He envisaged, that COVID-19 will harm the international trade including the natural gas market, saying that “the natural gas market cannot be placed under regulatory frameworks such as that in the oil market because it is theoretically and technically impossible to set policies to interfere in the natural gas market”.
The impact on the natural gas market is going to be temporary and will vanish once the world gets back to normal, GECF Secretary General noted. Conversely, the oil market is suffering from the politics disrupting the supply together with the demand shock imposed by the pandemic, causing more uncertainty on the future of oil price even after the settling of the epidemiological situation.
The oil and gas industry has seen a phenomenal condition where the market is under a surplus of supply because of the oil price war and demand collapse because of the global lockdown and the spread of fear caused by the COVID-19. Brent price is down nearly 50% since the beginning of March with expectations for the market to see the second wave of price fall supported by the announced lockdown of the 3rd oil consumer, India, leaving more oil into storage in the coming weeks and months. This is forcing more pressure on finding affordable oil depository, especially in April with oversupply at its peak. Rystad Energy expects this scenario to drive Brent price to fall to less than $10 per barrel.
Nowadays, oil and gas companies are facing a very challenging period in which ones with strong balance sheets, high cash and limited debt, could manage to navigate safely through the crisis and, unfortunately, they are not many.