The energy sector post COVID-19 – Refueling the economy

India’s energy sector has shown surprising resilience in the face of the COVID-19 pandemic with supplies holding up admirably [1] despite the global turmoil in financial and commodity markets. From oil wells and mines to nozzles and burner tips, the energy supply chain has remained steady. This, however, has come at a cost. Energy demand has dipped sharply as nearly one-third of the global population stayed indoors. Supply, which was already surpassing requirements and thereby putting pressure on prices, has now been deeply impacted by the demand fall-off. Brent crude, the relevant marker oil prices for India and the region, is at a twenty-year low. West Texas Intermediate (WTI), the U.S. marker, dropped below zero on the back of shrinking energy storage and unwinding of forward contracts. Across the world, supertanker ships are serving as floating storage. While the electricity sector has been largely insulated from oil price fluctuations, the sudden dip in revenue and cash collections have left most Indian energy companies financially imperiled.

Priorities in a post COVID-19 world

The recovery in the energy sector is expected to follow that of the overall economy. Kick-starting economic activity will depend on the effective containment of the virus and availability of a vaccine to the general public. The fortunes of the energy sector will also be determined by certain factors native to players in this sector. Here, we foresee three principal challenges that industry stakeholders will have to address as they adjust to the ‘new normal’.

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