COVID19 and Energy: What McKinsey Thinks
On Tuesday, April 28, I attended an online seminar on Energy and COVID19 organized by the Harvard Undergraduate Clean Energy Group (https://www.huceg.org/) with Scott S. Nyquist and Luciano Di Fiori both of the consulting firm McKinsey and Company. I’ve heard Scott Nyquist speak on energy a few times over the years, usually at MIT, and have found him to be informative even though our perspectives are very different.
The COVID19 scenaria McKinsey is examining now include
Virus contained — based upon China’s 6-8 week shutdown
Vaccine — 12 – 18 months away plus the time it takes to innoculate the world population (at least another 12 – 18 months), similar to the expectation author Laurie Garrett reported to Frank Bruni in the NYTimes over the last few days
Waves — there will almost certainly be a second wave of COVID19 and possibly multiple waves until we have a vaccine.
In terms of energy, liquid fuels demand will take 2 — 4 years to recover; gasoline use is estimated to decrease 60% under lockdown; natural gas is down 5-10%. There will be excess supply and dropping prices which means that fracking will become even less economic (a conclusion I draw which Nyquist and Di Fiori did not offer). Global oil products demand will be down 6.7 -13.0 million barrels per day pushing refinery levels and margins to historically low levels and LNG [liquid natural gas] may take 5-7 years to come back to stable prices, lower with occasional flare ups of higher prices as things equalize. McKinsey expects no long-term consequences to demand, but is monitoring for changes. I don’t agree with McKinsey about no long-term changes in demand.
Electric power demand is down 3-5% and peak load down by 18-24%. Electricity peak times and amounts have changed due to more people staying at home, primarily from increased air conditioning.
The airline business is down to 20% of its former business and will take a long time to come back. Cruise lines are in an even worse position with worse projections for the future.
GDP growth is going to be negative for about 2 years and then come back but to 2019 levels, at best.
There may be a very cautious consumer culture, as after the Depression, coming out of the pandemic. The frugality imposed by the Great Depression affected all the generations that lived through it for decades afterwards.
Economic growth may be much slower after this. Companies will be less likely to hold debt and become very cash conscious.
Nyquist believes that governments will be much better prepared for the next pandemic but “we have to pay for this” and government debt will be much higher. I do not have as much confidence as Nyquist does in the future preparations of any government in the USA but will be happy to be proved wrong.
The COVID19 scenaria McKinsey is examining now include
Virus contained — based upon China’s 6-8 week shutdown
Vaccine — 12 – 18 months away plus the time it takes to innoculate the world population (at least another 12 – 18 months), similar to the expectation author Laurie Garrett reported to Frank Bruni in the NYTimes over the last few days
Waves — there will almost certainly be a second wave of COVID19 and possibly multiple waves until we have a vaccine.
In terms of energy, liquid fuels demand will take 2 — 4 years to recover; gasoline use is estimated to decrease 60% under lockdown; natural gas is down 5-10%. There will be excess supply and dropping prices which means that fracking will become even less economic (a conclusion I draw which Nyquist and Di Fiori did not offer). Global oil products demand will be down 6.7 -13.0 million barrels per day pushing refinery levels and margins to historically low levels and LNG [liquid natural gas] may take 5-7 years to come back to stable prices, lower with occasional flare ups of higher prices as things equalize. McKinsey expects no long-term consequences to demand, but is monitoring for changes. I don’t agree with McKinsey about no long-term changes in demand.
Electric power demand is down 3-5% and peak load down by 18-24%. Electricity peak times and amounts have changed due to more people staying at home, primarily from increased air conditioning.
The airline business is down to 20% of its former business and will take a long time to come back. Cruise lines are in an even worse position with worse projections for the future.
GDP growth is going to be negative for about 2 years and then come back but to 2019 levels, at best.
There may be a very cautious consumer culture, as after the Depression, coming out of the pandemic. The frugality imposed by the Great Depression affected all the generations that lived through it for decades afterwards.
Economic growth may be much slower after this. Companies will be less likely to hold debt and become very cash conscious.
Nyquist believes that governments will be much better prepared for the next pandemic but “we have to pay for this” and government debt will be much higher. I do not have as much confidence as Nyquist does in the future preparations of any government in the USA but will be happy to be proved wrong.
posted by gmoke @ 6:05 PM
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