With the uncertainty and ever-changing environment resulting from the Covid-19 pandemic, it is difficult to predict what the impact will be on South Africa's energy sector; however, there are different scenarios that could play out and industry role-players will need to navigate these new energy realities.
This was indicated by speakers during a May 28 webcast hosted by the South African National Energy Association (Sanea).
FTI Consulting Energy and Natural Resource senior MD Claire Lawrie highlighted three possible scenarios − recovery, resurgence and runaway − that could play out in the country, and how these would impact the energy sector.
The recovery scenario would entail strict containment of the disease throughout the year, followed by stabilisation and recovery of the economy. This would entail effective reconciliation of physical distancing with economic activity.
For the energy sector, this would result in a drop in oil and fuel demand, with demand likely to be up to 10% below the pre-Covid-19 curve.
Refineries in the country would reopen, but this would be based on lower breakeven targets and structural changes in fuel demand affecting some refineries more than others.
Secondly, the resurgence scenario would entail a surge in infections and lockdowns, which would result in market volatility.
The stress on the health systems in this scenario would cause a repeated stop-start effect of lockdowns going into 2021.
For the energy market, the volatility in markets with demand oscillations, would result in supply swings from imports and local refineries' supply.
The South African macroeconomic environment would be subjected to deterioration and financial contagion.
This would see high breakeven refiners close permanently or reduce capacity to up to 60%.
Lastly, the runaway scenario would entail runaway infections with ineffective and disjointed containment, which would result in prolonged economic depression.
For the energy sector, this would mean a prolonged depression for the liquid fuels industry.
The dislocation of global trade would also impact on the country’s energy sector, in terms of imports, given that it imports the majority of its oil.
The country would also likely have to import refined products in this scenario, as high breakeven refiners would close.
The country would also see a prolonged drop in demand for electricity.
Electric Power Research Institute (EPRI) senior regional manager Barry MacColl said the pandemic offered an opportunity for the sector to transform; however, he noted that, typically, when crises hit, people tend to revert to the old, comfortable ways, and shy away from change.
He noted that the pandemic had not impacted the technology assets used in the power sector at all, and that the impacts have mainly been psychological in terms of ways of working, and market changes.
World Energy Council CEO and secretary general Dr Angela Wilkinson, meanwhile, shared insights from two rounds of global surveys undertaken by the organisation.
While on a global level, energy firms are managing to “keep the lights on”, 96% of firms have been impacted by the pandemic, with major impacts on productivity, demand and cash flow.
In a post-crisis world, more than half of the respondents indicated that digitalisation spill-over effects and resilience capabilities were emerging long-term implications for energy organisations.
From an African perceptive, expectations differed slightly to the global view, with more expecting a recovery of the sector to a pre-crisis basis, within 6 to 12 months of peak crisis; while 20% expect a new normal for the sector.
The pandemic has also had an impact on transition movements and digitalisation strategies. For the former, a third of organisations are redesigning their climate change-related programmes and redesigning their financial priorities.
There has been a difference of opinion with regard to the impact on climate change strategies, with some expecting that the pandemic would delay or derail climate change plans, while others believe it offers the opportunity to bolster these movements.
For the latter, companies have had to learn within a very short period how to work digitally, thereby accelerating digital strategies.