COVID-19, the energy sector and the environment

By Edgar Mana-ay

The empty streets for more than two months now due to the coronavirus disease 2019 (COVID-19) lockdown resulted in adverse effects to the oil industry worldwide and some profound favorable effects to the environment.

Due to the lockdown condition imposed by most countries around the world, demand for petroleum fuel was reduced by more than 50%. Following the law of supply and demand (in economics), the prices of crude started to drop at the start of the pandemic in December from an already precarious $50 per barrel or bbl (1 barrel is 180 liters), and spiraling to the now prevailing world price of negative $20 per barrel.

The oil industry attaches the word “negative” if the oil price is below $30/bbl because it is at this price benchmark that oil producers are operating at a huge LOSS. As I have written in my previous column, only Saudi Arabia can still make money at $35 level but everybody, especially the shale oil and the offshore deep water producers, will already operate at a loss below that $35 price level and much more now at the $20 mark.

The oil price crash that accelerated in March and April drove prices into negative territory for the first time ever since, and did not spare anyone in the energy sector in the US, especially the oil state of Texas. This resulted in the idling of more than 150 drilling rigs in the entire US and the halting of almost half of American oil exploration. In Texas alone, 13 energy companies have laid off more than 4,000 highly skilled workers in the last three months. Five of the largest energy companies in Texas reported an aggregate loss of $30 billion, with Baker Hughes reporting the biggest at $12 billion.

In our country we are importing raw and finished petroleum products at P7.8 billion per day (2018 figures). Assuming 60 percent (it could be more) was saved because of the COVID-19 lock down, then that amounts to P281 billion in just two months and still counting, hopefully not until end of May. That amount of savings is now part of our social amelioration fund (SAF) distributed to the Filipino people in dire need during this pandemic.

Overall, the American oil industry, while suffering tremendous losses, is also as resilient as ever. Stopping oil production is just a temporary setback for them because the oil resource underground is still there, waiting for the right price to resume production again. Meanwhile, Uncle Sam is now on a buying spree for crude oil from other countries (not exporting anymore unlike 7 months ago when crude was at $50/bbl.) because of the bargain price and storing it underground in salt domes along the shorelines of Houston up to Louisiana. They call this the Strategic Petroleum Reserve (SPR) of which Uncle Sam normally maintains 900 million barrels of stock level. (I have published an article previously on the SPR of the US and how these salt domes underground came about). After unloading its crude cargo, outgoing tankers now carry back chemical products from the various refineries along the 70-kilometer Houston Port. These are the basic materials in the manufacture of plastics such as polypropylene, polyethylene, butane and other polymers. If you notice nowadays, all masks and personal protective equipment (PPE) in the fight against COVID-19 are made of plastics! Only Uncle Sam has the refining capacity to supply the factories all over the world with the basic materials from crude oil and natural gas to produce plastics which nowadays is very much in demand to produce PPE’s.

When will economic activity and demand for energy revive? For the private oil companies, it does not look like any time soon. May is likely to be another brutal month for the oil industry. By June, analysts hope the economy might start to come back to life. But if it takes much longer, as the owner of a small oil company concluded: “Everyone is going to go broke!”

 

This monster called COVID 19 also contributed to some very desirable effects to the environment. In Metro Manila, due to the very limited vehicles on the streets, the skies are now very clear and blue, devoid of the ugly smog and black exhaust from moving vehicles. In normal times, people staying at J.M. Basa St. for a long period of time, such as the side walk vendors and stores owners, get a black marks on their handkerchief when they wipe their nostrils caused by the soot from the exhaust of passing vehicles. Now their hankies remain as white as ever.  A former student of mine who has a hardware store in Iznart St., is covering his display of paints in tin cans with plastic sheet then tied it with a rubber band. I told him it’s ugly to look at, but he said if his paint in cans stays at the shelf for more than two months, the top portion becomes corroded and turns black, which is not attractive to customers anymore. That is how passing vehicles blacken and corrode not only the tin cans on display but also the lungs of people.

COVID-19, once and for all also, proved that it is NOT the coal fired power plant that pollutes the atmosphere as claimed by RISE (Responsible “kuno” Ilonggos for Sustainable Energy), since coal plants in Iloilo continues to operate during the lockdown period when there were  almost no cars on the roads. After 20 long years, this is our vindication with Andy Moncada and Lemuel Fernandez.

When economic activities return to normal, our government particularly Land Transportation Office (LTO) should now be strict in supervising the different exhaust testing centers allowing only cars that passed a very stringent exhaust test. LTO should re-enforced it on the street by random testing to further eliminate cars with exhausts that are detrimental to the environment and we are seeing a lot of them on the road. But again, LTO will always say: “We don’t have the modern instruments and the manpower to do it” and this campaign to maintain clean air in Iloilo City (COVID-19 era) will again be futile.

Maybe we should refer LTO to what George Barnard Shaw (1856-1950) said: “I am sick of reasonable people: they see all the reasons for being lazy and doing nothing.”