The coronavirus that has killed more than 2,500 people since the outbreak started in December last year has also slashed China’s CO2 emissions by as much as a quarter, according to Carbon Brief reporting, noting that the epidemic led to a slump in energy demand and, as a consequence, electricity generation.
This slump in energy demand wiped out as much as 100 million tons of carbon dioxide compared with the same time last year, the Carbon Brief calculated. This represented 6 percent of global CO2 emissions.
The news is good for the environment but not so good for the oil industry. According to the Carbon Brief analysis, refiners in Shandong—China’s oil teapot country—have lowered their processing rates to the lowest since 2015, when the oil price crisis raged.
Earlier reports said Chinese refineries are operating at the lowest run rates in six years. At the same time, some private refiners are buying oil in anticipation of the demand recovery, which will inevitably follow once the epidemic begins to ebb.
How soon this will happen remains an open question, but there is little doubt that the impact of the coronavirus on oil demand—and coal demand, for that matter—will be only temporary. However, it will be more prolonged than the usual seasonal effect on energy demand of the Lunar New Year celebrations.
In a chart, the Carbon Brief shows how coal consumption dips every year during the Lunar New Year holiday week when all industrial activity winds down. This year, however, the curve of the dip is longer. Coal consumption has yet to begin its recovery.
Given China’s reliance on fossil fuels, what’s true of coal must be true of oil as well, so we may be looking a few more weeks of depressed oil demand at least. The biggest energy authorities are already preparing the market for a continue slump in demand. Related: 5 Top Alt-Energy Stocks Storming Wall Street
Earlier this month, OPEC, the International Energy Agency, and the Energy Information Administration all revised down their oil demand projections for this year.
The EIA was the most pessimistic, expecting demand to take a hit of almost 380,000 bpd, with 190,000 bpd slashed by the coronavirus epidemic.
According to OPEC, oil demand this year will grow by 990,000 bpd, down by 230,000 bpd from its projection made in January.
The EIA, for its part, warned of an actual decline in global demand during the first half, because of the coronavirus outbreak. The agency saw this decline at 435,000 bpd—the first demand contraction in ten years.
Yet oil and coal consumption could recover and, as the Carbon Brief notes, it could recover pretty quickly, as long as there is demand for the industries that use them the most. This, however, is far from certain and this is more bad news for oil bulls.
Take car sales, for example. These, thanks to the outbreak, are expected to take a 30-percent hit from last year’s February. But car sales are just one facet of one of the world’s largest economies. This economy is now facing a major crisis because of the extended quarantines and travel bans that were the first responses to the outbreak.
According to a recent Bloomberg analysis, many small and midsized businesses in China are facing bankruptcy unless banks throw them a lifeline after a month of inactivity because of the outbreak. And the Chinese economic growth was already slowing down before the coronavirus emerged in Wuhan.
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A crisis seems almost inevitable. That would be more good news for the environment as fossil fuel consumption would remain subdued and so would carbon dioxide—and nitrous dioxide—emissions. It would, however, be bad news for all those people who will lose their jobs when companies begin shutting down should Beijing allow the crisis to unravel.
By Irina Slav for Oilprice.com
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