Essay Sample on Ripple Effect from COVID-19 on Global Energy

There is an increase in the projections that show an increase in the trend in the annual consumption prediction of energy in the world currently. The rise in energy demand in the world will bring significant challenges in the oil and gas industry sectors effectively. The oil and gas supply rate has dramatically been affected negatively by the COVID-19 pandemic situation; this is because transportation of the oil supply has significantly reduced in the market structure. Certain remote regions produce oil and gas production in the market; however, they have remotely situated a factor that affects oil supply in the market. Various countries have been affected by the market structure's energy demand standards from one perspective to another. There is an increase in the demand among different countries in creating other ways of energy demands in the market. Information from the literature review will present how the COVID-19 pandemic has negatively affected global energy demand in the world currently.

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Literature Review

Different types of studies can provide different facts due to the degree of how much data and the type of data collected. When it is inconsistent from one study to the next, meta-analysis can be used to identify the variation. By contrast, meta-analysis applies objective formulas and can be used for a number of studies. To grasp the degree level of the ripple effect due to the COVID-19 pandemic on global energy, meta-analysis taken from literature can provide the necessary answer. Additionally, pharmaceutical companies, in general, use meta-analysis to gain approval with regulatory agencies for new drugs. This application is also widely used in basic research to evaluate areas like sociology, finance, marketing, and economics. The increase in the COVID-19 pandemic across the globe, the prices of gasoline energy has drastically moved down a factor that has affected the energy sector structure.

Several companies have been affected in one perspective to the other with the pandemic challenge in society (Brons, Nijkamp, Pels, et al. 2008). Stated that prices of crude oil have dramatically increased due to the COVID-19 difficulty in the world. Numerous firms have been significantly affected by the increase in gasoline prices, affecting the energy demand structure. Busse, Knittel, and Zettelmeyer, (2009) stated that gas prices increase has a significant impact on the energy sector in the world currently. More than 80% of the energy sector industries have been forced to transform their operational structures to meet the customers' demands (Chao, Huang, and Jou,2015).

With the COVID-19 pandemic, several energy production companies have been affected in one dimension to the other; most of the companies ran in losses due to the decline of the gasoline demands in the market. Chao, Huang, and Jou, (2015) stated that gasoline prices have increased due to decreased factors that have affected the market structure globally. With the decrease in the demand the gasoline prices, most of the employees have lost their jobs in the energy. The gasoline prices have drastically decreased a factor that has changed the market dynamic of energy products in the market from one perspective to another.

Major Contributions

The price elasticity of the gasoline products has changed the face of demand for energy production in the market structure. According to Havranek and Kokes (2015), the gasoline price elasticity has changed drastically since COVID-19 began in the current society. The pandemic has contributed to a decimated demand for oil, resulting in decrease prices and declining production. IEA Oil Market Report – April 2020 projects, global oil demand is expected to fall by a record 9.3 mb/d year-on-year in 2020. The IEA market report is one of the world's most authoritative and timely sources of data, forecast, and analysis on the global oil market. The gasoline prices have effectively increased a factor that has promoted to decline in price elasticity in the energy sector. Several energy-related organizations have also come together in building a strong and viable structures energy production services. According to the statistics that were done, more than 80% of energy-related structures have introduced active structures in enhancing gasoline prices (Busse, Knittel, & Zettelmeyer 2009).

The COVID-19 pandemic is a significant effect on gasoline prices, a factor that contributed to the decline in the energy demand rate. Renewable energies are currently sorted after means of generating energy used in the manufacture and production services in the organization. There is an increase in the demand among various countries in creating other ways of energy demands in the market. Most of the energy sectors have greatly been affected in one perspective to the other by the pandemic challenges. Against this bleak background, policymakers will need to respond with radical steps. In addition, the significant contribution to contain the ripple effect of COVID-19 on global energy will require the energy-related organizations to introduce strict measures that will help in regulating oil prices in the market structure.

Existing and Proposed Economic Model

In the current business operation model, the Organization of Petroleum Countries (OPEC) plays a significant role. The thirteen members of OPEC sit together and determine the prices of oil globally. They determine the costs, either reducing or boosting the production of oil. Other determinants of the prices include economic news. The oil industry is facing unprecedented disruptions. Other factors that determine the demand for oil are seasonal changes. For instance, the need for fuel increases during the summer travel and the winter seasons. During winter, more heating is required (Albulescu, 2020). Therefore, the business operation model that determines the oil industry prices depends on both human-made and natural factors.

Within the oil and gas industry, different measures are implemented to mitigate the effects of coronavirus. Additionally, industry executives' biggest concern is the decline in prices and global demand. After the discovery of the coronavirus in many parts of the world, different countries introduced lockdowns, which meant that people were not moving from one place to another. Thus, there is no movement, and oil is for movement, so the oil prices went down significantly. The analysts' projections show that the prices of the commodity plummeted by almost 30% in April alone (World Bank, 2020). The drastic reduction of the product means that thousands of people who depended on the oil industry will lose jobs, which also affected the economies worldwide (Kingsly & Henri, 2020). The countries feeling the pinch are the major oil producers in the world.

Model RationaleThe energy supply is a matter of national interest because the oil and gas industry has to change its business operation models to survive in the industry. The model to be should be purely human-made devoid of other natural factors such as seasons, politics, and economic news. The oil and gas companies need to build the highest degree of continuous resilience and flexibility into the long and short-term (Rutakirwa, 2020). They should be aware that the recovery process cannot be constant and linear and therefore adjust their operations down and up.

Demand is the leading cause of the problem facing the industry, and therefore solving the issues related to demand will save the industry. To mitigate the problem, the companies that produce oil should work out a formula for reducing the production of oil by more than half. The agreement in April between the OPEC countries on reducing oil production by 10% was not enough (World Bank, 2020). Still, after the reduction, the prices plummeted further because the demand had declined too. When supply exceeds the demand, the prices of oil decline (Parfomak & Library of Congress, 2019). The reduction will balance the production and the demand and reduce the stress that exists and reduce the stress on the storage facilities.

The model will cause some imbalance in the short term, but the companies will later reap its fruits. Since the oil prices are influenced by several factors that are related to decisions about the output, managing the supply will stabilize the prices. The law of supply and demand is the one that dictates the prices (World Bank, 2020). Therefore, the low the supply, the higher the demand. Since the movement of people is restricted, leading to low demand for oil, the further reduction will match the demand, hence stabilizing the prices. The decline of the supply will not last for long because different countries have begun relaxing their restrictions on movement. Although reducing the supply will affect the industry through reduced profits and job losses, the benefits are also impressive (Walach, 2020). Though the model is sound and workable, the sector should also be supported financially by their respective governments.

Major Findings

The ongoing COVID-19 crisis has had a severe impact on global energy. This is mainly because of the demand for oil as well as the prices have dramatically dropped. The decline in demand for petroleum products globally is primarily attributed to the travel restrictions by many countries. This drop in prices and demands for oil has seen significant decreases in various energy companies stocks by over 50% since the crisis began. With slower growth in all the global countries, the study speculates that the worldwide oil demand to go up by 400000 to 50000 b/d.

As a result of the COVID-19, demand in the gas market has drastically declined. As a result of this decline in demand, prices have also dropped proportionately. For instance, according to IEA 2020, in the USA, prices have dropped by 22%, in the Netherlands by 27%, and in Japan, which is the primary market for Liquefied Natural Gas (LNG), prices have dropped by 44%. This study found out that as a result of the drop in prices, buyers defer the contracted gas deliveries. Instead, they are considering contracts that will see them make higher prices for LNG.

The decline in demand and prices is also evidence in the electricity sector. As a result, electricity prices in Europe have dramatically dropped to a negative extend. This drop in prices is attributed to a decline in consumption since, for instance, Italy's consumption has fallen by 25%, France 20%, and in the United Kingdom by 12% (Albulescu, 2020).

The study finds that although the crisis had impacted on most energy sectors globally, its impact on the solar panel parts and wind turbines wasn't significant. This is mainly because the producers had sufficient raw materials to meet the demand for energy. Although this is the case, the study finds out that the prices of solar panels were slowly increasing. However, wind energy prices have remained unchanged since the supply of resources is diverse and can be sourced from different places in the world. Generally, the crisis has posed a negative impact on renewable energy. Renewable energy companies are unable to meet the installation of equipment deadlines due to delay in deliveries from China.

Conclusion

From this study, it is clear that COVID-19 has had adverse impacts on global energy. It is evident that the crisis has a great hit on the global energy demand. Since it is not predictable the extent of the COVID-19 effects and duration, actions need to be taken to reduce these negative impacts of COVID-19.