19 March The impact of coronavirus on the energy and resources industry March 19, 2020 By AMPLA Admin General, Industry, Resources and Energy COVID-19, Resources and Energy 0 The last few weeks have seen the world face an unprecedented disruption with the novel coronavirus (COVID-19). First reported in China, we’re now seeing many countries shutting down for periods of time to try to contain the spread of the virus. Australia is facing a particularly difficult year given the bushfires that ravaged the country recently. Now with COVID-19 adding to the pain, the energy and resources industry is being impacted in several ways outlined below. Transport is restricted With borders closed and transport restrictions in place in many countries, this is impacting both freight and people movements. Reduced airline and other transport mean lower demand for oil and gas, which is likely to have a direct impact on prices and the industry more broadly for the next few months. Transport restrictions are also affecting raw materials, by-products (like sulphuric acid in copper production, for example) and final product, with some reports indicating that smelters and refinery productivity is being impacted as a result. It’s not clear as yet how long productivity reductions will be in place, and with the increased amount of shutdowns globally, the impact is likely to be felt in multiple regions. Quarantine is impacting productivity As people are quarantined to slow the spread of the virus, this will no doubt have a direct impact on productivity. As a result, more projects are expected to be delayed and demand for machinery reduced. It’s also expected that retail activity will reduce, with fewer people purchasing cars and appliances. The demand for many resources may also be reduced as a result and the stock levels increased. How some are responding The government has already stepped in offering relief to some industries, most notably the airline industry received a $715m package this week which will certainly help reduce the impact. According to the Minister for Resources, Water and Northern Australia, Keith Pitt, last week “It is clear resources exports are holding up with companies activating contingency plans to ensure their supply chains are maintained.” This view is no doubt being challenged by the recent volatility seen in the Australian Stock Exchange coupled with new restrictions on transporT. Some facilities are responding to a decline in production by bringing forward periodic maintenance work. While others are reviewing contractual terms and insurance policies to determine if they have any recourse or can trigger force majeure clauses. Some contracts simply may not allow companies to reduce production which may be frustrated further by transport issues and lower demand. For those organisations that are currently negotiating arrangements, specifically ensuring that COVID-19 and any other pandemic are specifically covered is also prudent. In particular, addressing who bears the cost and risks associated with shutdowns, oversupply or inability to supply are all contingencies that now need to be addressed. The issue with COVID-19 is that no one knows how long the shutdowns will continue. If the virus can be brought under control quickly, the long-term impact may be able to be absorbed over the course of the year. But if it’s prolonged in major production centres, we may soon face shortages that will have a ripple effect across multiple industries and economies. It’s still too early to say how long it will be until life returns to normal, but we’re keeping a close eye on the situation. Related Articles The states boost the energy and resources sector This year will be remembered for the many challenges that it brought to both individuals and industry. As Australia starts to return to some normality, many states are looking to boost industry, increase jobs and innovate for the future. In this article, we look at various state initiatives designed to boost the energy and resources sector. Energy industry and government response to COVID-19 In response to the coronavirus (COVID-19) crisis, government and industry have come together to ensure the community, economy and industry are supported. The Council of Australian Governments Energy Council (COAG Energy Council) has formed the Energy Coordination Mechanism (ECM) which is expected to have a complete plan by the end of April. The immediate focus of these efforts has been on four areas How foreign investment changes may impact the mining and energy sector In early June 2020, the government announced a review of the foreign investment rules, expanding them to apply to all foreign investors in anything deemed a ‘sensitive national security business’. The changes are scheduled to come into effect on 1 January 2021. There are concerns that this will impact foreign investment in the mining and energy sectors, and in particular the critical minerals space. Submission - DISER Consultation Paper December 2020 ‘Enhancing Australia’s decommissioning framework for offshore oil and gas activities’ The States continue to invest in the industry As a testament to the importance of the energy and resources industry to the economy and job growth, State governments continue to invest in the industry as part of their COVID-19 recovery plans Changes to the Fair Work Act may benefit the energy and resources sector The energy and resources sector is a significant contributor to the economy, and its impact is estimated to continue to grow over the next decade. The Australian Resources and Energy Group (AMMA) estimates that the sector will add over 24,000 new workers by 2026 to support 98 new and expansion projects worth over $83 billion. The roles available could double depending not the construction and flow-on work required. Western Australia and Queensland are expected to benefit the most from these initiatives. Showing 0 Comment Comments are closed.