LONDON--(BUSINESS WIRE)--SpendEdge, a global procurement market intelligence firm, has announced the release of its position paper on coronavirus impact assessment on the energy industry and risk mitigation measures to streamline sourcing and supply chain operations in this industry.
The pandemic outbreak has exposed the global energy industry to deep impacts to which buyers’ regular contingency plans are no match. The coronavirus impact had a cascading effect on the energy industry as the pandemic-induced business closures have curbed the demand for oil and gas, thereby setting the oil price plummet.
Restrictions imposed on people’s mobility owing to the coronavirus impact have severely eschewing the workforce in the utilities sector which pushed the prospects of business continuity in the energy industry to further jeopardy. While operators explored their options to collaborate with agencies for the temporary workforce, this became an additional financial burden for them. This increase in expense in addition to their declining profit margins has compelled the operators to pass on this expenditure to buyers.
Findings in this position paper stress on the importance of the next weeks that are expected to exert major impacts on the demand curve as the coronavirus impact becomes more evident and troubling in the energy industry.
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Demand-Supply Trends Governing the Energy Industry Sectors
According to the projections, the oil and gas industry will experience a significant decrease in demand across regions such as the US, UK, and other European countries that are identified among the COVID 19 hotbeds. This will result in oil prices further plummet and hamper spend growth prospects in the energy industry as the coronavirus impact intensifies.
Demand-Supply Trends in the Oil and Gas and Oilfield Services Sector
- To contain the rapid fall in oil prices, OPEC and its partners are collaborating towards oil and gas production cut by 10%.
- Oil storage levels across certain regions have reached their full capacity. This is compelling suppliers to shut down oil wells which are resulting in a drastic reduction in demand for oil field services.
Demand-Supply Trends in the Nuclear and Renewable Energy Sector
- The global urgency of shifting to cleaner sources of fuel has taken backstage owing to the steep fall in oil prices. This has reduced the frequency of R&D work related to renewable energy sources which are expected to create product and supply downsides as the coronavirus impact on the energy industry continues to get worse.
- Nuclear energy suppliers have minimized operations and have rescheduled or postponed outages for critical functionalities such as nuclear fuel loading activity. This will lead to the minimization of human intervention within the operations of the suppliers.
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Risk Mitigation Activities to Address the Coronavirus Impact on the Energy Industry
Negotiation with respect to the payment period
To look at the brighter side of this economic downturn owing to the coronavirus impact, buyers will exercise better negotiation power over suppliers owing to the decline in demand. Buyers should take the liberty to push the payment period by at least 30 days to ensure that there is enough time to generate funds (for supplier payment).
Revisiting contract terms
Global commodity and energy prices are expected to undergo significant volatilities some time owing to the coronavirus impact on the energy industry. It will be prudent of buyers who account for a high expenditure on commodities and energy items as key inputs to re-engage their suppliers and explore mechanisms to safeguard the upsides in pricing. It is advisable to fix the short-term procurement price or at least keep a maximum limit on upside price movements.
Development of mutual risk-sharing strategy with suppliers
Buyers and suppliers should work in collaboration with respect to the identification of issues associated with the distribution of power. One of the major areas where buyers and suppliers can collaborate in an effective manner would be to identify maintenance related issues and work collaboratively to solve such issues through the usage of minimal manpower.
To stay on top of latest trends and supply market information, check out SpendEdge’s knowledge center on coronavirus impact assessment.
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