The impact of COVID-19 on Asian oil demand
Over the past decade, Asia has been the global driver of hydrocarbon demand. Since 2011, the region has accounted for nearly 70 percent of the growth in demand for oil and oil products.
The coronavirus pandemic and regional lockdowns have put the brakes on Asia’s growth. In 2020, Oliver Wyman expects Asian demand for oil and gas to fall by 15 percent, with the possibility of a 17 percent drop if a second wave of lockdowns occurs. That translates to a demand drop of five million barrels a day, roughly the consumption of the entire Indian market.
China is expected to be one of the harder hit markets, given the impact of the lockdown was felt from the beginning of 2020. While recovery has been relatively swift, the potential for subsequent waves is still present, as evidenced by aggressive approaches in tackling regional outbreaks with quick control measures.
Across other key Asian economies, Japan and Korea are less badly affected—with 10 percent hit in the base case scenario. While transportation fuels have not been spared, their export-oriented petrochemicals sector continues to drive demand for feedstock fuels, particularly naphtha.
Beyond 2020, Asian oil demand will likely see some recovery in 2021, though overall consumption is expected to fall three percent short of its 2019 peaks. Asia will not see growth from pre-pandemic figures until 2022, when we project a one percent expansion. In the worst-case scenario, multiple waves of COVID-19 infection and lockdowns continue to create demand drag of 12 percent in 2021 and 10 percent in 2022.
Winning business models for the future
In the wake of COVID-19, oil players will need to sharpen their ability to drive customer relationships and loyalty through digitization of customer touchpoints, given in-person interactions are likely to be more controlled.
There is also significant potential to retool petrol stations in a push towards non-fuel offerings such as as logistics centres and grocery pick up points, given that filling up at retail petrol sites will likely remain a key physical interaction point in customers’ day-to-day lives.
Radical shifts in market dynamics gives existing players the opportunity to reposition and retool assets, particularly by adjusting refinery product slates away from the traditional focus of transportation fuels towards petrochemicals.
Oil and gas players will also likely further develop trading arms to capture incremental revenue, particularly valuable and effective during periods of prolonged volatility. This will also be a crucial capability as companies look to enhance supply security in preparation for future shocks.
Fresh private investment by large regional players including family-owned SEA conglomerates will likely be a recurring theme in the near-to-medium term. Depressed valuations in the market will support players looking for exposure to sub-sectors with more attractive recovery profiles, which include retail fuel sites and petrochemicals.
Finally, there will likely be divergence in how incumbent players tackle the fallout of the COVID-19 crisis. On one hand, current dislocation of assets and equity prices creates opportunity to pivot effectively and accelerate down the renewables path. On the other, some players will see this as an opportunity to double down on hydrocarbons by pushing towards greater vertical integration or expanding geographically into markets with demand upside.
Form Energy receives funding power for iron-air batteries
Form Energy believes it has cracked the conundrum of commercialising grid storage through iron-air batteries - and some of the biggest names in industry are backing its potential.
The startup recently announced the battery chemistry of its first commercial product and a $200 million Series D financing round led by ArcelorMittal’s XCarb innovation fund. Founded in 2017, Form Energy is backed by investors Eni Next LLC, MIT’s The Engine, Breakthrough Energy Ventures, Prelude Ventures, Capricorn Investment Group and Macquarie Capital.
While solar and wind resources are the lowest marginal cost sources of electricity, the grid faces a challenge: how to manage the multi-day variability of renewable energy, even in periods of multi-day weather events, without sacrificing energy reliability or affordability.
Moreover, while Lithium-ion batteries are well suited to fast bursts of energy production, they run out of energy after just a few hours. Iron-air batteries, however, are predicted to have theoretical energy densities of more than 1,200 Wh/kg according to Renaissance of the iron-air battery (phys.org)
The active components of Form Energy's iron-air battery system are some of the cheapest, and most abundant materials: iron, water, and air. Iron-air batteries are the best solution to balance the multi-day variability of renewable energy due to their extremely low cost, safety, durability, and global scalability.
It claims its first commercial product is a rechargeable iron-air battery capable of delivering electricity for 100 hours at system costs competitive with conventional power plants and at less than 1/10th the cost of lithium-ion and can be optimised to store electricity for 100 hours at system costs competitive with legacy power plants.
"This product is our first step to tackling the biggest barrier to deep decarbonisation: making renewable energy available when and where it’s needed, even during multiple days of extreme weather, grid outages, or periods of low renewable generation," it states.
Mateo Jaramillo, CEO and Co-founder of Form Energy, said it conducted a broad review of available technologies and has reinvented the iron-air battery to optimise it for multi-day energy storage for the electric grid. "With this technology, we are tackling the biggest barrier to deep decarbonization: making renewable energy available when and where it’s needed, even during multiple days of extreme weather or grid outages," he said.
Form Energy and ArcelorMittal are working jointly on the development of iron materials which ArcelorMittal would non-exclusively supply for Form’s battery systems. Form Energy intends to source the iron domestically and manufacture the battery systems near where they will be sited. Form Energy’s first project is with Minnesota-based utility Great River Energy, located near the heart of the American Iron Range.
Greg Ludkovsky, Global Head of Research and Development at ArcelorMittal, believes Form Energy is at the leading edge of developments in the long-duration, grid-scale battery storage space. "The multi-day energy storage technology they have developed holds exciting potential to overcome the issue of intermittent supply of renewable energy."
Investors in Form Energy's November 2020 round included Energy Impact Partners, NGP Energy Technology Partners III, and Temasek.
In May 2020, it signed a contract with Minnesota-based utility Great River Energy to jointly deploy a 1MW / 150MWh pilot project to be located in Cambridge, MN. Great River Energy is Minnesota's second-largest electric utility and the fifth largest generation and transmission cooperative in the US.
Last week Helena and Energy Vault announced a strategic partnership to identify additional opportunities for Energy Vault’s waste remediation technologies as the company begins deployment of its energy storage system worldwide. It received new investment from Saudi Aramco Energy Ventures (SAEV) in June.
Maoneng has revealed more details of its proposed 240MWp / 480MWh Battery Energy Storage System (BESS) on Victoria’s Mornington Peninsula in Australia (click here).
The BESS represents hundreds of millions of dollars of investment that will improve electricity grid reliability and network stability by drawing energy from the grid during off-peak periods for battery storage, and dispatching energy to the grid during peak periods.