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With winter rapidly approaching in the Northern Hemisphere, the COVID-19 pandemic is encouraging families to purchase outdoor heaters. Restaurants and bars are also eager to buy them for outdoor food and drink, and Google searches for “patio heating” are breaking all records. This type of heater uses electricity or liquefied petroleum gas such as propane.
In the coming months, the energy needs of the population will increase considerably as millions of people in Europe, Asia and North America spend more and more time at home, working, studying or relaxing on the terraces. As many offices are still in operation, business demand should also remain stable, creating a so-called “double heating effect” that will encourage the burning of everything that burns, from kerosene to natural gas.
Traders are also expecting colder than usual winters due to the formation of the La Niña weather phenomenon in the Pacific. Coupled with the effects of the coronavirus, this may mean that demand for some energy products can be surprisingly strong.
“Weather agencies are predicting a cold start to winter 2020-2021,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd., a London-based consulting firm. “Demand for LPG, kerosene, furnace fuel and low sulfur fuel oil is expected to grow to varying degrees.”
The probability of a higher than usual demand has already started to respond to the market:
La Niña is projected to bring below-average temperatures to North Asia, home to major LNG importers, western Canada, the northern United States and southern Europe, says Todd Crawford, chief meteorologist at Weather Company.
Overall demand for natural gas increased by a third this winter compared to last year, as the last time the La Niña phenomenon became more pronounced was in 2010-2011, Australia New Zealand Banking Group Ltd. reported this month. A colder winter is also likely to increase consumption of thermal coal in China, with traders reporting that Japanese buyers are already stockpiling kerosene.
However, it is not yet clear whether dual heating will be enough to offset the pandemic drop in demand caused by large industrial consumers, who tend to consume the most electricity, natural gas and some petroleum products. This has led analysts to rethink how they forecast winter demand.
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According to traders, some of the biggest buyers of liquefied natural gas, including Korea Gas Corp. and China National Offshore Oil Corp., have moved away from conventional winter demand patterns and are fundamentally reviewing them, assessing how a pandemic will change consumption habits. of energy. And while natural gas prices have risen in Europe and Asia, they remain at their lowest seasonal level in a decade, reflecting some concern over consumption patterns this winter.
“In the short term, the winter demand assessment should relate to the depth and duration of the quarantine measures and determine the impact on both aggregate demand and individual day profiles,” said James Whistler of the International Commodity Corridor and Simpson Spence Young ships. “The risk of new restrictions and second waves is high, so companies should expect fluctuations in demand.”
The most important factor will be the spread of the virus and whether major economies will be forced to impose more restrictions. Europe is already fighting a new wave of infections; there is a risk that the United States will do the same. In North Asia, the picture is a little better, although there are more people here than usual working from home.
Energy consumption will be highest when there is an inconsistent and unpredictable division between home and office work, says Liam O’Brien, associate professor of architectural conservation and sustainability engineering at Carleton University in Ottawa. According to him, much will depend on whether commercial buildings will be operated in terms of occupancy and whether the ventilation rate will be increased to reduce the transmission of COVID-19.
The sheer number of people working from home can intensify energy needs on days when the cold clicks, but it is clear to what extent is still unclear. The lack of clarity is generating increasing volatility in energy markets. The Henry Hub gas benchmark volatility projected in the US is the highest in a decade, indicating that the market expects more dramatic price swings.
Grid operators often rely on large industrial facilities to establish demand forecasts and help maintain reactive power capacity, according to a report by IHS Markit. However, now that some of these plants have closed due to an uncertain economic outlook, the operators have found themselves in uncharted territory.
“The dual heating effect is likely to have a greater impact on peak demand than total energy demand,” said James Taverner, an analyst at IHS in London. “Transmission system operators will have to closely monitor the situation.”
The California grid operator was forced to cut electricity on a regular basis for the first time in nearly two decades this summer, largely because it was unable to forecast power demand during the pandemic. US grid operators have had to recalibrate their models several times as the quarantine disrupted economic activity and the subsequent partial opening changed energy use patterns again.
There is another unknown that will make prediction difficult when you lower the thermometer: what is the temperature limit when people and students who work at home start heating their homes, and what method do they usually choose?
“I don’t know how efficient your space heaters will be,” said Mark Byron Todoroff, head of business development for Tesla Asia Pacific, a forecaster of energy demand. “If residents who depend on gas suddenly start using a lot of electric heaters during the day and the heat is on in the office as well, we will be surprised.”
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