Xu Yue and Wang Shunchao: How to stabilize the energy industry chain under the epidemic

At present, the international oil price has fallen to $20 per barrel, and as the global spread of the epidemic intensifies, the short-term problems of China's international energy cooperation have become prominent, and long-term risks have accumulated. At present, the main international attention focuses on the timeliness of the resumption of energy engineering projects, the stability of the energy industry chain and the sustainability of energy investment. How to objectively and comprehensively view these three challenges in the energy sector?

First, after the global outbreak, more than 50 countries have suspended flights and more than 130 countries and regions have adopted entry control measures, including some Chinese energy cooperation projects. Problems such as the inability to return to work on time after the Workers' Day, the interruption of material supply, and the stagnation of Wuhan's role as a hub have caused the suspension of key energy projects in Pakistan, Bangladesh and other countries. In particular, for projects with short construction periods such as photovoltaics, the risk of default caused by project delays has increased.

At present, the coordination of materials at home and abroad by Various Chinese-funded enterprises, the deployment of overseas personnel of sister units, the launch of local recruitment, the delay in the delivery deadline in the country where the project is located, coupled with the long construction period of coal power projects and the large room for fault tolerance, the sudden crisis has been temporarily alleviated. Large-scale projects such as the orange line in Lahore, Pakistan, and the dual-fuel power plant in Cambodia have been promoted in an orderly manner, and some companies have also expanded into new markets during the epidemic. Therefore, from the overall point of view, these energy engineering cooperation projects are still within the controllable range in the short term. However, the global spread of the epidemic is grim, and once the outbreak of the epidemic takes stricter control measures, triggering longer and larger-scale shutdowns, it will bring new problems and uncertainties, and relevant Chinese-funded enterprises should make plans early.

Secondly, although the risk of energy supply still exists, the dominant position of the energy equipment industry chain is still stable. At the beginning of the epidemic, the price of energy equipment represented by solar modules fluctuated, and gradually affected upstream manufacturers, downstream installers and operators. Since February 10, domestic energy equipment suppliers, parts manufacturers, and energy equipment exporters have resumed production and operations. As of now, WHO has not issued a warning on goods from China, and no country in the cooperation object has banned the import and export of Energy Commodities in China, and the impact of the epidemic on the supply of energy equipment is relatively limited. Bloomberg predicts that the impact of the epidemic on the production of photovoltaic modules throughout the year will not exceed 5%, but it is still necessary to beware of the risk of inventory overstock caused by the decline in demand for energy equipment.

Affected by the epidemic, the international community proposed to establish a flexible and diversified industrial model, and the voice of "distributed multinational supply chain to replace a single Chinese supply chain" has gradually emerged. Japanese companies such as Mitsubishi and Toshiba have begun to develop India and Thailand into new centers to reduce their dependence on China. For multinational energy companies, the cost of resetting the energy equipment supply chain is high, involving tariffs, logistics, supporting services, infrastructure, market maturity and other fields, in 2019, China's polysilicon production capacity accounted for about 70% of the world's total, wind power equipment accounted for nearly 50%, so it is not realistic to get rid of dependence on China on a large scale.

Third, global energy demand is expected to narrow, impacting energy investment flows. Under the impact of the epidemic, the energy varieties represented by oil and gas have suffered the biggest impact since the 2008 financial crisis, and the global securities market has continued to be sluggish. According to the data from 2017 to 2019, energy imports and exports in the first quarter were lower than those in the other 3 quarters, and the energy investment and trade cooperated by Chinese-funded enterprises are basically stable at present, but the new normal and new trends of energy investment need to be paid attention to.

A slowdown in energy investment will trigger a knock-on effect. At present, international investment institutions are generally optimistic about the future economic trend, JPMorgan Chase Company's latest report believes that due to the impact of the epidemic, the global economic and investment growth rate will slow down in the first quarter of this year, and the second and third quarters will gradually recover. The U.S. Secretary of Energy declared that the marginal impact of the virus had not affected global energy markets for the time being. However, as the epidemic spreads in more and more countries around the world, the downward trend of energy investment will lead to a series of problems such as energy companies, especially small and medium-sized enterprises, reducing investment budgets, increasing the difficulty of banks to lend, and reducing investment returns.

Clean energy investment is expected to become a new focus, promoting "reverse growth" of energy investment. After the 2008 financial crisis, the United States and European countries increased their investment in low-carbon, energy-efficient and efficient clean energy. Increasing investment in clean energy infrastructure during the economic downturn can not only ensure energy security and cope with climate change in the short term, but also effectively cope with the decline in energy investment and stimulate energy economic recovery.

In the face of a complex and diversified energy situation, how can energy cooperation between Chinese-funded enterprises clear the fog?

First, properly adjust the layout of the energy industry chain in line with the new situation. According to the soft elements such as enterprise type, energy variety, technical characteristics, capital scale and business model, the differentiated and cascaded energy industry strategy is launched。 And further optimize the layout of the international cooperation energy market, and implement one country, one policy for relevant energy key markets。 In addition, the energy industry chain should move towards intelligence, unmanned and non-contact, make full use of the power of information technology, provide high-quality energy services, and open up the gap with other countries, so as to ensure China's dominant position in the global energy industry chain.

The second is to stimulate international energy investment and consumption and find new energy growth points. Promote the energy + financial cooperation model, promote the depth of participation of the financial industry in international energy projects, help energy companies overcome difficulties, alleviate the pressure of the capital chain, and release vitality。 Give full play to the flexibility advantages of small and medium-sized energy enterprises, not only to drive small and medium-sized energy enterprises to "go global", but also to help them "take root and blossom" in new overseas markets.

The third is to make full use of the existing energy international cooperation platform, land large energy projects, and expand positive factors. In 2019, China proposed and established the "Belt and Road" Energy Partnership, which is the first energy international cooperation mechanism established by China, and 30 countries have joined to solve the energy development problems of member countries. On the one hand, the potential of the platform can be fully tapped, supported by the energy authorities of member countries, expanding and landing large-scale energy projects between countries, and realizing the transnational flow of production factors. On the other hand, with the advantages of the platform, it will respond to the concerns of various countries in a timely manner, alleviate doubts, formulate long-term development plans along the route, and build confidence. (The authors are Project Officer, China Liaison Office, International Energy Agency, And Deputy Director, International Cooperation Division, General Institute of Electric Power Planning and Design)

Source: Global Times