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COVID-19 Effects on Energy Industry

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The COVID-19 pandemic affected the energy industry in at least two important ways. First, the pandemic altered supply and demand dynamics for the entire industry. Second, it required individual market participants to monitor COVID orders and guidance decrees in every jurisdiction in which they operate.

The coronavirus outbreak dampened world demand for oil just as the Russia-OPEC price war was boosting supply. The result was one of the most dramatic oil price collapses in memory, with oil prices in the United States briefly dipping into negative territory and a sustained period of sub-$40 prices. The price of West Texas Intermediate crude oil returned to the $40 level by summer and hovered there until late November. As of early January, WTI prices had topped $50; but the “Short-Term Energy Outlook,” published by the U.S. Energy Information Agency (EIA) on January 12, 2021, forecasts that WTI prices will continue to average around $50 for 2021 and 2022. Curtailed travel led to a corresponding fall in demand for gasoline and other fuels, which saw price reductions in the range of 15-20%.

Virus countermeasures also reshaped demand for electricity, with significant reductions in industrial and commercial demand only partially offset by increases in residential demand as people remained in lockdown and working from home. According to the EIA, average power prices rose somewhat for residential and transportation customers, remained nearly flat for commercial customers, and fell for industrial customers. Overall, the average price of electricity for end-use customers rose from 10.38 cents/kwh in November 2019 to 10.45 cents/kwh in November 2020. In a number of U.S states, executive orders, legislation, or regulatory action prevented utilities from disconnecting customers for non-payment. While investment in oil and gas fell sharply in 2020, investment in renewable power generation remained relatively resilient, despite early concerns that the pandemic would disrupt important supply chains for renewable power projects.

Many energy companies – oil and gas exploration companies, owners and operators of power generation fleets, and energy services companies for example – operate in multiple states. In the face of industry-wide effects, these individual market participants found themselves forced to adapt their day-to-day business operations to an often-confusing patchwork of COVID-19 measures that differed not only from state to state, but often among more local jurisdictions within a single state. Companies had to quickly identify and react to limitations on their daily office and field operations and on the ability of their employees to travel.

The effects on energy sector businesses was muted somewhat by generally broad definitions of “essential businesses” or similar concepts. Early in the pandemic, the Cybersecurity and Infrastructure Security Agency (CISA) of the U.S. Department of Homeland Security issued guidance on identifying essential critical infrastructure workers during the pandemic. From the beginning, CISA’s guidance identified the Energy sector as critical and specifically identified broad categories of electric industry, petroleum, and natural gas and propane workers as being among the nation’s critical infrastructure workforce. Most states incorporated the CISA guidelines or adopted similar guidelines of their own.

Nevertheless, even when exempted from the most stringent of limitations on gathering and traveling, many energy businesses still found it important to protect their employees and their businesses by following their own, often more restrictive, COVID-19 countermeasures, permitting or requiring all or some of their employees to work from home and limit the extent and mode of their travel. To facilitate contact tracing, many energy companies, particularly larger businesses, developed policies for identifying and reporting cases of COVID-19 among their workforce. In some states, such as New Mexico, such reporting became a legal requirement.

In March 2020, Baker Botts began compiling a tracking chart for COVID-19 orders and guidance documents in all 50 states. To provide a sense of the complexity facing energy companies attempting to monitor and comply with the myriad state and local rules affecting them, that document has been updated over 300 times in the first 10 months and is now over 130 pages long. COVID-19 compliance is likely to remain a time-consuming task for energy companies well into 2021 at least.

 

ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of approximately 700 lawyers practicing throughout a network of 13 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology, and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.

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