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COVID19 and Energy: What McKinsey Thinks

by gmoke Tue May 5th, 2020 at 02:39:01 AM EST

 On Tuesday, April 28, I attended an online seminar on (USA) Energy and COVID19 organized by the Harvard Undergraduate Clean Energy Group (https:/www.huceg.org) with Scott S. Nyquist and Luciano Di Fiori both of the consulting firm McKinsey and Company.  I've heard Scott Nyquist speak on energy a few times over the years, usually at MIT, and have found him to be informative even though our perspectives are very different.

The COVID19 scenaria McKinsey is examining now include
Virus contained --  based upon China's 6-8 week shutdown  
Vaccine --  12 - 18 months away plus the time it takes to innoculate the world population (at least another 12 - 18 months), similar to the expectation author Laurie Garrett reported to Frank Bruni in the NYTimes over the last few days
Waves -- there will almost certainly be a second wave of COVID19 and possibly multiple waves until we have a vaccine.

In terms of energy, liquid fuels demand will take 2 -- 4 years to recover;  gasoline use is estimated to decrease 60% under lockdown;  natural gas is down 5-10%.  There will be excess supply and dropping prices which means that fracking will become even less economic (a conclusion I draw which Nyquist and Di Fiori did not offer).  Global oil products demand will be down 6.7 -13.0 million barrels per day pushing refinery levels and margins to historically low levels and LNG [liquid natural gas] may take 5-7 years to come back to stable prices, lower with occasional flare ups of higher prices as things equalize.  McKinsey expects no long-term consequences to demand, but is monitoring for changes.   I don't agree with McKinsey about no long-term changes in demand.  

Electric power demand is down 3-5% and peak load down by 18-24%.  Electricity peak times and amounts have changed due to more people staying at home, primarily from increased air conditioning.

The airline business is down to 20% of its former business and will take a long time to come back.  Cruise lines are in an even worse position with worse projections for the future.

GDP growth is going to be negative for about 2 years and then come back but to 2019 levels, at best.  

There may be a very cautious consumer culture, as after the Depression, coming out of the pandemic.  The frugality imposed by the Great Depression affected all the generations that lived through it for decades afterwards.

Economic growth may be much slower after this.  Companies will be less likely to hold debt and become very cash conscious.  

Nyquist believes that governments will be much better prepared for the next pandemic but "we have to pay for this" and  government debt will be much higher.  I do not have as much confidence as Nyquist does in the future preparations of any government in the USA but will be happy to be proved wrong.


Poll
MORE SCENARIA ON THE EFFECTS OF COVID19 ON ENERGY?
. yes 100%
. no 0%
. not yes 0%
. not no 0%
. neither yes nor no 0%
. both yes and no 0%
. don't understand the question? 0%
. none of the above 0%

Votes: 4
Results | Other Polls
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Waves -- there will almost certainly be a second wave of COVID19

And it will be spread all over the world

Carnival Cruise Line has announced plans to resume operations at the beginning of August despite dozens of deaths on cruise ships during the Covid-19 pandemic and investigations into the industry's possible role in spreading the disease around the planet.

In a statement on Monday, the operator said eight cruise ships would resume operations from 1 August, sailing from Galveston, Texas, and Miami and Port Canaveral in Florida, once a no-sail order from the Centers for Disease Control and Prevention (CDC) had expired.

by gk (gk (gk quattro due due sette @gmail.com)) on Tue May 5th, 2020 at 08:40:34 AM EST
I can't see a huge rush of typically older, richer consumers buying up berths in what may well become hospital ships no one will allow near their harbours.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 5th, 2020 at 11:44:45 AM EST
[ Parent ]
But look at the damage one cruise ship did to Japan. Multiple ships with smaller numbers of passengers could do similar damage anywhere they go while only further indebting their owners due to low passenger utilization.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue May 5th, 2020 at 04:35:37 PM EST
[ Parent ]
Except for Cuba.
by gk (gk (gk quattro due due sette @gmail.com)) on Tue May 5th, 2020 at 05:51:30 PM EST
[ Parent ]
Cuba's public health capabilities are legendary.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri May 8th, 2020 at 07:53:34 PM EST
[ Parent ]
I am reminded of Richard Koo's analysis of the lessons from Japan's 'lost decade' of the '90s. Koo notes that the USA lost one year's worth of GDP from 1929 levels through the Great Depression while Japan lost the equivalent of three years GDP in 1989 terms during its 'lost decade' in the '90s. But Japan avoided a depression because the government borrowed and spent enough money to close the gap left by debt repayment during the 'balance sheet recession'.

Another point not in the above cited paper is that, due to this timely and massive effort, when the Japanese economy resumed growing again it did so from the same baseline at which it had been operating since 1989, instead of from a lower baseline. By contrast, due to the inadequate stimulus in the USA in 2009, (thanks Larry Summers and Barrack Obama), when the US economy resumed growth after the 2008-'09 GFC it did so from a significantly lower baseline.

From the above cited paper:

Although this fiscal action increased government debt by 460 trillion yen or 92 percent of  GDP  during  the  1990-2005  period,  the  amount  of  GDP  preserved  by  fiscal  action  compared  with  a  depression  scenario  was  far  greater.    For  example,  if  we  assume,  rather  optimistically, that without government action Japanese GDP would have returned to the pre-bubble level of 1985, the difference between this hypothetical GDP and actual GDP would be over 2,000 trillion yen for the 15-year period.  In other words, Japan spent 460 trillion yen to buy  2,000  trillion  yen  of  GDP,  making  it  a  tremendous  bargain.    And  because  the  private  sector  was  deleveraging,  the  government's  fiscal  actions  did  not  lead  to  crowding  out,  inflation, or skyrocketing interest rates.

Can anyone say "Penny wise, Pound foolish!"?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue May 5th, 2020 at 04:53:22 PM EST
Climate Crisis: KXL Legal Precedent, War and Climate, Slow Streets

Diversity is the key to economic and political evolution.
by Cat on Tue May 5th, 2020 at 11:46:17 PM EST
The frugality imposed by the Great Depression affected all the generations that lived through it for decades afterwards.

There's been a number of "opinions", since the beginning of the pandemics, that it will pass quickly, people will soon forget and life will return to exactly as it was before. Generally from marketeer types, who used to fly around the world, and don't admit that their playground is forcibly closed.

Just like the generations that went through the Great Depression, who were forever reluctant to even take a loan, the pandemics will leave lasting traces in people's attitudes. Not that Wall St and the 1% would want to, but remaining in lockdown for eight weeks while the hospitals are saturated with sick people lining up the corridors tend to change perspectives in most of us.

by Bernard on Wed May 6th, 2020 at 08:04:38 PM EST
It's going to go in both directions, I suspect.  There will be a new frugality and more risk avoidance by some and a hunger for travel, crowds, mass events for others.  The hedonism of the 1920s was, at least in part, a reaction to the 1918 flu pandemic.

And I also suspect there will be a loud argument thart we have no money for climate change because "we spent it all and have to bring down the debt!"

Austerity for the poorer segments of society is always in fashion.

Solar IS Civil Defense

by gmoke on Wed May 6th, 2020 at 10:34:39 PM EST
[ Parent ]
Don't know how long people in the rest of the world live, but sentimental hard times and "savings" died in USA 60 years ago, while adults and children of the GD were still living. New Deal legislation and accounting principles of perpetual "growth" itself transformed their "life-style" expectations forever more.

And every. single. time NBER called a "recession" since, their heirs (mostly the so-called middle-classes, sitting on $8T - $30T) rise to demand a debt jubilee. The outcry "Make me whole" recurring in one form or another speaks to cynicism ingrained by centuries, or cycles in any one generation, of material dispossession.

Cumulative consumer ("revolving") debt is $14T.
Cumulative, farm + nonfarm, mortgage debt is $15.8T.
Cumulative student debt is $1.6T.
No need even to quote market value of unsecured "savings", captured in securities trading portfolios fancifully labeled defined contribution retirement plans.

"lasting traces in people's attitudes"
to a national economy is academic project, represented as a baffling mathematical exercise. For all practical purposes, however, individuals rely on inductive reasoning to construct trade or profession--which understandably seldom conclude with probate--as a going concern, progress, "re-imagining", "emerging from bankruptcy"--the economic transmogrification. In the USA at least, public relations agents can and do easily dispense with unpleasant aspects of mortality. To reassure this generation that this "wave" of destruction is no different from the last is a trivial assignment. First, hold everyone harmless; then, "open" parks to encourage leisurely transition from "self-isolation" to manifest productive membership in society.

by Cat on Wed May 6th, 2020 at 11:15:35 PM EST
[ Parent ]

consumer advocate for ahh conditional jubilee, "women and minorities" edition

by Cat on Thu May 7th, 2020 at 04:48:13 PM EST
[ Parent ]
needs more "trauma", "stigma" TROPES!!1! TR!GGERS, possibly weed @uscongress
by Cat on Thu May 7th, 2020 at 04:51:21 PM EST
[ Parent ]
"Make me whole", slogan expires 90-days after DHHS "public health emergency" exit
GE 2020 bid, extruded
The bill would provide $2,000 a month to every individual with an income below $120,000 [...] Married couples would receive $4,000. Families would receive $2,000 per child for up to three children, and payments would be assessed retroactively [!] to March 2020.

The legislation would give payments to all U.S. residents, even if they did not have a Social Security number or had [not?] filed recent tax returns.

archived DNC Primary 2020 bid
Kamala?! - LIFT (Livable Incomes for Families Today) the Middle Class Act
Single people would get $250 per month or $3,000 a year, married couples would get $500 per month or $6,000 a year, and it would phase out for singles without kids making $50,000 or more, and for married couples or single people with kids making $100,000 or more. [...] recipients must be working and earning at least $3,000 (or $6,000 for couples) a year to get the full benefit. If you make $0, you get $0 in benefits.
by Cat on Sat May 9th, 2020 at 08:50:54 PM EST
[ Parent ]
For nations with their own fiat currency there is no good reason NOT to make individuals whole and provide everyone with some assistance during this pandemic. So long as the spending replaces lost income it will mitigate the depressionary effects of job loss and business closure and will not contribute to inflation.

Without such public assistance from the state we will see GDP drop by 30% or more for the year. Without such assistance any recovery, when it occurs, will start from a baseline that has dropped by 30% or more. Just getting back to 2019 GDP levels will be a decade long project and Trillions will be lost, be they pounds, dollars, etc. compared to what could have been had the assistance been forthcoming.

We have seen this movie before. It was called The Great Depression. The rich need to get over their abhorrence of the state giving needed assistance to those of lesser means. They certainly don't object to the state making gifts to themselves, as countless tax breaks for the rich have shown.
 

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 10th, 2020 at 12:02:07 AM EST
[ Parent ]
The good reason NOT to make people whole is that the Big Money Boyz see this as an opportunity to gobble up the rest of the economy.  The failure of small business around the USA will allow them to pick up the pieces for themselves and close out any possibility of whatever competition from the grassroots was left.

For them, COVID19 economic depression is not a bug but a feature.

Solar IS Civil Defense

by gmoke on Sun May 10th, 2020 at 08:39:06 PM EST
[ Parent ]
We need to tax 'private equity' funds, particularly REITs out of existence.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 10th, 2020 at 11:44:55 PM EST
[ Parent ]

"It's not me" longer form

by Cat on Fri May 8th, 2020 at 08:25:28 PM EST
[ Parent ]

https:/www.bruegel.org/publications/datasets/covid-national-dataset

Global Warming - distance between America and Europe is steadily increasing.

by Oui on Mon May 11th, 2020 at 09:28:49 AM EST


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