2020: COVID-19 OUTBREAK

ARE THERE ANY WINNERS OR LOSERS IN ENERGY INDUSTRY?

MEET THE TEAM

Yehezkiel David Arviandito Caessara Prayudha Rifqi Chrysaeta F. Doni

MSc of Energy System and Consultant at PwC Consulting Surveillance & Optimization Drilling Operation Engineer at
Data Analytics at UCL Indonesia Engineer at Medco E&P Indonesia PERTAMINA E&P

Ex. Operation Excellence Analyst Ex. Business Dev. Officer at Ex. Project Specialist at Boston Ex. Business Development
at Vasham Pamapersada Nusantara Consulting Group Coordinator at Mitsui Co

BSc. Petroleum Engineering BSc. Geological Engineering BSc. Petroleum Engineering BSc. Petroleum Engineering
Institut Teknologi Bandung Institut Teknologi Bandung Institut Teknologi Bandung Institut Teknologi Bandung

2
THINKING FRAMEWORK
End-to-end Our Team Approach

Thinking Framework

Pandemic Background Impact to Energy Market Condition Key Takeaway

(2 slides) (6 slides) (2 slides)

Oil Industry

Global Oil Demand Impact to Industry

Covid-19 as a Global
Pandemic
• What is Covid-19?
• How can it be a global
pandemic?
• What is the demand
Covid-19 condition?
• What are the demand
Implications recovery drivers?
• What is the implication of
Covid-19 in our daily life?
Renewable Energy
• How does this pandemic
have implications for Electricity Demand
business and economy?
• What is the demand
condition?
• What is the REs position
during this situation?
Global Oil Price
• What is the impact of oil
• What is the demand
price condition? Suggestions for
impact to price?
•
• What are the effects to Conclusion
How is the forecast?
each stakeholder? Indonesia
• Are there any
winners or losers? • What things can
• What are the be optimized?
Re Supply-Side Cost Impact to RE positive and • How to survive
negative points? and recover from
Development this condition?
• What are the drivers
of LCOE dynamics? • How is the impact to RE
• What is the development?
implication of the • What are the effects to
pandemic to LCOE? each player?

Source: Team analysis 3

 June, 8 2020

7,086,003 406,107 3,459,969 215

COVID-19
Infectious disease caused by newly
discovered ‘coronavirus’ that could led to
human respiratory system illness.
The virus spreads rapidly all over the
world since its first case in Wuhan (China)
in December 2019, affecting millions of
people life's.

Covid-19 can be characterized as pandemic.

- WHO March, 11 2020
Source: WHO, Worldometers 4
COVID-19 IMPLICATIONS ON OUR DAILY LIFE
MOBILITY
The social distancing and lockdown initiatives
result in some restrictions on mobility that
lead to slowing economic movements and
reduction on energy demand.
VULNERABILITY
Covid-19 pandemic wreaks havoc on
economic activities. Some sectors show their
vulnerability such as manufacturing,
transportation, energy, etc.
Source: PwC Covid-19 Publications, Global Energy Review IEA 2020
WORKFORCE
To prevent the spread of virus, suggestion for
working from home are recommended. It is a
momentum towards new ways of working,
automation and digitalisation.
FINANCE & LIQUIDITY
As business activities slow, some companies
are seeing lower revenue resulting in less
cash flow, managing cash and liquidity
positions which impact on economic stability.
ELECTRICITY USED
Restrictions on the opening of some business
sectors and schools cause electricity use to
decline. The estimation for 2020, global
electricity demand falls by 5% - 10%.
EFFICIENCY
Many companies examine their approach to
derisk their business models. As an impact,
their supply chain resilience will be re-
evaluated to reduce cost.
5
 GLOBAL OIL DEMAND HAS BEEN HARDEST HIT BY PANDEMIC
Change in monthly oil demand in 2020, relatively to 2019 Global oil demand has declined at unprecedented scale affected by:
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 • Lock down or restrictions policy to contain virus from spread
0 • Slow down mobility (road traffic fell & aviation activity plummeted)
-5 • Short-term and long-term economic crisis
Demand recovery
Million Barrel per day

-10 23 Jan, Wuhan

lockdown
Potential of oil demand recovery key drivers:
-15 Right policy to restore mobility Human behavioural change
-20 9 Mar, Italy
lockdown •+ Successful policy to contain the •+ People will be more willing to
-25
virus from spread and infect travel after isolation process
-30 Covid-19 timeline human
-35
Early Stage Main Stage End Stage •– Uncertain policy to respond •– Psychological fear could
3000 pandemic on different countries stimulate in decreasing human
Covid-19 Cases (thousands)

2500
condition mobility

2000
Breakthrough in handling the disease Economic Growth

1500 •+ Speed-up discovery of a vaccine •+ Successful economic-stimulus

11 Mar, WHO called so there is less fear of this package to respond the crisis
1000 Covid-19 as pandemic
Case projection desease
500
•– Limited medical capability while •– The crisis will lead to deep
0 number of cases potentially economic recession with less
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 increasing human activity
Source: Team analysis; International Energy Agency; Worldometers.info 6
 OIL PRICE CRASH AS GLOBAL DEMAND FALL DOWN
The price of oil have fallen to the lowest level in the last 22 years where the future price will strongly depends on integrated
event/action during main-to-end stage of the pandemic
80 - 86% Optimistic scenario, price will rise up to $60:
70
• Right policy successfully push down Covid-19 cases
• Oil sharply needed to restart business activity
60
First Covid-19
50
case in Wuhan
US$ per Barrel

Baseline scenario, price is forecasted within range $35 - $45:

40 Price war Russia • OPEC+ agreement is effectively stabilizing the market
vs Saudi Arabia
• Existing level of oil storage prevents further positive trend
30
Italy declares a
national quarantine
20
Pessimistic scenario, price could fall below $30:
WHO called Covid-19
10
as pandemic • Post pandemic crisis leads to economic recession
Main Stage End Stage
• Major shifting towards sustainable fuel in transport sector
0
Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 • Geopolitics instability among oil producer state

Source: Team analysis, Brent Benchmark Price from Alfred.org 7

IMPACT OF OIL PRICE DROP IN THE MID OF PANDEMIC : UPSTREAM
E&P Company
(IOC & NOC)
 Reducing high cost of investment
(Exploration, Drilling, facilities, etc)
 Focus to maintain base
production
 Rely on digital infrastructure for
Operation operational surveillance
 Drops of profit margin due to the
ultra-low oil price era, esp mature
fields
 For some giants, downstream
revenue might cover this loss
Commercial
 Delaying the cost-intensive
project up until economic cut off
is reached
 Optimizing revenue from oil-
Possible based product related
Response
Source: Team analysis and due diligence
Oil Field Services
Company
 Activity slow down since
operator is trying to reduce
drilling activity
 Additional cost for logistic &
Manpower movement
(Physical distancing rules)
 Source of revenue is relying
on low-cost activity : well
service or workover
 Free fall of profit margin since
idle tools maintenance is high
with diminishing revenue
 Extreme cut cost could be
possibility to keep company
operates
 Demand will reduce until E&P
company have stabilize
strategy
Equipment
Manufacturers
 Tools and equipment
movement is restricted by
some covid-19 prevention
rules
 Some of Sales Purchase
contracts might be
renegotiated
 Equipment sales is shrinking
since most of the customes is
services company.
 Profit centre swithching for
big producers who has
product diversification
 New marketing strategy of
the product and optimizing
diversification
 Long term agreement to seal
the margin
Government/
Stakeholders
 Oil commodities income source
dependent country might be
struggle to get more money
 Establish the policy to regulate
every action needed in energy-
related sector
 Big advantage for the net
crude importer to buy the oil
 Low confidence environment
which leads to less invesment
commitment
 Review the regulation of
upstream in order to maintain
the energy availabilityin
pandemic situation
 Financial or policy stimulus to
keep upstream sector moves
8
 ELECTRICITY DEMAND DECLINED, BUT RE’S SHARE INCREASED
1 3
Electricity demand Global Electricity Demand Annual Growth Rates GW Daily Load in Spain (Pre Covid-19) More predictable weekday
decreased during Covid-19 5.0% 40 daily load of electricity due
(Fig 1) 35 to restriction in commercial
2.5% 30
and industry (Fig 3) (Fig 4)
25
0.0% 20
15
-2.5% 10
5
-5.0% 0
Increased usage of RE due
2016

2017

2018

2019

End 2020
Q1 2020
00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 00:00
Lowering electricity price Time in the day to reduced problems
caused by RE’s
Weekdays Weekend
2 RE Hourly Share in 6 selected countries
4 intermittency (Fig 2)
GW
Daily Load in Spain (During Covid-19)
60%
40
50%
35 Depended on the existing
40% 30
RE’s operational cost will be 25
capacity mix
30%
sensitive to the subsidy to 20
20% 15
overcome plummeting 10
10% Influencing the countries’
electricity price 5
0% 0 dispatch order regulation
0 500 1000 1500 2000 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 00:00
Hours Time in the day
during Covid-19 pre Covid-19 Weekdays Weekend

Source: Global Energy Review 2020 (IEA), Covid-19 impact on electricity (IEA), Team Analysis. 9
 DECLINING TREND OF RE SUPPLY-SIDE COST (LCOE) WILL BE HALTED
Drivers of LCOE dynamics due to Covid-19
1 Log-Log Chart of RE Learning Curve
0.48
R&D Effort and Investment Long-Term Carbon Pricing
•+ Faster economic recovery to •+ Proof of the short-term
LCOE (USD/kWh)

0.24 continue the momentum for carbon pricing policies

R&D feasibility during pandemic
0.12
Fossil fuel cost range
•– Redirection of RE’S R&D in
0.06
developed countries. •– Deep economic recession
0.03
•– Deep economic recession leads to carbon pricing
1000 10000 100000 1000000 that influences private reassessment
Cumulative Deployment (MW) investment

Historical Data (2010 - 2019) IRENA Projection Pre Covid-19 (2019 - 2021) Team Analysis (2019 - 2021)
New Plant Challenges Stimulus for Projects
Annual Growth for RE Generation •+ Firm commitment from •+ Interventions from
2 investors government for the
35%
30% •+ Government stimulus undergoing major projects
25%
20% •– Slowing electricity demand •– Impacts on government’s
15%
leads to cancellation budget due to the stimulus
10%
•– “New Normal” affecting during pandemic still
5%
0%
construction effort uncertain.
Wind Solar PV Others All renewables
Penetration for RE will be less than the projection before Covid-19 and
2018 2019 2020 2021 (Team Analysis) resulted to reduced speed of declining LCOE (Fig 1). Solar PV will bolster
Source: Renewable Power Generation Costs in 2019 (IRENA), Global Energy Review 2020 (IEA), Team Analysis. the declining growth in other sector of RE (Fig 2).
10
SUSTAINABLE DEVELOPMENTS IN ALL SCALE WILL BE IMPACTED
Fossil-Dominant
Countries
 Investment for RE declining,
even might become to not
exist.
 Increased usage on fossil fuel
power plants due to declining
price of fossil fuel
Investment
 Decreased awareness to the
climate policies
 Natural gas usage might be
increased
Climate  Excuse from international
Commitments community in terms of
economic recovery
Source: Team analysis and due diligence
Emerging RE
Countries
 Postponement of investment
on new RE's plant construction
 Increased investment on the
grid load adjustment
 Increased awareness to invest
for storage
 RE micro grids development
are halted due to the lowering
electricity price
 Deep recession might lead to
evaluation of the carbon
pricing
 Reassessing target of climate
policies' parameters for the
2030 targets
RE Macro
Producers
 Postponement of major
projects due to the global
investment flow has changed
 Cancellation of planned plants
due to reduction in electricity
demand
New Plants  Dependence on the
Project government stimulus to keep
the undergoing projects
 Less affected by the declining
electricity price due to
subsidies
 Sensitive to the dispatch order
Existing
regulation and possibility of
Operational
subsidy reallocation.
RE Micro
Producers
 Declining penetration as
consumer priority is changed
 Reassessment of the existing
capital payback calculation
due to the changed trend of
RE's LCOE
 Profits are curtailed due to
decreased electricity price
 Dependence on the
government policies (subsidy,
feed-in-tariff and grid stability)
 Enhance the opportunity of
micro electricity trading
11
 This global pandemic enlighten us about winning and losing
CONCLUSIONS points during the unforeseen conditions impact to oil & gas and
renewable energy
Oil & Gas
•+ The ongoing pandemic has accelerated digital
transformation across companies while forcing
Are there any us to change the way we work especially for
operational activities
Winning
winners or •+ Company with integrated supply chain or low
lifting cost assets will possibly survive during
losers in energy outbreak
•+ Net oil import country taking a huge advantage
industry? as oil price crash, give a room for budget re-
allocation
•– Many future exploration and development
programs will be postponed until project
economically viable to be executed
•– Demand for services & manufacturers will
Losing
reduce until E&P company have established long
term strategy
• Oil dependent countries experience intense
– • Micro grid producers will experience reduced
pressure as revenue dropped caused by reducing
demand
Source: Team analysis
Renewables Energy
•+ Major highly intermittent RE producers (Solar and
Wind) will experience increased generation due to
the increased predictability on the demand load
• Opportunity for decentralised micro grid electricity
+
trading
•+ Opportunity in the storage technology
development due to increased awareness of the
stability of RE’s market during outbreak
•– RE competitiveness will be reduced due to the
plummeting fossil fuel price, particularly in the
fossil-fuel dominant countries
•– Measures to meet climate commitments (subsidy,
feed-in-tariff & RE share target) will be reassessed
due to redirection of countries’ priorities
–
penetration due to the declining electricity price
and redirection of household consumers priorities
12
SUGGESTIONS FOR INDONESIA

• Re-planning and re-prioritize national strategy to meet energy security target by

2025 such as bureaucracy simplification, paradigm shifting to see energy
industry from profit base to economy drivers, and resource re-assessment
• Implement the use of new age technologies (digital transformation) over
traditional business processes to build a scalable process of innovation,
optimization, and growth as the crisis provide right momentum
• Provide incentives for the major planned RE projects, particularly for RE
technologies with high learning rate such as Solar PV and Onshore Wind which
is abundant in Indonesia
• Stimulate the usage portion of existing RE power plants in Indonesia (e.g.
Geothermal and Hydropower) to take benefit from the momentum of the
declining electricity demand during outbreak
• Consider to increase the penetration of Natural Gas resource for cleaner
electricity generation than Coal in the condition of budget constraints

Source: Team analysis 13

THANK YOU
Yehezkiel David Pradhipta yehezkieldavid@gmail.com

Arviandito Caessara arviandito.caessara@gmail.com

Prayudha Rifqi prayudha.rifqi@yahoo.com

Chrysaeta F. Doni chrysaetadoni@gmail.com