Energy: The COVID-19 Recession Impacts Prices.

• Author: Polzin, Paul E.
• Position: ASSESSING MONTANA'S KEY INDUSTRIES

The COVID-19 pandemic has caused significant changes in energy demand and supply in 2020 and will continue to affect these patterns in the future. Here in Montana, the primary impacts will be moderating energy prices over the course of the recession. There may also be effects on production, employment and tax revenues, but these changes will mostly reflect the national and worldwide energy markets rather than factors unique to Montana.

A summary of energy price trends as reported by the U.S. Energy Information Agency is shown in Table 1. Petroleum and petroleum products display the greatest volatility. The entries in the first five rows of the table all report modest declines in 2019, along with greater decreases in 2020 as the COVID-19 recession intensified. The U.S. government forecasts modest upticks in all petroleum-related prices in 2021, but none are expected to return to their pre-recession levels. The continued depressed worldwide demand is the major cause of the small price increases.

Natural gas and electricity prices have been relatively stable through 2019. The U.S. government forecast for electricity prices are for only a modest increase in 2021. There is some disagreement about future natural gas prices. The U.S. government forecasts call for only a modest increase. Within the oil industry however, primarily among shale producers, the price outlook is much more optimistic. These companies are reporting large investments in shale natural gas projects. Montana has only limited shale gas production.

Coal

Montana coal is primarily burned as boiler fuel in electrical generating plants providing base-load power. The major customers are Midwest utilities, customers in the Pacific Northwest and coal for export. Coal is also burned locally in the Colstrip III and IV generating plants in eastern Montana.

The U.S. coal industry has been facing increasingly strong headwinds from environmental concerns and competition from natural gas and renewables. Montana coal production plateaued in the mid-30 million tons per year during the past half-decade. But production dropped significantly during 2020. The Montana Coal Council reports that coal production is down 21% from the same period in 2019. The recession has decreased economic activity and increased the number people working from home. These factors led to less coal burning in power plants.

The major bright spot for Montana coal is growth in the export market. Asian utilities have...