COVID-19 lockdown measures have brought a sharp drop in global oil and gas demand, with the International Energy Agency estimating that global oil demand could fall by approximately 26 percent this month.
GlobalData says the crash in prices – aggravated by a rapid build in liquids storage that caused lower utilization at the production end – will significantly impact revenue and profit margins.
Here are the highlights from GlobalData’s most recent report on the COVID-19 impact on the oil and gas industry:
- IOCs, NOCs, and independents are cutting capex and opex in tune with low oil prices.
- Announced cuts to capex guidance for 2020 now amount to around US$120 billion as of 10th May 2020, considering 170 companies.
- Capex cuts are primarily being felt in drilling in the US shale plays, in postponement of project FIDs, and reductions to exploration budgets.
- Major FID postponements to date include Woodfibre LNG, Rovuma LNG, and the Scarborough gas field and Pluto LNG expansion.
Supply chain disruption
- Production shutdowns in China have disrupted raw material and equipment supply chains across all industries, especially those that are heavily dependent on China.
- Restrictions aimed at limiting the spread of COVID-19 are hampering progress for some ongoing projects, with a major example being the Tortue LNG project in Mauritania and Senegal, delayed for around 1 year.
Government policy responses
- OPEC and other major producers collectively agreed over 9.7 million bpd of oil production cuts in order to offset reduced demand.
- Norway announced oil production cuts of 250,000 bpd for June 2020 and 134,000 bpd for the rest of the year to stabilize the markets
- Canada and Ghana are among the first countries that are planning a fiscal stimulus to support the country’s ailing oil and gas industry from the downturn.
- Shrinking E&P activity and closing oil and gas plants are leading to layoffs in the services industry.
- Halliburton announced job cuts in Texas and Oklahoma.
GlobalData says the short-term impact to upstream companies include production cuts, projects delay and drilling suspension.
In Guyana, US oil major ExxonMobil has said that it has no immediate plans to shut in production at the Liza Phase 1 Development where it began producing oil last December.
“Guyana remains an integral part of our long-term growth plans and as such is a high priority. Our Liza Phase One operations have been largely unaffected by the pandemic. We have also managed the impact on Liza Phase Two, keeping this project on schedule for 2022 start up,” Chairman and Chief Executive Officer of Exxon Mobil Corporation, Darren Woods has said.
However, challenges of crew rotations due to the global lockdown in response to COVID-19 have slowed down the drill campaigns at the Stabroek Block.
The company expects a delay in its future developments of roughly 6 to 12 months, pushing its production objective of more than 750,000 barrels per day into 2026.