Page 11 - Malaysia Marine & Offshore Industries Directory 2020/2021
P. 11

 To say that the oil and gas industry has been going through some troubled times is an understatement.
The oil price war between Saudi Arabia and Russia essentially began when COVID-19 broke out in China, the world’s largest importer of oil. With the number of cases increasing, China made the decision to extend the Lunar New Year holiday at the end of January 2020 to keep people at home and shops and offices closed. The shutdown of the economy inevitably led to a decrease in oil demand and oil price.
As the COVID-19 outbreak spread around the world, the ensuing shutdown of economies suppressed demand further and added to the oil glut. In response, the Organisation of the Petroleum Exporting Countries (OPEC), led by the world’s top oil exporter Saudi Arabia, proposed a deal with its non-OPEC allies to cut production by 1.5 million barrels a day – on top of the already agreed 1.7 million barrels – to stabilise prices.
Russia, however, refused to cut its output. Analysts suggest that doing so would mean giving more room for US shale oil output to grow. The US is already the number one oil producer in the world, thanks to its shale sector.
As a sign of retaliation against Russia, Saudi Arabia raised production and dropped its crude oil prices, thus triggering the price war. Analysts see this as a move to capture market share and cement Saudi Arabia’s position as the world’s leading oil exporter.
When prices kept falling, OPEC and its non-OPEC allies (known collectively as OPEC +) together with the Group of 20 nations, made an unprecedented agreement to cut production by about 10% or 10 million barrels a day – the largest ever cut in oil production – to halt prices from slumping further. It kicked off with a reduction of 10 million barrels per day in May and June 2020 (later extended until the end of July at the time of writing). This is to ease up to 8 million barrels per day until December 2020, and then reduce further to 6 million barrels until April 2022.
But despite this massive cut in output, oil prices continued to fall, reportedly due to fears of decreasing storage space for the world’s surplus oil. In the US, prices dropped to historic levels. On April 20, 2020, the West Texas Intermediate (WTI) crude – the benchmark for US oil – went negative by tumbling to -US$37 per barrel. Two days later, Brent crude – the global benchmark – sunk to a 20-year low of US$15 per barrel earlier in the session before settling at US$20 per barrel.
Both benchmarks rebounded days later and have been on an upward trend as economic activities slowly restarted around the world. At the time of writing, WTI was at about US$39 per barrel, while Bent crude stood at about US$42 per barrel.
This, however, may not mean that the worst is over. With the easing of lockdowns around the world and the reopening up of economies, demand for oil has been recovering. But many countries are still struggling to bring the number of COVID-19 cases under control while facing the after-effects of lockdowns such as job losses, company shutdowns and social distancing (which has affected travel and working conditions). There is also the risk of reinfections and a resurgence of the coronavirus.
Additional new headaches in the oil and gas industry have also cropped up. The pandemic has disrupted repair and maintenance schedules in projects and refineries around the world. Regular repair work that is needed to keep wells pumping, and pipelines and refineries functioning and ships moving could not be carried out due to movement restrictions and lack of parts. This loss of optimal repair time means a higher risk of glitches and unplanned outages that can cost more time and money down the line once lockdowns are eased and maintenance works are rushed through in order to catch up to schedule. In the northern hemisphere, missing out on weather windows could mean pushing maintenance works to next year. Lack of work and rising unemployment in the companies that service the oil industry are also going to have an impact on the industry.

   9   10   11   12   13