Coronavirus outbreak to hamper oil and gas projects in emerging economies

One of the immediate effects of the coronavirus (COVID-19) pandemic on the oil and gas industry has been a global glut of crude oil supply amid already weak demand, resulting in a significant drop in oil prices. Ongoing projects across the industry will likely be impacted, which could potentially put further stress on the global economy, according to GlobalData, a leading data and analytics company.

The company’s report: ‘Impact of COVID-19 on Emerging Economies’ analyses the effect of the COVID-19 outbreak on the oil and gas industry in emerging economies, with China as the focal point. As a result of the lockdowns in key provinces, industrial production in the country has slowed down. This, in turn, has led to a decline in demand for petroleum products. China’s national oil companies (NOCs), PetroChina and CNOOC, have also cut down on refinery output due to labor shortages. In February 2020, China’s state-owned refiners announced a cut in the refining throughput of 940,000 bpd for said month.

Ravindra Puranik, Oil & Gas Analyst at GlobalData, comments: “China has around 190 active refineries, of which three active refineries are situated in the Hubei province of China. The lockdown in Hubei will most likely impact the throughput of these refineries, which account for around 2.2% of the total Chinese refining capacity as of March 2020. The other major affected provinces by COVID-19 in China, adjacent to Hubei province, include Zhejiang, Guangdong, Henan, Hunan, Anhui and Jiangxi. These provinces account for another 25% of China’s total refining capacity. However, it is unclear what the extent of the impact of COVID-19 will be on the production of refineries in these provinces.”

Chinese firms have also invested in the oil and gas sector in several other emerging markets, especially Russia, Brazil, Nigeria, and Mexico. These countries may also witness a decline in their oil and gas income due to the faltering energy consumption in China and the subsequent spread of the disease in different parts of the world. Chinese firms have collaborated with Russian oil and gas firms on several key projects of late, particularly in the Arctic region. The ones that are under construction, such as the Arctic-2 LNG liquefaction terminal, may be hampered. Brazil and Nigeria also export significant volumes of their crude oil production to China, which are likely to drop over the short term.

Puranik adds: “India is one of the beneficiaries of the prevailing low oil prices due to COVID-19 outbreak. Following China’s cancelation of some crude oil imports through force majeure, an availability of high grade crude from Mediterranean and Latin American regions came to light. Refining companies such as Bharat Petroleum Corporation Limited (BPCL) in India managed capitalize on this availability to purchase crude oil from these stranded consignments at discounted rates.”

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