As of late April, the world continues to struggle with the severe consequences of the Covid-19 pandemic with its spread to 213 countries and nearly 3 million confirmed cases worldwide.
The pandemic has significantly hit oil exporters in MENA with most countries affected by the virus. Turkey and Iran are among the countries with their case counts exceeding China’s.
With the global coronavirus pandemic now in full swing, the collapse of global oil demand and insufficient crude oil storage sent Brent oil price to a more than two-decade low, despite the mid-April OPEC+ efforts to cut global supply by 10%. As MENA countries account for the world’s major oil and gas hotspots, their heavily reliant oil-based economies have been hit the hardest during this unprecedented oil price crisis.
The increasing spread of Covid-19 cases has caused operational interruptions and delays in MENA’s 2020 projects. The severity of such vary, for instance, in Iraq, Chinese oil and gas company PetroChina has halved production from Halfaya field since March as the number of its local staff was reduced due to concerns around the spread of the virus, while production from Garraf oil field has halted after Petronas evacuated all its staff.
Furthermore, due to the low oil demand, multiple project contracts have been put on hold by Basra Gas Company and Iraq’s Oil Minister has urged the Iraqi region of Kurdistan to cut its oil production to meet the latest OPEC+ deal. The same level of measures has been taken or is being planned by other oil and gas producers in the region.
Scaling down its costs, ADNOC has cancelled development contracts for Dalma gas project, part of the UAE’s Ghasha Concession project. Saudi Aramco is reviewing its key investment programmes due to the Covid-19 outbreak and low crude prices. Several oil and gas operators active in North Africa have also declared that projects, targeting FIDs in 2020, are at high risk of postponement if the current situation exacerbates and market uncertainty continues.
The risk level of upstream projects due to take FID in 2020 based on remaining breakeven prices.
Despite the region enjoying relatively low breakeven prices and lifting costs, new projects that tend to supply external markets will be hit by the demand destruction, and therefore, face the highest risk.
The majority of countries in MENA have an oil-based economy and will be severely affected if the oil price would not retrieve in the short term. This will put projects due to take FID in 2020 at an elevated risk of deferral as governments are introducing cost-cutting measures.