Impact of Covid-19 on the oil and gas sector of emerging economies

GlobalData Energy 20 March 2020 (Last Updated March 20th, 2020 15:49)

Impact of Covid-19 on the oil and gas sector of emerging economies

Lately, China has established itself as the most dominant country among the emerging economies, hence, when Wuhan City in Hubei became ground zero for Covid-19 outbreak, it resulted in a pronounced slowdown in the global economy, including the oil and gas industry.

China consumes 13.5 million barrels per day (bpd) of crude oil annually according to a 2018 estimate, of which around 62% is obtained through imports. The lockdowns and travel restrictions imposed in some of the major cities across China have resulted in declining consumption of petroleum products in the country.

The steep decline in the workforce, a consequence of lockdown, has also disrupted port activity in China. Major ports, such as Shenzhen and Shanghai exhibited about 20% year-on-year decline in the month of February. It prompted companies, such as PetroChina and China National Offshore Oil Corporation (CNOOC) to decline some crude oil cargoes from Brazil and West Africa.

Chinese national oil companies have also cut down on refinery output due to labour shortages. This has also impacted the activity of other industries depending on petroleum and petrochemical products made available by refineries.

In February 2020, China’s state-owned refiners announced a cut in the refining throughput of 940,000bpd for the month of February. Downstream projects that are under construction, such as Jieyang, Lianyungang 2, Dayushan Island phase two and Zhejiang Petrochemical Daishan Xylene Plant 2, could potentially see some delays in execution due to the disruption in supply chains amid travel restrictions.

Chinese firms have also invested in the oil and gas sector of several other emerging markets, especially Russia, Brazil, Nigeria and Mexico. These countries too may witness some dip 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 liquified natural gas (LNG) liquefaction terminal, may get hampered. Brazil and Nigeria also export significant volumes of their crude oil production to China, which are likely to drop over the short term.

India has been one of the beneficiaries of the Covid-19 outbreak in China and the resultant low oil prices, in contrast to other emerging economies. Following China’s cancellation of some crude oil imports, India refiners, such as Bharat Petroleum Corporation Limited (BPCL), have purchased stranded consignments of from the Mediterranean and Latin American regions at discounted rates.