The impact of Covid-19 pandemic is particularly visible on the demand for the services industry, including the EPC. This segment of the oil and gas value chain is largely price-sensitive and operates on low-profit margins with a heavy dependency on materials management, supply chain, workforce management and various other economic parameters.
The ongoing or new projects across oil and gas value chain are likely to face numerous challenges in terms of project execution, planning and risk management aspect from the pandemic. Therefore, how the EPC industry is coping up Covid-19 to stay afloat is something to pay attention. It is going to be very challenging for the industry to overcome this downturn in terms of managing the workforce and cost escalations in ongoing and new projects.
China has significant exposure to the downstream sector and accounts for approximately 16% of the existing refinery capacity globally. It also accounts for approximately 29% of the existing petrochemicals capacity. The recent drop in demand from China has severely affected the overall oil and gas market and the associated supply chains, according to the GlobalData estimates.
As a result, many upstream and midstream EPC projects across other countries can potentially face issue during this quarter and subsequent quarters. In the affected region, some of the refinery and petrochemical projects may have been directly impacted due to Covid-19 outbreak while others due to a substantial drop in oil prices.
This is likely to cause delays and cost escalation issues for the EPC projects in hand and also affect future project pipeline, timelines and project financing. Moreover, the prevailing economic situation may not be conducive for some new projects to come on-stream in the near future.