The World Health Organisation has declared the Covid-19 coronavirus outbreak a pandemic, and many companies are taking precautions against the impact and spread of the virus.
The virus has forced companies to slow or halt physical operations, impacting production in the upstream sector. Meanwhile, downstream operations are upgrading their systems and pushing to work more flexibly.
Offshore Technology examines the measures put in place and predicts the potential future impact of the Covid-19 coronavirus on the offshore industry.
1. Oil price crash
One important impact of the coronavirus outbreak on the downstream oil industry is that the price of crude oil has fallen significantly in a short time, taking billions off the stock prices of major oil and gas companies.
Covid-19 was first identified in China, where it caused an economic slowdown for the world’s largest energy consumer. The decrease in demand led to fears of over-supply for fuel and oil products, and a resulting fall in prices. The Organisation of the Petroleum Exporting Countries (OPEC) met to discuss this on Friday 6 March.
At their summit, OPEC countries agreed to cut another 1.5 million barrels per day from production. They then met with Russian representatives to propose it took 500,000 bpd of the cuts, but Russia did not agree. Talks continued as stock markets closed.
When Russia did not negotiate, OPEC countries decided to increase production until Russia relented. Talks continued while markets closed on Friday. When they reopened on Monday 9 March, most companies lost millions of pounds of value.
On 1 January, a barrel of crude oil sold for $67.05 on New York’s NASDAQ exchange. At the time of writing, it is trading at around $30.00 per barrel. Companies’ oil reserves are worth around half what they were at the start of the year. The value of giants like BP reflects this: Today, BP’s market cap is worth 51% of what it was at the start of January.
2. Demand drops
Oil price wars began with a decrease in supply and demand within China. As the virus spreads, other governments expect similar effects.
Last week, Austrian oil company OMV said Europe’s demand was steady, except for kerosene. As governments advise people to reduce social contact and much international travel is banned, less air travel means less kerosene consumption. This is particularly noticeable in transatlantic flights after the US stopped all travel with Europe.
As demand decreases in Europe and the US, China is hoping to restore production. However, in its monthly report, the International Energy Agency predicted an annual decrease in demand of 90,000 barrels per day, the largest fall in a decade.
3. Rig infections
Last Wednesday, Norwegian oil and gas company Equinor announced an offshore worker had contracted coronavirus. The employee worked on a rig in the Martin Linge field in the North Sea.
On Tuesday, an Equinor spokesperson told Offshore Technology: “The person confirmed with Covid-19 was transported to shore last week and is now in home quarantine in accordance with regulations from Norwegian authorities. No new cases of Covid-19 have been confirmed on the installation following testing of personnel on the rig.
“We are monitoring the situation closely and we have established procedures to handle Covid-19 cases in our operations.”
Work on the rig is proceeding with production as normal, but non-critical tasks are using reduced manpower. Equinor said it has asked downstream staff to work from home and has enforced travel restrictions.
4. Travel restrictions and office closures
Equinor is not the only company enforcing travel restrictions. Royal Dutch Shell was one of the first companies to announce it was suspending travel for its employees, and others then did the same.
US oil company Chevron has asked employees to defer travel, and it was among the first to send downstream employees home. The company sent employees at its London offices home on 26 February after an employee displayed “flu-like symptoms”.
Chevron said it is screening workers and visitors. A spokesperson told Offshore Technology that screening levels were “based on criteria that include local health authority recommendations and regulations, the number of recent travellers at the facility and the capability of health infrastructure in the community.”
“Decisions on working from home and specific travel guidelines will be made locally, based on local circumstances and in consultation with appropriate experts,” the spokesperson said.