CSI - Center for Strategic Initiatives
CSI - Center for Strategic Initiatives

Key events in the oil and gas market in the world

Energy Outlook 2020

December 1, 2020

Oil and gas companies all over the world are facing a crisis and revising their strategic plans

By the end of the first quarter of 2020 large oil companies decided to reduce investments

According to forecasts of the International Energy Agency, total capital expenditures of oil companies of the world in 2020 will be reduced by 32% compared to 2019 and will approximately amount to $335 billion

Chevron reduced its investment program by 43% from 2019 to $14 billion

ConocoPhillips decided to reduce its investment by 35% to $4.3 billion

PetroChina decided to cut capital expenditures by 30% to $28.3 billion

Equinor reduced its capex by 43-57% or by $3-7 billion from its original 2020 plan

Eni, Pemex, Saudi Aramco decided to cut capital expenditures by 10-11% of the original plan for 2020

Rosneft, Gazprom Neft, LUKOIL planned to reduce investments in oil production by 20% on average

Losses of oil majors in Q2 2020

Shell: profit dropped by 82% with large-scale write-offs of oil and gas assets and a drop in the price of oil, losses of $18.1 billion

ExxonMobil: losses of almost $1.1 billion due to lower prices in the energy market

July 2020: Total wrote off assets for €8.1 billion

August 2020: ExxonMobil reports 20% reduction of its oil and gas reserves

Cuts in the oil and gas industry

In the global oil and gas industry, more than 1 million out of 5 million jobs will be cut by the end of 2020, 13% will lose their jobs due to a price war, and 8% will be due to the slowdown or termination of new projects (forecast by Rystad Energy, March 2020)

In II quarter 2020, Schlumberger paid $1 billion in severance payments to employees as it reduced 25 percent of its global workforce, or 21,000 people

American shale oil and gas companies declared bankruptcies

April 2020: Whiting Petroleum

June 2020: Extraction Oil & Gas; Chesapeake Energy

July 2020: California Resources, a company mainly engaged in traditional oil and gas production, but also owns shale oil fields

Rystad Energy forecast: about 140 US oil and gas companies may declare bankruptcy in 2020

› The coronavirus crisis has accelerated the already established trend to reduce capital expenditures for geological exploration

The volume of world's recoverable oil reserves is significantly revised downwards due to low production profitability

With falling prices and production budgets, massive cuts are observed and expected in oil service companies

OPEC tries to regulate the global oil market and gives an optimistic forecast of recovery in demand for oil

OPEC+: Meeting of the Joint Ministerial Monitoring Committee (JMMC), August 2020

The aggregate level of implementation of the agreements by the OPEC and non-OPEC countries participating in the OPEC+ agreement at the end of July 2020 was 97%

In IV quarter of 2020, OPEC forecasts that oil consumption will recover to 97% of pre-Pandemic COVID-19 levels

Countries that fail to meet their obligations were to compensate for violations by the end of September 2020. Among them were Iraq, Nigeria, UAE, Russia, Kazakhstan and Angola

From August 2020, the OPEC+ agreement goes on to the 2nd stage of implementation

Brazil does not intend to join the OPEC, but is open to dialogue

October 2019: Brazilian President receives informal invitation to join OPEC from Saudi Arabia's Minister of Energy

January 2020: Brazil has decided not to join OPEC yet,

so as not to hold back production growth by external constraints

Current OPEC+ agreement

Oil trading turned into a "buyer's market": large players started implementing discounts on oil

China has decided to create the world's largest buyer of oil

June 2020: Bloomberg reported that several Chinese state oil refineries Sinopec, Sinochem, PetroChina and China National Offshore Oil Corporation (CNOOC) were negotiating the formation of a group for joint overseas oil procurement

Total import of the purchase alliance was valued as 5 million bpd

Iraq, Kuwait and UAE announced oil discounts following Saudi Arabia for delivery in October 2020

Despite unfavorable market conditions, Saudi Aramco confirmed its intention to pay $75 billion in dividends, the main shareholder is the Government of Saudi Arabia, August 2020

On December 4, 2019 Saudi Aramco IPO was held, it became the largest in the history of financial markets both in terms of the value of shares sold ($25.6 billion) and the company's capitalization ($1.7 trillion)

Initial plans were ambitious: to place 5% of the company in the Western markets with an estimated $2 trillion, to invest $100 billion in American technology projects

According to the Financial Times, the benchmark for prices from large international buyers was between $1.1 trillion and $1.5 trillion. The Saudi authorities decided to offer in a compressed format: 1.5% of the company listed on the local stock exchange alone, one third of which were physical buyers, valued at $1.7 trillion (forcing local investors to buy shares)

Net profit in the second quarter of 2020 dropped by 73.4%, despite the fact that Saudi Aramco intended to pay out dividends

In fact, Saudi Aramco IPO with a guaranteed dividend amount is more like a bond issue

Changes in Saudi Aramco share price and oil price (to the level as of IPO)

The global gas market has suffered fewer losses than the oil market, and the geopolitical factor remains critical there

International Energy Agency forecasts on gas

In 2020, global gas consumption may decline by 4-5% (about 150 billion m3, forecast as of June 2020)

Demand for natural gas will gradually recover in 2021

June 2020: the first video conference of the Head of OPEC and the Gas Exporting Countries Forum took place

Construction of Nord Stream-2 is frozen

Uniper, one of Gazprom's financial partners in the Nord Stream-2 project, admitted that the pipeline would not be completed (the Company's report for January-June 2020)

July 2020: USA approves new sanctions against the project

August 2020: EU countries expressed concern about U.S. sanctions against European companies, as third countries should not use sanctions against European companies that conduct legitimate business

Turkey reduced gas imports from Russia and Iran, Azerbaijan is in the lead

Total natural gas imports to Turkey in January-June 2020 decreased by 3.5% compared to the same period in 2019 - up to 22.5 billion m3 (54% pipeline, 46% liquefied natural gas)

Gas supplies from Iran in January-June 2020 decreased by 46% compared to the same period in 2019 – up to 2 billion m3

Supplies from Russia decreased by 41.5% - to 4.7 billion m3 - due to lack of demand for Russian gas in Turkey. Russian gas is being replaced by cheap liquefied gas

Azerbaijan became the largest gas supplier to Turkey in the first half of 2020. The volume of gas purchases increased by 23.4% compared to the same period of last year - up to 5.4 billion m3, which is associated with increased supplies through the Trans-Anatolian gas pipeline (TANAP)

August 2020: the President of Turkey announced the discovery of the Tuna-1 deposit in the Black Sea, the largest in the country's history with a volume of 320 billion cubic meters. Gas production is scheduled to start in 2023

The crisis has accelerated plans to switch to "clean" energy

Morgan Stanley will help develop an environmental and financial standard

July 2020: The Partnership for Carbon Accounting Financials (PCAF) announced that Morgan Stanley has joined the unified measurement of financial emissions initiative

Morgan Stanley will also help PCAF develop a global accounting standard that can be used by all financial institutions to measure and reduce their climate impact

Morgan Stanley promises to meet future standards by reducing the share of loans for "dirty" industries, especially coal, as well as in oil and gas projects on the Arctic shelf

BP is transforming into an energy company

August 2020:BP announces new strategy

By 2030, it will reduce oil and gas production by 40% and no longer explore fields in new countries

BP is going to raise the level of energy production from renewable sources to 50 gigawatts

Arctic enterprises are waiting for conversion from oil to liquefied natural gas (LNG)

August 2020: the Public Council of the Russian Ministry of Natural Resources proposed to convert Arctic enterprises from petroleum products to LNG. It may take about 5 years for companies to transform

The issue of usage of oil products in the Arctic became more acute after a large-scale spill of diesel fuel in Norilsk in May 2020

Totalaims to transform into an energy company through two segments

September 2020: A new strategy was presented. Total’s strategy aims to transform itself into a broad energy company by profitably growing energy production from LNG and electricity, the two fastest growing energy markets, aiming to create long term value for its shareholders

In the next decade, Total’s energy production will grow by one third, roughly from 3 to 4 Mboe/d, half from LNG, half from electricity, mainly from renewables

Total confirmed its ambition to get to Net Zero (zero emissions balance) by 2050

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