Released June 08, 2020 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Consumers around the world will spend an estimated $1 trillion less on oil this year compared with 2020 due to the economic stranglehold the COVID-19 pandemic exerts on countries around the world, the International Energy Agency (IEA) (Paris) said in a report released late last month. Global consumer outlays for oil in 2020 are expected to fall to about $2.5 billion this year, the IEA said in its World Energy Investment 2020, released May 27.
Through mid-April, countries that fully locked down their economies experienced an average 25% reduction in energy demand, the report said. However, countries that partially locked down their economies saw an average 18% decline. In recent weeks, many U.S. states and a number of overseas nations have begun reopening their economies. For more on this IEA report, see June 1, 2020, article - IEA Sees Biggest Global Energy Investment Drop in History.
"Oil is bearing the brunt of this shock because of the curtailment in mobility and aviation, which represent nearly 60% of global oil demand," the report noted. At the height of the lockdowns in April, when more than 4 billion people worldwide were subject to some form of confinement, year-on-year demand for oil was down by around 25 million barrels per day (BBL/d), the agency added. For all of 2020, the IEA estimated global oil demand could fall 9 million BBL/d on average, which would return global demand to 2012 levels.
Investment in the Oil & Gas industry, including the exploration and production (E&P or upstream), midstream and refining and marketing (R&M or downstream) segments will fall about 32%, or nearly $250 billion this year compared to 2019, the IEA projected. Oil-oriented investments will be hit much harder than gas-oriented investments, agency said, though it acknowledged reduced demand for gas-fired power and industrial demands for gas could cause gas demand to fall "much farther" than it did in the first quarter.
Industrial Info has tracked year-over-year capital expenditure cuts by the U.S. oil and gas industry of more than $44 billion compared with2019 spending. The list is not comprehensive and continues to be updated.
Regarding U.S. shale-oriented upstream companies, the IEA noted, "The shale industry as a whole was struggling to generate significant free cash flow at prices above $50 per barrel for West Texas Intermediate."
The price collapse and demand destruction caused the agency to predict, "We estimate that (U.S.) upstream spending on shale (tight oil and shale gas) is set to decline by 50% year-on-year in 2020."
The IEA noted there were three segments of the oil and gas industry that were "particularly vulnerable" in the current environment marked by declining demand, soft prices and reduced investment:
"The oil and gas industry has always been a boom-and-bust industry, but it was hit with a unique two-barreled challenge this year: Significant demand destruction brought on by the COVID-19 pandemic and major downside price volatility as a result of the short price war waged by Saudi Arabia and Russia," commented Jesus Davis, Industrial Info's North American specialist for the Production, Pipelines and Terminals industries.
"Even though WTI has rallied in recent weeks, the current price of about $37 per barrel is still about $24 per barrel lower than it was when 2020 began," Davis continued. "That's a huge step backward for the industry as many upstream companies were struggling to become cash-flow positive. The rising number of wells being shut in and employees being let go or furloughed is another demonstration of how far and how fast the industry has fallen."
U.S. crude oil production has slipped from about 13.1 million BBL/d in mid-March to approximately 11.5 million BBL/d in mid-May, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.).
In its most recent Short-Term Energy Outlook, issued May 12, the EIA forecasts U.S. crude oil production will average 11.7 million BBL/d in 2020, down 0.5 million BBL/d from 2019. If this prediction is realized, the 2020 production decline would mark the first annual decline since 2016. In 2021, the EIA expects U.S. crude oil production to decline further by 800,000 BBL/d.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Through mid-April, countries that fully locked down their economies experienced an average 25% reduction in energy demand, the report said. However, countries that partially locked down their economies saw an average 18% decline. In recent weeks, many U.S. states and a number of overseas nations have begun reopening their economies. For more on this IEA report, see June 1, 2020, article - IEA Sees Biggest Global Energy Investment Drop in History.
"Oil is bearing the brunt of this shock because of the curtailment in mobility and aviation, which represent nearly 60% of global oil demand," the report noted. At the height of the lockdowns in April, when more than 4 billion people worldwide were subject to some form of confinement, year-on-year demand for oil was down by around 25 million barrels per day (BBL/d), the agency added. For all of 2020, the IEA estimated global oil demand could fall 9 million BBL/d on average, which would return global demand to 2012 levels.
Investment in the Oil & Gas industry, including the exploration and production (E&P or upstream), midstream and refining and marketing (R&M or downstream) segments will fall about 32%, or nearly $250 billion this year compared to 2019, the IEA projected. Oil-oriented investments will be hit much harder than gas-oriented investments, agency said, though it acknowledged reduced demand for gas-fired power and industrial demands for gas could cause gas demand to fall "much farther" than it did in the first quarter.
Industrial Info has tracked year-over-year capital expenditure cuts by the U.S. oil and gas industry of more than $44 billion compared with2019 spending. The list is not comprehensive and continues to be updated.
Regarding U.S. shale-oriented upstream companies, the IEA noted, "The shale industry as a whole was struggling to generate significant free cash flow at prices above $50 per barrel for West Texas Intermediate."
The price collapse and demand destruction caused the agency to predict, "We estimate that (U.S.) upstream spending on shale (tight oil and shale gas) is set to decline by 50% year-on-year in 2020."
The IEA noted there were three segments of the oil and gas industry that were "particularly vulnerable" in the current environment marked by declining demand, soft prices and reduced investment:
- Medium-sized and smaller companies in North America -- often heavily invested in shale -- that had been under financial pressure already before the price collapse.
- Weaker NOCs in countries that are heavily reliant on hydrocarbon revenues.
- The oilfield service companies that are bearing the brunt of the cutbacks in capital expenditure.
"The oil and gas industry has always been a boom-and-bust industry, but it was hit with a unique two-barreled challenge this year: Significant demand destruction brought on by the COVID-19 pandemic and major downside price volatility as a result of the short price war waged by Saudi Arabia and Russia," commented Jesus Davis, Industrial Info's North American specialist for the Production, Pipelines and Terminals industries.
"Even though WTI has rallied in recent weeks, the current price of about $37 per barrel is still about $24 per barrel lower than it was when 2020 began," Davis continued. "That's a huge step backward for the industry as many upstream companies were struggling to become cash-flow positive. The rising number of wells being shut in and employees being let go or furloughed is another demonstration of how far and how fast the industry has fallen."
U.S. crude oil production has slipped from about 13.1 million BBL/d in mid-March to approximately 11.5 million BBL/d in mid-May, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.).
In its most recent Short-Term Energy Outlook, issued May 12, the EIA forecasts U.S. crude oil production will average 11.7 million BBL/d in 2020, down 0.5 million BBL/d from 2019. If this prediction is realized, the 2020 production decline would mark the first annual decline since 2016. In 2021, the EIA expects U.S. crude oil production to decline further by 800,000 BBL/d.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
