Page 5 - Euroil Week 19 2020

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China’s traffic levels are slowly returning to normal after the central government eased its movement restrictions.
Asian sectors squeezed
Asia’s oil and gas sectors have been under enor- mous pressure following this year’s crash in energy prices and the destruction in global energy demand precipitated by the COVID-19 pandemic. While depressed international oil prices continue to squeeze upstream projects, the downstream appears to be on the rebound as regional oil prod- uct demand gradually returns in line with an easing of social quarantine measures.
India’s leading upstream developer, state- run Oil and Natural Gas Corp. (ONGC), could see losses from its natural gas business climb to INR60bn ($791mn) in financial year 2020-2021, with the company struggling to cover the high cost of production from older fields after gov- ernment-mandated gas prices hit historic lows last month.
At the other end of the sector, meanwhile, state-run Indian Oil Corp. (IOC) revealed this week that its refining output was expanding and was likely to continue doing so. After the coun- try’s largest refiner trimmed operating rates at its plant to nearly 45% of their designed capacity, runs have rebounded to 60% of capacity and are on track to reach 80% by the end of May.
China’s downstream also appears to be enjoying a slow return to normality, with crude imports rising month on month, levels of auto- motive transport rising and state and private refiners alike raising refining runs.
The country imported 40.43mn tonnes (9.88mn bpd) of oil in April, according to the General Administration of Customs (GAC). The figure was inevitably down from the 10.68mn bpd recorded in April 2019 but was higher than the 9.72mn bpd record in March. China only began easing its social restrictions last month
and has been eager to ramp up economic activity in the ensuing weeks.
If you’d like to read more about the key events shaping Asia’s oil and gas sector then please click here for NewsBase’s AsianOil Monitor.
FSU production pressures
In the former Soviet Union, eyes are on Russia and its OPEC+ partners Azerbaijan and Kazakh- stan to see how agreed cuts to production will be implemented.
Russian oil and condensate production surged 5% m/m in April to 11.35mn bpd, according to initial energy ministry data. But under the new OPEC+ deal, oil output needs to fall to 8.5mn bpd this month. The cuts do not apply to condensate and the energy ministry does not provide a breakdown on liquids. News- Base understands that Russia is close to reaching its oil target, however, with flows averaging just 8.75mn bpd in the first five days of May.
Russian oil firms boast considerably low pro- duction costs, albeit not quite as low as those in Saudi Arabia. Even so, like their international peers, they too are seeing their free cash flow plummet as a result of the oil price collapse. Goldman Sachs expects them to cut their dividends by 25% this year. Russian oil firms typically set their dividends as a percentage of IFRS profit. Therefore the decline will be the result of diminished earnings rather than changes in dividend policy.
Russia’s Gazprom marked the 75th anniver- sary of World War 2 with the announcement of a new 200 bcm gas discovery in the Arctic Kara Sea. But the find is of little commercial benefit until prices recover. The company is also con- tending with a serious outbreak of COVID-19
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