Page 9 - LatAmOil Week 01 2021

LatAmOil COMMENTARY LatAmOil

In turn, Mexico showed itself reluctant to come outlay, Aramco has returned to the debt market
to the organisation’s aid after the OPEC+ deal and has spent much of the year considering ways
lapsed at the end of March. More specifically, it to monetise midstream and downstream assets,
declined to accept the group’s recommendations in much the same way that Abu Dhabi National
on output cuts, saying it could not afford to rein Oil Co. (ADNOC) has done with great success.
in production. (This move led US President With this in mind, it is unsurprising that
Donald Trump to offer to make up part of the Saudi Energy Minister Prince Abdulaziz bin
difference.) Salman told his OPEC+ counterparts on Jan-
Meanwhile, the coronavirus (COVID-19) uary 4: “Now as we see light at the end of the
pandemic disrupted Latin America’s oil and tunnel, we must avoid at all costs the temptation
gas industry, even as infection rates soared in to slacken off our cause. Do not put at risk all we
the region. It led major producers such as Brazil have achieved for an instant illusionary benefit.”
and Argentina to make temporary reductions in
oil and gas yields, and these cuts, in turn, helped North America: Oil price vulnerability
to derail Argentina’s plans for becoming a net The US and Canada were both hit hard by the
exporter of LNG. collapse in oil prices in 2020, though it played
It also served to complicate negotiations out in different ways across the two countries.
on initiatives such as the planned takeover of In Canada, the oil sands industry had been
Curaçao’s Isla refinery by Geneva-based Klesch increasingly falling out of favour since the last
Group. (This scheme eventually failed, when oil price downturn started in 2014. This can be
Klesch was unable to provide assurances about attributed partly to the high cost of developing
its timeline for the deal.) Additionally, it caused new oil sands projects and partly to mounting
Brazil to postpone licensing rounds – though concerns over their environmental impact.
this may not have had much impact on the These factors, among others, had compelled
country’s finances in the end, as previous bid- a number of companies to exit the oil sands over
ding rounds in late 2019 had failed to draw as recent years and had resulted in a collapse in
much interest as anticipated. the sanctioning of new projects. Indeed, Teck
Resources withdrew its application to build the
Middle East: Feast or famine? Frontier oil sands mine in February 2020, before
Countries in the Middle East, home to oil oil prices started to crash in March.
reserves with some of the world’s lowest produc- These existing challenges were exacerbated
tion costs and some of the governments most by the brief oil price war between Saudi Arabia
reliant on hydrocarbon revenues, by and large and Russia last year, which was swiftly followed
tried to stick to their guns in 2020 despite the by the COVID-19 pandemic. These events
impact of the COVID-19 pandemic. brought prices to new lows and even forced
OPEC’s de facto leader and swing pro- West Texas Intermediate (WTI) to go negative Certain OPEC
ducer Saudi Arabia was – unsurprisingly – the briefly in April for the first time. members have
key player. Saudi crude production fluctuated Canadian producers – like others around the
wildly, reaching an all-time, single-day record world – responded by shutting in some of their said they no
of 12.1mn barrels per day (bpd) in April, as it output. And even as production returned over
engaged with Russia in an ill-timed race to the the course of the year, nearly 16% of Alberta’s longer view
bottom for oil prices. output remained offline as of late October 2020.
Output plummeted just a few weeks later This resulted in Alberta announcing that US shale as a
as Riyadh sought to bring about stability to the it would end its mandatory oil output curtail- significant threat
market following the dual crises of overpro- ments, which had been in place before the pan-
duction and COVID-19’s impact on demand. demic in a bid to prop up regional crude prices,
State oil firm Saudi Aramco saw output fall to earlier than previously planned, in early Decem-
7.5-8.0mn bpd in the second quarter as it sought ber 2020. Additionally, Canada’s congested oil
to stem the financial bleeding and comply pipeline network was offered some breathing
with OPEC+ cuts. The firm cut its capital pro- space thanks to the drop-off in production.
gramme by roughly $12bn, company sources In the US, meanwhile, shale drillers have
told MEOG. become known for being quick to respond to oil
Despite its best efforts to ringfence ambi- price signals. A number of producers immedi-
tious expansion projects, including the $110bn ately announced in March that they were scal-
Jafurah unconventional gas project announced ing back production once it was clear that a new
in the first quarter, Aramco has uncharacter- oil price collapse was underway. Similarly to
istically cancelled a string of maintenance and Canadian producers, US shale operators were
production efforts, notably those at Berri and gradually restoring curtailed oil output to the
Marjan, turning instead to projects targeting market later in the year, but US production is
marginal increases. nonetheless expected to be lower in 2020 than
While Aramco has built untold wealth for it was in 2019.
Saudi from the export of oil, it now finds itself As a result of these developments, certain
beholden to its late 2019 promise to pay a $75bn OPEC members have said they no longer view
per year dividend to shareholders for the first US shale as a significant threat. Shale producers,
five years following its initial public offering conversely, will be following OPEC+ talks with
(IPO). Having failed during the first three quar- concern, as every decision will likely affect their
ters of the year to come close to covering this future drilling plans. ™

Week 01 07•January•2021 www. NEWSBASE .com P9