Page 10 - FSUOGM Week 01 2021
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FSUOGM                                        COMMENTARY                                            FSUOGM



                           While demand recovered towards the end  with some NOK100bn ($10.6bn) in tax relief in
                         of the year, the wider industry anticipates that  June, in a bid to help companies stay afloat and
                         national demand levels will contract in 2020  continue investing. The country’s willingness to
                         for the first time in two decades. This should  provide so much support is hardly surprising,
                         position the country to see a strong recovery in  given the major role that oil and gas plays in the
                         oil consumption this year, but much is likely to  Norwegian economy. The incentives package led
                         depend on the government’s ability to distribute  to a flurry of new investment announcements.
                         recently approved vaccines effectively.  Many of these projects had been shelved at the
                           New Delhi has already come under fire for  onset of the crisis.
                         its poor handling of the national lockdown, as   Exploration in Norway has also fared better
                         well as its use of specially run trains to shuttle  than in the UK, in large part thanks to the coun-
                         stranded migrant workers back to their villages.  try’s supportive fiscal regime. Norway allows
                         The latter strategy effectively rendered the first  companies to deduct almost 80% of their explo-
                         null and void.                       ration costs from taxable income.
                                                                At the same time, Norway also imposed its
                         Europe: North Sea remains profitable  own cuts to production this year, in a show of
                         The mature North Sea region has a reputation for  solidarity with OPEC+.
                         comparatively high production costs. But oper-
                         ators worked hard after the 2014 oil price crash  FSU: Tighter margins
                         to cut expenses, which made the sector more  As members of the OPEC+ alliance, Russia,
                         resilient in the face of the 2020 market collapse.  Kazakhstan and Azerbaijan committed to dras-
                         As such, most North Sea production remained  tic cuts to their oil production this year.
                         profitable even at the height of the market cri-  Russia alone took over 2mn barrels per day
                         sis in April. This said, the downturn has led to  of oil supply offline beginning in May. It restored
                         a significant drop in investment, particularly in  500,000 bpd in August and expects to bring a
                         the UK.                              further 125,000 bpd back on stream this month.
                           Prior to the coronavirus pandemic, UK  Further increases will be negotiated with its
                         operators were expected to take final investment  OPEC+ partners on a monthly basis.
                         decisions (FIDs) on 14 upstream projects this   Producers have implemented these cuts
                         year. All but one – namely, Apache’s approval  by closing down older, less profitable wells at
                         of the Gair oilfield before the market crisis took  mature fields in Western Siberia and the Vol-
                         hold – were delayed.                 ga-Urals region. They have also delayed growth
                           The number of wells sunk in UK waters more  at greenfield projects in the Arctic and Eastern
                         than halved this year, with exploration drilling  Siberia. The risk is that some mature projects
                         seeing the biggest decline. The lull in activity will  may never return to operation, undermining
                         weigh down on production numbers in the years  long-term prospects for Russian oil supply.
                         ahead.                                 Russian oil producers boast some of the low-
                           The UK government provided support to the  est production costs in the world. But the out-
                         industry in the form of its job furlough scheme  put cuts, combined with weak oil prices, have
                         this year but has not offered any tax relief. It has  squeezed their margins considerably.
                         also delayed publishing its “transformational”   During the 2014 oil price crash, the ruble’s
                         sector deal, promised by the UK Conservative  resulting collapse wreaked havoc on Russia’s
                         Party in its 2019 election manifesto, which aims  finances at large. But it also helped prop up Rus-
                         to support the industry through the energy  sian oil firms’ earnings by inflating the value
                         transition.                          of their exports. This time around, they have
                           Norway, in contrast, provided the industry  enjoyed no such relief, as Russia’s government


                                                                                                  The North Sea proved
                                                                                                  more resilient to low oil
                                                                                                  prices than it did in the
                                                                                                  last downturn thanks to
                                                                                                  cost-cutting measures
                                                                                                  undertaken since 2014.



















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