Page 12 - FSUOGM Week 01 2021

FSUOGM COMMENTARY FSUOGM

reliant on hydrocarbon revenues, by and large In Canada, the oil sands industry had been
tried to stick to their guns in 2020 despite the increasingly falling out of favour since the last
impact of the COVID-19 pandemic. oil price downturn started in 2014. This can be
OPEC’s de facto leader and swing pro- attributed partly to the high cost of developing
ducer Saudi Arabia was – unsurprisingly – the new oil sands projects and partly to mounting
key player. Saudi crude production fluctuated concerns over their environmental impact.
wildly, reaching an all-time, single-day record These factors, among others, had compelled
of 12.1mn barrels per day (bpd) in April, as it a number of companies to exit the oil sands over
engaged with Russia in an ill-timed race to the recent years and had resulted in a collapse in
bottom for oil prices. the sanctioning of new projects. Indeed, Teck
Output plummeted just a few weeks later as Resources withdrew its application to build the
Riyadh sought to bring about stability to the mar- Frontier oil sands mine in February 2020, before
ket following the dual crises of overproduction oil prices started to crash in March.
and COVID-19’s impact on demand. State oil These existing challenges were exacerbated
firm Saudi Aramco saw output fall to 7.5-8.0mn by the brief oil price war between Saudi Arabia
bpd in the second quarter as it sought to stem the and Russia last year, which was swiftly followed
financial bleeding and comply with OPEC+ cuts. by the COVID-19 pandemic. These events
The firm cut its capital programme by roughly brought prices to new lows and even forced West
$12bn, company sources told MEOG. Texas Intermediate (WTI) to go negative briefly
Despite its best efforts to ringfence ambitious in April for the first time.
expansion projects, including the $110bn Jafu- Canadian producers – like others around the
rah unconventional gas project announced in world – responded by shutting in some of their
the first quarter, Aramco has uncharacteristically output. And even as production returned over
cancelled a string of maintenance and produc- the course of the year, nearly 16% of leading pro-
tion efforts, notably those at Berri and Marjan, ducer Alberta’s output remained offline as of late
turning instead to projects targeting marginal October 2020.
increases. This resulted in Alberta announcing that
While Aramco has built untold wealth for it would end its mandatory oil output curtail-
Saudi from the export of oil, it now finds itself ments, which had been in place before the pan-
beholden to its late 2019 promise to pay a $75bn demic in a bid to prop up regional crude prices,
per year dividend to shareholders for the first five earlier than previously planned, in early Decem-
years following its initial public offering (IPO). ber 2020. Additionally, Canada’s congested oil
Having failed during the first three quarters of pipeline network was offered some breathing
the year to come close to covering this outlay, space thanks to the drop-off in production.
Aramco has returned to the debt market and In the US, meanwhile, shale drillers have
has spent much of the year considering ways to become known for being quick to respond to oil
monetise midstream and downstream assets, in price signals. A number of producers immedi-
much the same way that Abu Dhabi National Oil ately announced in March that they were scaling
Co. (ADNOC) has done with great success. back production once it was clear that a new oil
With this in mind, it is unsurprising that price collapse was underway. Similarly to Cana-
Saudi Energy Minister Prince Abdulaziz bin dian producers, US shale operators were gradu-
Salman told his OPEC+ counterparts on Janu- ally restoring curtailed oil output to the market
ary 4: “Now as we see light at the end of the tun- later in the year, but US production is nonethe-
nel, we must avoid at all costs the temptation to less expected to be lower in 2020 than it was in
slacken off our cause. Do not put at risk all we 2019.
have achieved for an instant illusionary benefit.” As a result of these developments, certain
OPEC members have said they no longer view
North America: Oil price vulnerability US shale as a significant threat. Shale producers,
The US and Canada were both hit hard by the conversely, will be following OPEC+ talks with
collapse in oil prices in 2020, though it played out concern, as every decision will likely affect their
in different ways across the two countries. future drilling plans. ™

Saudi Aramco is on the
hook to pay $75bn in
dividends to the Saudi
state and its other
shareholders this year.

P12 www. NEWSBASE .com Week 01 06•January•2021