Page 14 - AfrElec Week 12

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OIL PRICE COMMENTARY
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three months. National oil firm Rosneft is pre- dicted to play a key role in providing the extra supply. It recently launched trial operations at a mid-sized West Siberian field it operates with Gazprom Neft. The company is also moving ahead with full-scale development of one of Eastern Siberia’s largest oilfields.
Not all Russian producers are on board with the supply war. Lukoil, which lacks the capacity to increase production in Russia, has urged the government to renew negotiations with OPEC.
Russia will be able to maximise its exports, as many of its refineries are due to wind down operations over the coming months for routine maintenance.
Oil price outlook
As producers prepare to flood the market, the outlook for oil demand continues to weaken. Fitch Ratings is predicting a y/y decline in con- sumption of 7-10mn bpd in the second quarter. Goldman Sachs expects Brent to average just $20 per barrel in the three-month period.
The effect of the coronavirus on demand will peak in late March, at 8mn bpd, the bank said last week, forecasting a supply surplus of 3.9mn bpd and 5.7mn bpd in the first and second quar- ters respectively.
Uncertainty over the pandemic’s severity and duration, as well as what actions producers will
take, makes it difficult to predict oil prices mov- ing forward. But if they remain low, the impact on supply will be profound.
Wood Mackenzie estimates that at a Brent price of $35 per barrel, revenues from 4mn bpd, or 4% of global oil production, do not cover costs and the government share. This rises to 10mn bpd if prices remain at $25 per barrel.
“In the short term, companies, governments and other stakeholders are likely to continue pro- ducing assets at a loss, as they have in the past, in the hope the price will rebound quickly,” Wood Mackenzie said in a research note on March 20. “But the current trifecta of oversupply, demand evaporation and global behemoths fighting for market share may require immediate and dra- matic action.”
“If prices don’t rebound, the taps will inevi- tably be turned off. Shut-ins will be more sub- stantial than 2015/2016,” the Edinburgh-based consultancy said. “Given the difficulties and costs associated with restarting mature pro- duction, a proportion of this supply may never return.”
Output over the longer term will also be affected, as producers have cut all or most of their discretionary spending to protect their balance sheets. This means that projects that had been due to come on stream in 2021, 2022, 2023 and further ahead will be delayed.™
POLICY
Sasol to bid to supply
South Africa’s Eskom with
temporary power
South Africa’s Sasol will bid to provide struggling state-owned utility Eskom with temporary supplies of power, the petrochemical producer said, Reuters reported.
Eskom generates more than 90% of the electricity in Africa’s most industrialised economy but has grappled with faults at
its coal-fired power plants, forcing it to implement power cuts that have weighed on economic growth.
On March 23, Eskom published a request for proposals (RFP) on a government tender website inviting bids from existing generating
NEWS IN BRIEF
plants with at least 5MW of spare capacity to supplement its own supplies.
Sasol, the world’s top manufacturer of motor fuel from coal, said it could supply Eskom with up to 50 MW of power, subject to maintenance requirements and natural gas availability.
“Sasol will respond to this RFP with an offer to supply incremental generation from the Sasol Gas Engine Power Plant,” it said in a statement.
Sasol can generate power at its Sasolburg and Secunda plants from gas, as well as from steam turbine generators integrated within its operations.
The RFP stated that the maximum contract period for the power purchase agreement with Eskom would be 36 months. Eskom has previously procured power from companies including Sasol during times of crisis.
Zesa’s $500m plan to end load-shedding
Zimbabwe’s Zesa has cobbled up a $500mn plan to end rolling electricity cuts by building solar power plants across the country in partnership with private investors.
Zimbabwe last year introduced an 18- hour daily load-shedding schedule after electricity production at the country’s main source of hydropower — Kariba Dam —fell dramatically due to dwindling water levels at the lake.
The power cuts have crippled industry, with companies being forced to resort
to alternative sources of energy such as generators amid grinding fuel shortages in the country.
On March 20, Zimbabwe’s power stations were only producing 569 megawatts (MW) of electricity against daily demand of 1 475MW.
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Week 12 26•March•2020