Page 10 - FSUOGM Week 07 2020

FSUOGM PERFORMANCE FSUOGM
FSU oil, gas suppliers exposed to coronavirus crisis
ESPO oil supplies from Russia are vulnerable to the outbreak.
FSU REGION
THE coronavirus epidemic has sent shockwaves through global energy markets, not least in the former Soviet Union.
While markets everywhere will be a ected by weaker demand and lower prices, the FSU region is set to bear some of the brunt of the cri- sis given its status as a major oil and gas supplier to China.
Beijing is yet to publish full statistics on its oil and gas consumption since the virus took hold. However, the government-backed Chong- qing Petroleum and Gas Exchange reported on February 17 that Chinese gas consumption was down 1% year on year in January at 31.6bn cubic metres. ough small, this contraction is the rst China has seen in January in at least two years.
China is the world’s biggest gas importer, and a substantial share of its supplies – around 48 bcm last year – comes from Central Asia. ese supplies will be less a ected by the outbreak than Chinese LNG imports, which Oslo-based Rystad Energy estimated fell 10% in January. LNG shipments are more flexible, and more vulnerable to reduced industrial activities and a lack of labour. However, Central Asian deliver- ies could also come under pressure, particularly if the epidemic has a longer duration.
Turkmenistan is by far the biggest contributor to Central Asian gas ows to China, accounting for 70-75% of total volumes, while Kazakhstan and Uzbekistan supply the rest. A decline in rev- enues from Chinese gas sales would exacerbate Turkmenistan’s economic crisis.
Russia also began piped gas supplies to China in December via its new Power of Siberia project. But the pipeline is expected to ow only 4.6 bcm of gas this year and will not reach its full 38 bcm
per year capacity until 2025.
Chinese oil demand has also taken a tumble,
according to reports, with Reuters estimating in February that Asia’s top re ner had reduced its output by around 1.5mn barrels per day in just two weeks. China re ned 13.78mn bpd of crude last year.
Russia was China’s second biggest oil supplier a er Saudi Arabia in 2019, shipping 77.64mn tonnes (1.56mn bpd) of its Eastern Siberia-Pa- ci c Ocean (ESPO) blend to the country. But ESPO supplies are seen as the most vulnerable to sudden declines in demand, as they are the main blend sold on China’s spot market.
Premiums for ESPO loaded at Russia’s Far Eastern port of Kozmino fell to their lowest level in two and a half years on February 14, traders told Reuters and others. e main ESPO suppli- ers are Rosne , Surgutne egaz and Irkutsk Oil Co. (INK).
Whereas most of Central Asia’s gas ows to China, most of its oil is shipped to Western mar- kets, limiting the impact of the virus on export levels.
E orts to contain the coronavirus may also have some implications for upstream projects in the FSU area. Chinese investors, contractors and suppliers play a major role in oil and gas produc- tion in Kazakhstan, Uzbekistan and Turkmen- istan. In Kazakhstan, for example, almost all of the largest onshore oil elds are under the control of Chinese state companies, while in Turkmen- istan, China’s CNPC owns the giant Baktiyarlyk eld, which ships its gas to the Chinese market.
Chinese investors are far less active in the Russian oil and gas industry, although Chinese contractors and suppliers are commonly used, especially in Eastern Siberia. ™
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Week 07 19•February•2020