Page 5 - Euroil Week 12 2020

EurOil COMMENTARY EurOil
Shell had aimed to buy back $20bn of shares by the end of 2020 but is only half the way to reaching that goal.
The major suffered a dismal fourth quarter, with adjusted net income slumping 48% year on year to $2.93bn, because of lower oil and gas prices and poor downstream performance.
Shell said this week it would rein in its capital expenditure plan for this year by 20% to $20bn or less. It spent $23bn last year. The company is also looking to shave $3-4bn off its annual underlying operating costs over the course of the year, while making cuts to its working capital.
Its goal is to boost annual free cash flow by $8-9bn on a pre-tax basis.
“As well as protecting our staff and cus- tomers in this difficult time, we are also tak- ing immediate steps to ensure the financial strength and resilience of our business,” Shell CEO Ben van Beurden commented. “The com- bination of steeply falling oil demand and rap- idly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”
Shell added it was still focused on its divest- ment plan, which had been expected to see $5bn of assets put on sale in 2020. But the timing of these transactions will depend on market con- ditions, it said.
Equinor
Norwegian oil giant Equinor said it too had taken steps to rein in spending. It has trimmed its 2020 organic capex to $8.5bn from $10-11bn, while reducing its exploration spending from to $1bn from $1.4bn. It is also aiming to implement a $700mn reduction in operating costs.
Equinor has also halted its buyback scheme, with a $675mn tranche due to take place between May 18 and October 28 having been cancelled.
The state-owned company swung to a net loss of $230mn in the fourth quarter, from a $3.37bn profit a year earlier, because of a sharp decline in revenues due to low gas prices. Its results were buoyed by production growth at the North Sea’s Johan Sverdrup oil development, brought on stream last autumn.
“As a result of significant improvements in recent years, Equinor has a strong balance sheet and is in a good position to deal with the current circumstances, as well as uncertainties in front of us,” CEO Eldar Saetre told investors. “We are now taking actions to remain resilient in a period of low prices, volatility and market uncertainty, in line with our contingency plans.”
Earlier this month Equinor said it would set up a special department to handle its response to the COVID-19 crisis, as well as the pandemic’s longer-term implications for its business. ™
European gas feels COVID-19 effect
Gas demand will be largely flat in 2020 and low prices will persist for years
EUROPE
WHAT:
Gas prices in Europe have fallen to seasonal lows.
WHY:
Besides COVID-19, the market is also under pressure from high levels of storage and warm weather.
WHAT NEXT:
Suppliers will start to scale back shipments, and Gazprom, as the largest supplier, may face forces majeures.
THE impact of the coronavirus (COVID-19) pandemic has been more profound on oil rather than gas demand.
Efforts to contain and slow the spread of the virus have caused fuel consumption to plunge across Europe, as aeroplanes are grounded and motorists cut back on unnecessary travel. However, the closure of shops, factories and businesses has also sapped demand for gas and gas-derived heating.
Gas prices in Europe have fallen to new his- torical seasonal lows, with average rates at the Dutch TTF hub in March declining to $100 per 1,000 cubic metres and plunging to $90.3 on March 19.
Beyond the pandemic’s impact, Europe’s gas market is also under pressure from warm weather, record levels of storage and higher LNG imports. The continent’s top supplier Gazprom sells most of its gas under long-term contracts linked to oil prices with a six-to-nine month delay. Weak oil prices last year are therefore now beginning to feed into these contracts, driving
down the Russian gas exporter’s prices.
The collapse in benchmarks over the past month will also be factored into the contracts
later in the year.
Forecasts
Oslo-based Rystad Energy has slashed its fore- cast for growth in gas consumption in Europe to just 0.7% for this year in response to the cri- sis. The consultancy now anticipates demand to total 556bn cubic metres in 2020, down from a forecast of 560 bcm it made before coronavirus containment measures came into force. Europe consumed 554 bcm of gas last year.
Rystad based its predictions on most of the continent’s countries going into lockdown for 30 days during March and April.
“As people stay home and businesses close their doors, demand will decrease for power generation and for burning in the industrial, commercial and residential sectors,” Rystad said.
The lockdown will cause a loss of 4.1 bcm in expected gas demand, reducing the continent’s
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