Page 7 - MEOG Week 01 2021

MEOG REVIEW MEOG

Agency (IEA) projected that the two countries New Delhi has already come under fire for
would drive global oil demand growth until its poor handling of the national lockdown, as
2040. (India is set to overtake China as the latter well as its use of specially run trains to shuttle
reaches peak demand around 2030, though.) stranded migrant workers back to their villages.
The IEA’s prediction is likely to hold, despite The latter strategy effectively rendered the first
the dramatic impact the pandemic has had null and void.
on the world’s energy landscape. As such, the
success of China and India’s post-COVID-19 Europe: North Sea remains profitable
economic recovery efforts will go a long way The mature North Sea region has a reputation for
in helping to support oil prices this year. Both comparatively high production costs. But oper-
countries are likely to see firm growth in oil ators worked hard after the 2014 oil price crash
demand in 2021, though their responses to last to cut expenses, which made the sector more
year’s oil prices collapse were very different. resilient in the face of the 2020 market collapse.
China fared better than most other econo- As such, most North Sea production remained
mies in 2020, managing to suppress the spread of profitable even at the height of the market cri-
the virus quickly. And despite Chinese economic sis in April. This said, the downturn has led to
activity remaining relatively subdued for much a significant drop in investment, particularly in
of the year, importers ramped up their crude the UK.
purchases to record highs. In a bid to capitalise Prior to the coronavirus pandemic, UK
on bargain-basement prices, China imported an operators were expected to take final investment
average of 11.09mn barrels per day in the first 11 decisions (FIDs) on 14 upstream projects this
months of last year, up from 10.11mn bpd in the year. All but one – namely, Apache’s approval
same period of 2019. of the Gair oilfield before the market crisis took
The surge stressed the country’s import hold – were delayed.
storage and handling capacity, with queues of The number of wells sunk in UK waters more
tankers reportedly moored off Chinese ports than halved this year, with exploration drilling
for weeks on end. The country’s buying frenzy seeing the biggest decline. The lull in activity will
eased somewhat towards the end of the year, as weigh down on production numbers over the
the backlog of imports was cleared and private coming years.
refiners ran out of import quotas. The UK government provided support to the
However, a raft of new storage capacity in the industry in the form of its job furlough scheme
works, Beijing’s decision to award higher import this year but has not offered any tax relief. It has
quotas for 2021 and news that OPEC+ is arguing also delayed publishing its “transformational”
over a possible relaxation of oil production curbs sector deal, promised by the UK Conservative
all suggest that China could launch another wave Party in its 2019 election manifesto, which aims
of oil buying this year especially in the run up to to support the industry through the energy
the Lunar New Year. transition.
India, meanwhile, struggled to contain the Norway, in contrast, provided the industry
spread of the virus last year, and its difficulties with some NOK100bn ($10.6bn) in tax relief in
led to the introduction of widespread and severe June, in a bid to help companies stay afloat and
social quarantine measures. The country has continue investing. The country’s willingness to
reported more cases of COVID-19 infections provide so much support is hardly surprising,
than any other country outside of the US, and given the major role that oil and gas plays in the
widespread national and local lockdown meas- Norwegian economy. The incentives package led
ures caused refinery run rates to collapse in the to a flurry of new investment announcements.
middle of the year. Many of these projects had been shelved at the
While demand recovered towards the end onset of the crisis. Exploration in Norway has
of the year, the wider industry anticipates that also fared better than in the UK, in large part
national demand levels will contract in 2020 thanks to the country’s supportive fiscal regime.
for the first time in two decades. This should Norway allows companies to deduct almost 80%
position the country to see a strong recovery in of their exploration costs from taxable income.
oil consumption this year, but much is likely to At the same time, Norway also imposed its
depend on the government’s ability to distribute own cuts to production this year, in a show of
recently approved vaccines effectively. solidarity with OPEC+.

Week 01 06•January•2021 www. NEWSBASE .com P7