Page 9 - MEOG Week 01 2021

MEOG REVIEW MEOG

Curaçao’s Isla refinery by Geneva-based Klesch In Canada, the oil sands industry had been
Group. (This scheme eventually failed, when increasingly falling out of favour since the last
Klesch was unable to provide assurances about oil price downturn started in 2014. This can be
its timeline for the deal.) Additionally, it caused attributed partly to the high cost of developing
Brazil to postpone licensing rounds – though new oil sands projects and partly to growing con-
this may not have had much impact on the coun- cerns over their environmental impact.
try’s finances in the end, as previous bidding These factors, among others, had compelled
rounds in late 2019 had failed to draw as much a number of companies to exit the oil sands over
interest as anticipated. recent years and had resulted in a collapse in
the sanctioning of new projects. Indeed, Teck
OPEC+ Middle East: Feast or famine? Resources withdrew its application to build the
UPDATE: Countries in the Middle East, home to oil Frontier oil sands mine in February 2020, before
The OPEC+ meeting reserves with some of the world’s lowest produc- oil prices started to crash in March.
of January 4 ran over tion costs and some of the governments most These existing challenges were exacerbated
into the following day reliant on hydrocarbon revenues, Middle East- by the brief oil price war between Saudi Arabia
with Russia pushing to ern countries by and large tried to stick to their and Russia last year, which was swiftly followed
reduce the production guns in 2020 despite the impact of the COVID- by the COVID-19 pandemic. These events
constraints by 500,000 19 pandemic. brought prices to new lows and even forced West
bpd as had been OPEC’s de facto leader and swing pro- Texas Intermediate (WTI) to go negative briefly
agreed at the previous ducer Saudi Arabia was – unsurprisingly – the in April for the first time.
meeting. However, key player. Saudi crude production fluctuated Canadian producers – like others around the
with the majority of the wildly, reaching an all-time, single-day record world – responded by shutting in some of their
group keen to maintain of 12.1mn barrels per day in April, as it engaged output. And even as production returned over
the January quotas to with Russia in an ill-timed race to the bottom for the course of the year, nearly 16% of leading pro-
further stabilise prices oil prices. ducer Alberta’s output remained offline as of late
as renewed lockdowns Output plummeted just a few weeks later as October 2020.
are announced Riyadh sought to bring about stability to the mar- This resulted in Alberta announcing that
throughout Europe, ket following the dual crises of overproduction it would end its mandatory oil output curtail-
a deal was reached and COVID-19’s impact on demand. State oil ments, which had been in place before the pan-
that will delay any firm Saudi Aramco saw output fall to 7.5-8.0mn demic in a bid to prop up regional crude prices,
increase until March. bpd in the second quarter as it sought to stem the earlier than previously planned, in early Decem-
In a separate and financial bleeding and comply with OPEC+ cuts. ber 2020. Additionally, Canada’s congested oil
surprising move, Saudi The firm cut its capital programme by roughly pipeline network was offered some breathing
Arabia announced that $12bn, company sources told NewsBase. space thanks to the drop-off in production.
it would cut its crude Despite its best efforts to ring-fence ambi- In the US, meanwhile, shale drillers have
production by 1mn bpd tious expansion projects, including the $110bn become known for being quick to respond to oil
in February Jafurah unconventional gas project announced price signals. A number of producers immedi-
Speaking to NewsBase, in the first quarter, Aramco has uncharacter- ately announced in March that they were scaling
Ian Simm, Principal istically cancelled a string of maintenance and back production once it was clear that a new oil
Advisor at consultancy production efforts, notably those at Berri and price collapse was underway.
IGM Energy said: Marjan, turning instead to projects targeting Similarly to Canadian producers, US shale
“This continues to be marginal increases. operators were gradually restoring curtailed oil
a delicate balancing While Aramco has built untold wealth for output to the market later in the year, but US pro-
act for OPEC and its Saudi from the export of oil, it now finds itself duction is nonetheless expected to be lower in
partners. With prices beholden to its late 2019 promise to pay a $75bn 2020 than it was in 2019.
having risen, there per year dividend to shareholders for the first five As a result of these developments, certain
was appetite to loosen years following its initial public offering (IPO). OPEC members have said they no longer view
the restrictions on Having failed during the first three quarters of US shale as a significant threat. Shale producers,
production, but at the the year to come close to covering this outlay, conversely, will be following OPEC+ talks with
same time, the spread Aramco has returned to the debt market and concern, as every decision will likely affect their
of a mutant strain of has spent much of the year considering ways to future drilling plans.™
COVID-19 has led to monetise midstream and downstream assets, in
more lockdowns which much the same way that Abu Dhabi National Oil
are likely to constrain Co. (ADNOC) has done with great success.
the much-anticipated With this in mind, it is unsurprising that
return of demand Saudi Energy Minister Prince Abdulaziz bin
growth. Meanwhile, Salman told his OPEC+ counterparts on Janu-
the Saudi move further ary 4: “Now as we see light at the end of the tun-
illustrates that Riyadh nel, we must avoid at all costs the temptation to
will continue to carry slacken off our cause. Do not put at risk all we
the weight of ensuring have achieved for an instant illusionary benefit.”
prices do not collapse.”
North America: Oil price vulnerability
The US and Canada were both hit hard by the
collapse in oil prices in 2020, though it played out
in different ways across the two countries.

Week 01 06•January•2021 www. NEWSBASE .com P9