Page 8 - AsianOil Week 01 2021

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its timeline for the deal.) Additionally, it caused
Brazil to postpone licensing rounds – though
this may not have had much impact on the coun-
try’s finances in the end, as previous bidding
rounds in late 2019 had failed to draw as much
interest as anticipated.

Middle East: Feast or famine?
Countries in the Middle East, home to oil
reserves with some of the world’s lowest produc-
tion costs and some of the governments most
reliant on hydrocarbon revenues, by and large
tried to stick to their guns in 2020 despite the In Canada, the oil sands industry had been
impact of the COVID-19 pandemic. increasingly falling out of favour since the last
OPEC’s de facto leader and swing pro- oil price downturn started in 2014. This can be
ducer Saudi Arabia was – unsurprisingly – the attributed partly to the high cost of developing
key player. Saudi crude production fluctuated new oil sands projects and partly to mounting
wildly, reaching an all-time, single-day record concerns over their environmental impact.
of 12.1mn barrels per day (bpd) in April, as it These factors, among others, had compelled
engaged with Russia in an ill-timed race to the a number of companies to exit the oil sands over
bottom for oil prices. recent years and had resulted in a collapse in
Output plummeted just a few weeks later as the sanctioning of new projects. Indeed, Teck
Riyadh sought to bring about stability to the mar- Resources withdrew its application to build the
ket following the dual crises of overproduction Frontier oil sands mine in February 2020, before
and COVID-19’s impact on demand. State oil oil prices started to crash in March.
firm Saudi Aramco saw output fall to 7.5-8.0mn These existing challenges were exacerbated
bpd in the second quarter as it sought to stem the by the brief oil price war between Saudi Arabia
financial bleeding and comply with OPEC+ cuts. and Russia last year, which was swiftly followed
The firm cut its capital programme by roughly by the COVID-19 pandemic. These events
$12bn, company sources told MEOG. brought prices to new lows and even forced West
Despite its best efforts to ringfence ambitious Texas Intermediate (WTI) to go negative briefly
expansion projects, including the $110bn Jafu- in April for the first time.
rah unconventional gas project announced in Canadian producers – like others around the
the first quarter, Aramco has uncharacteristically world – responded by shutting in some of their
cancelled a string of maintenance and produc- output. And even as production returned over
tion efforts, notably those at Berri and Marjan, the course of the year, nearly 16% of leading pro-
turning instead to projects targeting marginal ducer Alberta’s output remained offline as of late
increases. October 2020.
While Aramco has built untold wealth for This resulted in Alberta announcing that
Saudi from the export of oil, it now finds itself it would end its mandatory oil output curtail-
beholden to its late 2019 promise to pay a $75bn ments, which had been in place before the pan-
per year dividend to shareholders for the first five demic in a bid to prop up regional crude prices,
years following its initial public offering (IPO). earlier than previously planned, in early Decem-
Having failed during the first three quarters of ber 2020. Additionally, Canada’s congested oil
the year to come close to covering this outlay, pipeline network was offered some breathing
Aramco has returned to the debt market and space thanks to the drop-off in production.
has spent much of the year considering ways to In the US, meanwhile, shale drillers have
monetise midstream and downstream assets, in become known for being quick to respond to oil
much the same way that Abu Dhabi National Oil price signals. A number of producers immediately
Co. (ADNOC) has done with great success. announced in March that they were scaling back
With this in mind, it is unsurprising that production once it was clear that a new oil price
Saudi Energy Minister Prince Abdulaziz bin collapse was underway. Similarly to Canadian pro-
Salman told his OPEC+ counterparts on Janu- ducers, US shale operators were gradually restoring
ary 4: “Now as we see light at the end of the tun- curtailed oil output to the market later in the year,
nel, we must avoid at all costs the temptation to but US production is nonetheless expected to be
slacken off our cause. Do not put at risk all we lower in 2020 than it was in 2019.
have achieved for an instant illusionary benefit.” As a result of these developments, certain
OPEC members have said they no longer view
North America: Oil price vulnerability US shale as a significant threat. Shale producers,
The US and Canada were both hit hard by the conversely, will be following OPEC+ talks with
collapse in oil prices in 2020, though it played out concern, as every decision will likely affect their
in different ways across the two countries. future drilling plans.™

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