28.03.2024

Russia urged to learn to live without expensive oil

Coronavirus lowered oil below the baseboard, and this fact, despite the accumulated airbag in the person of the National Wealth Fund, threatens the Russian economy with the biggest trouble.

Over the course of a single day, April 21, West Texas WTI futures for June fell by 43.4% to a catastrophic level of $ 11.57 per barrel, while European Brent crude oil fell 24.4% to go below the psychologically important mark of $ 20 per barrel. A day earlier, May WTI oil futures for the first time in history went into a deep minus, and on April 21 they hardly pulled themselves up to a miserable level of $ 10 per barrel.

Prices of this order on the world market are a disaster for Russia, whose budget is almost half filled due to the export of oil and gas.

What will happen to the domestic economy further depends on how long the oil price depression lasts: a year, three, ten years? Will Mother Russia be able to hold out until prices rebound upwards — at least up to $ 40-50 per barrel?

Texas is ready to shut down wells

The other day, regulators of the main oil state of America — Texas, which controls the local oil industry, discussed the possibility of reducing oil production in order to stop the fall in prices for black gold. The fall was before the coronavirus, but the viral pandemic gave it a special acceleration. If oil production in Texas is limited, this will be the first time since the 1970s. Then, however, there was no shale oil production, and now it is she who plays the first fiddle — therefore, the leaders of the main actors in shale oil production: Pioneer Natural Resources Co., Parsley Energy Inc., Marathon Oil Corp. participated in the discussion about “screwing the oil tap”.

The April deal between OPEC and Russia failed to stop the fall in oil prices. The Economist, an English magazine, recalls that the oil majors agreed to reduce oil production by 9.7 million barrels per day for two months, May and June, and then not increase oil production for another two years.

But when cars do not drive, planes do not fly, and a huge chunk of the global economy does not function due to the COVID-19 pandemic, even such measures to maintain the oil market do not help. So early Trump blew the victory — they say, I managed to convince Russia and the Saudis to stop the oil war and agree on a reduction in production, so now everything will be fine! No, it won’t, CNN emphasizes. The American shale oil industry, with its rather high prime cost, will not be able to tolerate prices of $ 20 per barrel or less for a long time. She desperately needs so that the economy begins to recover as quickly as possible, pushing oil prices up. But while the economic recovery is not expected soon.

Thanks to shale oil, America since 2018 has come out on top in the world in terms of oil production, surpassing Saudi Arabia and the Russian Federation. But the States are ready to give the oil crown back to Russia and the Saudis. Many of the American companies that extract oil by splitting the shale layer are experiencing financial difficulties — because they had to take large bank loans to carry out their expensive drilling projects. While oil prices were high, there was no problem — because there was something to repay debts. And now many of them will have to close production. According to the Norwegian analytical firm Rystad Energy, this year 140 American oil companies can file for bankruptcy, and another 400 in 2021. This will create terrible unemployment — this year alone, about 240,000 jobs will be lost.

When will the oil industry be reborn? When will the return to the former oil price of 40-50-60 dollars per barrel take place?

Freeze everything and everything

Experts do not swing their predictions for a long period of time, say, five or ten years: during this period many unexpected and unexpected things can happen — coronavirus is an example, God forbid something else like that … Analysts only talk about the closest months, maximum — a year. But they say joyless things.

An analytical note by Goldman Sachs Investment Bank says: “We are not only dealing with the greatest economic shock of our time. The industry is based on hydrocarbon production, such as oil. ”

The Verdict analytical group interviewed 358 representatives from the oil, refining and petrochemical industries. 67% of respondents believe that the price depression in relation to oil will last from six months to a year, or even one and a half, after the pandemic. The remaining 33% suggest that the decline in prices caused by COVID-19 will last a maximum of six months after the end of the pandemic. But half a year, a year or a half — from what moment? Where is that treasured reference point that lies in the impenetrable future?

While it is easier to answer the question “what?” Than the question “when?”. There is not only a reduction in existing production, but also a freezing of projects and facilities under construction. For example, the construction of large pipelines such as Liberty Oil and Red Oak has been postponed indefinitely — Phillips 66 is their operator. Energy Transfer Partners has stopped almost all of the Mariner East Pipeline pipeline construction in Pennsylvania. Other operators also froze their projects — Pembina Pipeline Corp., Harvest Midstream Co. etc.

This trend is observed not only in the USA. In Argentina, auctions were stopped, which were designed to provide funding for the construction of the Vaca Muerta-Buenos Aires gas pipeline. Nigerian Gas Co. project frozen in Nigeria on the construction of the Obiafu — Obricom — Aubin gas pipeline. The Chinese oil and gas giant Sinopec has reduced its capital expenditures for 2020 — this will primarily affect the company’s refineries, pipelines and warehouses.

In general, they cut and close everything and everything that is designed, built and partially — even that which is already functioning. In this context, Gazprom’s reluctance to say anything about the future of Nord Stream-2 is understandable. He will probably have some future, sometime, but when?

Doesn’t the oilwoman deserve to be saved?

The prospects for recovery of the oil industry are complicated by the fact that the hydrocarbon industry was very unwell long before the advent of coronavirus. In this case, of course, the pandemic played a role: a recent report by the Center for International Environmental Law (CIEL) states that “the oil and gas industry is among the sectors most affected by the current economic crisis: the leading companies in this industry lost an average of 45% of its value since the beginning of 2020. This fall affects almost all aspects of the oil and gas industry, including petrochemical production, which in recent years has been the main driver of further growth of this industry. The hardest hit on the oil industry is the stop of transport, especially in the United States, which consume a fifth of the world’s gasoline.

However, the same report notes that even before the pandemic in the oil, gas and petrochemical sectors, «there were clear signs of systemic weakness.» This was reflected in the low stock quotes of the industry companies, their high level of borrowing, increasing competition from alternative energy, a decrease in demand for plastics and poor prospects for the industry in the light of upcoming campaigns to prevent global warming. ” In other words, the industry crisis during the COVID-19 pandemic was only a continuation of the long-term tendency of its decline, states CIEL President Carroll Muffet: “If we look at the last five years or more, we will see that the oil and gas companies included in the Dow Jones Index , significantly lagged behind other Dow Jones corporations. ”

There is so much oil in the world that supply with a large overlap exceeds demand even in the normal state of the economy, not to mention the crisis. «What to do with all this oil?» — asks a rhetorical question Jim Kramer, the host of the popular TV show «Mad Money» on CNBC. And the owners of the oil storage facilities answer: nowhere, nowhere! All oil storage facilities are filled to capacity, and Trump even wants to stop oil imports (pour his oil) and use the unfilled capacities of the US strategic oil reserve to store surpluses of American oil companies.

And the worst thing for the oil industry is that this time it may not even be saved by taxpayers’ money (though, in Russia, its salvation is most likely guaranteed). At the very least, the CIEL report calls on governments not to: “Decision makers in light of the COVID-19 pandemic and economic collapse should not spend the limited resources at their disposal to pull oil, gas and petrochemical companies from the debt hole. » Such assistance, the authors of the report state, will only delay, but in no way stop the uncontrollable decline in hydrocarbon production and replacing it with clean energy sources.

The correctness of this view of the situation is confirmed by the fact that even the oil companies and oil-producing countries themselves, led by Saudi Arabia, have gone to alternative energy — they are preparing for the future without oil. Russia is not preparing …

To this picture, gloomy enough for the oil industry and its apologists, one more stroke can be added: oil workers, gas workers and petrochemists are accused of enhancing the destructive effect of the pandemic. How? Not directly, but quite real. Where there are many enterprises in this industry, people suffer from various serious diseases: for example, in Louisiana there is the district of St. John the Baptist, which is crammed with oil refineries and petrochemical plants; he was nicknamed «cancer nursery» because of the abundance of cases of cancer. And there — the most unfavorable situation in terms of COVID-19.

Therefore, the people’s dislike of the oil industry is understandable. Only those whom she feeds superfluously and who live in the present day love her.

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