Covid-19 Impact on Oil & Gas Industry Calls for Resilience
Published on : Wednesday 10-06-2020
Handling the current scenario in the oil and gas industry in the aftermath of the Covid-19 pandemic calls for resilience, argues Dr Marcio Wagner da Silva.
The Covid-19 pandemic has inflicted upon the Oil and Gas sector the worst crises of the last few decades due to the severe impact on the crude oil consumption as well as in the whole energy matrix as presented in Figure 1. The reduction in the energy consumption (close to -6.0%) provoked by the economic slowdown due to the lockdown imposed by the governments to combat the Coronavirus makes the price of crude suffer a great reduction, from US$ 70.00 per barrel in January to close to US$ 23.00 in May. Despite the efforts of the OPEC and non-OPEC producers to cut the production to sustain the prices, the drastic reduction in the derivatives demand reduces the added value of the crudes imposing severe economic restrictions on the producers.
From the point of view of crude oil production, the shock of falling prices represents a great impact, especially to producers of discounted crudes – normally the heavier – that have a stricter market and higher production costs. These producers like Venezuela, Canada and Mexico can suffer more economic impact due to this lower financial margins. Among these players the situation is worst for Venezuela, which is suffering a serious economic crisis in the last few years and now suffers falling production rates. Another great impact is observed in the non-conventional reserves like the American tight oil since this crude presents higher production costs when compared with the conventional crudes; on the other hand, these crudes tend to present a high demand especially by refiners focusing on petrochemical intermediates.
The lower revenues from crude oil and gas in turn creates a great negative impact over the balance of payments of the producing countries, especially those that are strongly dependent on the oil and gas industry. Developing economies like Mexico and Venezuela can suffer even more to in servicing of their debts, raising the risks to other developing economies like Brazil, India, Russia, etc. Normally, the oil and gas industry is a high demand resources industry and the other sectors of the industry can be neglected, exposing the countries to risks in the crude oil sector, including the geopolitical interests. This effect is known as Dutch Cow Disease Effect and economies with low diversity can suffer even more. Unfortunately, this is the case for the most part among the developing economies.
The current scenario requires even more resilience of the players in a normally highly competitive industry. The search for more efficient processes is an urgent need nowadays and digitalisation can help refiners and producers to build an agile, safe and effective decision making process integrating key matters in the industry like asset integrity, production plans, and optimisation of the refining hardware aiming to find the best operation points that allow higher revenues in compliance with the market demand. In this sense, the automation systems are fundamental to facilitate data acquisition in real time, allowing quick identification of poor efficiency points and the agile maintenance and optimisation actions to solve the problem and avoid severe production losses, which is without any doubt a great competitive advantage in the current scenario.
The operational flexibility of the refining hardware is another competitive advantage in the downstream industry that can be strongly significant nowadays. The capacity to add value to heavy and discounted crudes can allow the refiners to operate with better refining margins in comparison with low complexity players, a good example being the compliance with the IMO 2020. The new marine fuel oil (Bunker) requires a maximum of 0.5% of sulfur in the derivative; the refiners with deep bottom barrel conversion capacity have a great advantage to produce the new Bunker that, despite the current economic crisis, maintains a high demand allowing a good revenue source to prepared refiners.
Refiners with integrated operations also have a good advantage in the current scenario due to the market reserves. A good example is the Brazilian Oil State Company, PETROBRAS. The company is responsible for 98% of the Brazilian downstream market that represents an internal market with a demand of 2.5 million barrels per day of crude oil derivatives, mainly transportation fuels. The lack of competitors is a beneficial point to the company in this case, even during the current economic scenario.
In markets with a highly competitive environment like the North American market, the refiners with lower operation capacity are reducing or stopping the operation due to their high operation costs when compared with major internal players. The integration between refining and petrochemical operations is another strategy to help refiners survive the current scenario. Before the pandemic was observed a trend of reduction in transportation fuels demand and this situation tends to be worse now. The integration between refining and petrochemical assets has the capability to improve profitability and share risks among the players, ensuring the high added value to the crude oil despite the lower demand. Figure 2 presents some examples of the possible synergies between refining and petrochemical assets.
The current scenario tends to postpone the great capital investments, but the more integrated refiners can reach a significant competitive advantage, especially in the Asian market that presents great demand for petrochemicals. Despite the current scenario, it is important to remember that humanity rises and becomes strong during a crisis. The pandemic will pass and the oil and gas industry needs to show resilience and learning capacity to quickly adapt to the new scenario. As mentioned at the beginning, digitalisation initiatives and automation systems have a key role in the strategy to build more agile and efficient processes, which can meaning survival in the market. This, in turn, can give great commercial opportunities to process automation vendors. On the side of the workforce, it’s fundamental to reach a multidisciplinary knowledge profile, raising your employability to keep training and build a continuous learning professional profile.
References
International Energy Agency (IEA). Global Energy Review, 2020.
Dr Marcio Wagner da Silva is Process Engineer and Project Manager focusing on Crude Oil Refining Industry based in São José dos Campos, Brazil. A Bachelor in Chemical Engineering from University of Maringa (UEM), Brazil and PhD in Chemical Engineering from University of Campinas (UNICAMP), Brazil, Dr Wagner has extensive experience in research, design and construction to oil and gas industry including developing and coordinating projects to operational improvements and debottlenecking to bottom barrel units. Dr Marcio Wagner also has MBA in Project Management from Federal University of Rio de Janeiro (UFRJ) and is certified in Business from Getulio Vargas Foundation (FGV).
