COVID-19: how could China overcome oil and gas delays?

By GlobalData
As a result of the coronavirus (COVID-19) global pandemic and the oil price war, the oil and gas industry in Asia is facing unprecedented uncertainty...

As a result of the coronavirus (COVID-19) global pandemic and the oil price war, the oil and gas industry in Asia is facing unprecedented uncertainty. 

Companies are being forced to rethink the ongoing project timelines and ‘projects in the pipeline’ for 2020. Projects expected to take final investment decision (FID) this year are at elevated risk of deferral, says GlobalData, a leading data and analytics company.

However, China is now in the recovery phase and its major national oil companies (NOCs) are set to focus on their domestic output growth goals.

Cao Chai, Oil and Gas Analyst at GlobalData, says: “Field developments in India have already been disrupted and more are likely to be at risk as the country is currently enduring a 21-day lockdown. The latest news that India reduced its domestic natural gas price to a record low of US$2.39 per mmBtu will further impact the country’s top gas producer ONGC.

“Elsewhere in the region, the construction at the Merakes field in Indonesia is disrupted due to a shortage of workers and challenge of logistic supply, operator ENI has declared force majeure on the project as a result of COVID-19.”

The projects in Asia targeting FID this year will inevitably face delays, as countries continue to struggle through the uncertainties. Large scale capital intensive projects, which are facing financial constraints or with existing uncertainties will be difficult to draw investment. Smaller-scale operators will require capital discipline to maintain ongoing operations and growth, therefore projects awaiting FID would likely be postponed too. 


But China could be an exception. The country, which was the centre of the COVID-19 outbreak earlier this year, will see the planned project's progress as the country recovers from the worst of the coronavirus, though minor delays may still occur. Domestic developments will be prioritized over international investment for China National Offshore Oil Corporation (CNOOC), after its recent CAPEX review to trim the annual budget by 10-15%.

China Petroleum & Chemical Corporation (Sinopec) marginally cut its CAPEX by 2.5%, which will come predominantly from its refining business and sales sector. To date, there are no confirmed budget cuts from China National Petroleum Corporation (CNPC); however, it has announced an adjustment of 2020 production and operational plans in accordance with market trends.

Chai Concludes: “While Chinese NOCs are focusing on raising domestic output and cutting overseas operations, elsewhere in Asia delays and disruptions are seen across the upstream sector in 2020. The projects under development are at risk of slowdowns and operational disruptions as countries have taken stricter measures to control the spread of COVID-19, a multi-year low in upstream project FIDs is also expected in the region.”

For more information on business topics in APAC, please take a look at the latest edition of Business Chief APAC

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