BAKU, Azerbaijan, April 14
By Leman Zeynalova – Trend:
Oil companies are expected to further increase spending on low carbon from 6 billion in 2019 to about six and a half billion with the price collapse and the subsequent capex cuts, Trend reports with reference to IHS Markit.
Nevertheless, the company has revised down spending for 2020 that it expects to see in low carbon by about 17 percent.
“We expect similar levels of cuts in 2021, where we see another 17 percent cut relative to where we were thinking spending would be previously. If we look out over the longer-term horizon, we expect to see a normalization of spending in the low carbon sector back to where we thought spending would be prior to the price decline. By 2025, we see a closer convergence to where we thought spending would be. We're expecting to see about 9 billion in spending across this group of companies, which is only about 4 percent, lower than our prior estimates,” reads the report.
This level of spending would represent approximately 5 percent of overall corporate capex for this group of companies in 2020, said IHS Markit.
“That said, if we look out over the next few years, we do expect to see a differing trajectory, both across individual companies within this peer group, in addition to spending on different segments within the low carbon sector. If we look on a company basis, we'd expect to see that the deepest and most prolonged cuts for those companies for which low carbon is a relatively lower area of emphasis. Conversely, for those companies that have already started to transition their portfolios to a greater share of low carbon spending. Particularly on the European side, we do expect to see a big cut in 2020 and 2021 but with a quicker resumption towards normalized levels.”
Following sharp underperformance in 2019, recent oil price volatility has further weighed on the performance of the oil and gas sector, with a decline of more than 50 percent since the start of the year.
Conversely, the broader clean energy and utilities segments have performed more in line with the broader market (with an approximate 25 percent year-to-date decline).
“This could accelerate the shift to the energy transition for some of these companies, as they look to diversify their portfolios and reduce their risk profiles. So that's certainly something that we'll be monitoring going forward. But that is something that we do expect companies to take into consideration and that could accelerate the transition for some of these companies. It's a shift that we've already seen starting to happen most notably with any, but we'll be on the lookout for more guidance from these companies pointing to an acceleration of that shift going forward.”
Given the constant changes in the state of the oil markets, these various scenarios and potential outlooks for global integrated oil companies, are in flux, said IHS Markit.
---
Follow the author on Twitter: @Lyaman_Zeyn
