BAKU, Azerbaijan, Dec.17
By Leman Zeynalova – Trend:
Oil and gas is a depleting resource with an average annual production decline rate of 6–7 percent. Add to that five years of low capital spending and deep cuts in 2020 (global oil and capex is projected to fall by more than 23 percent year over year in 2020) and we have an industry at risk of underinvestment, Trend reports referring to Deloitte.
“Just to replace the annual consumption and offset natural field declines, the industry would need to invest more than $525 billion annually. But will this underinvestment affect 2021 supplies? Probably not, considering OECD crude inventories are still at an all-time high of 2,962 million barrels and OPEC+ nations have 7–8 MMbbl/d of pledged output cuts to be rolled back. Yet in the medium-to-long term, underinvestment could affect supplies, especially from non-OPEC producing nations. But, unlike in the past, demand (or lack of it) will likely have a larger influence on the future supply-demand balance,” Deloitte said in its latest report.
The report shows that although there is a visible uptick in road traffic, local office commuting and international travel both remain muted: Work-related travel in the United States still remains 35-40 percent below the prepandemic level.
“Even in the base-case scenario, analysts expect 2021 global jet fuel demand to remain below 75 percent of prepandemic levels. With the risk to both supply and demand, the jury is still out on the future supply-demand balance. In our postelection poll 44 percent of oil and gas executive respondents expect the oil market to remain in balance, and 33 percent of oil and gas respondents expect a high risk of a new supply crunch over the next five years (2020–2025),” said the company.
“In light of this uncertainty, what should oil and companies companies do to guard against downside risk and be ready for any potential upside in 2021? Companies should consider accelerating digital transformation to reduce operating costs, “variablizing” their fixed costs of support functions, maintaining flexibility in their operations, and optimizing their capital allocation for the projects of tomorrow.”
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