Impact of Covid-19 on the oil and gas sector of emerging economies

Mar 24,2020

China has recently established itself as the most powerful of emerging economies, culminating in a rapid downturn in the global economy, including the oil and gas sector, when Wuhan City in Hubei became ground zero for the Covid-19 outbreak.

According to the 2018 report, China consumes 13.5 million barrels per day of crude oil annually, of which about 62 percent is produced by imports. Lockdowns and transport restrictions placed in some of the major cities throughout China also contributed to a decrease in the country's consumption of petroleum products.

The rapid decrease in the workforce, as a result of the lockout, has also hampered port operation in China. Major ports, such as Shenzhen and Shanghai, showed a decline of about 20% year-on-year in the month of February. It has led companies such as PetroChina and China National Offshore Oil Corporation (CNOOC) to decline some of the crude oil shipments from Brazil and West Africa.

Chinese national oil companies have also reduced refining production due to labor shortages. This has also had an effect on the operations of many sectors, based on the petroleum and petrochemical goods made accessible to refineries.

In February 2020, China's state-owned refiners reported a reduction in refining production of 940,000 barrels per day for the month of February. Downstream projects under development, such as Jieyang, Lianyungang 2, Dayushan Island Phase Two and Zhejiang Petrochemical Daishan Xylene Plant 2, may theoretically see some delay in implementation owing to the interruption of supply chains and travel restrictions.

Chinese companies have also invested in the oil and gas sector in several other emerging markets, notably Russia, Brazil, Nigeria, and Mexico. Such countries, too, may suffer any dip in their oil and gas revenues due to the decreasing energy demand in China and the subsequent spread of the disease in various parts of the world.

Chinese companies have recently partnered with Russian oil and gas companies on a variety of main projects, especially in the Arctic area. Those under development, such as the Arctic-2 liquified Natural Gas (LNG) Liquefaction Dock, can be delayed. Brazil and Nigeria also export substantial volumes of their crude oil production to China, which are likely to decline over the short term.

In contrast to other developing markets, India has been one of the beneficiaries of the Covid-19 epidemic by China and the subsequent low oil prices. Following China's cancellation of certain crude oil imports, Indian refiners, such as Bharat Petroleum Corporation Limited (BPCL), purchased stranded shipments from the Mediterranean and Latin American regions at discounted rates.

Latest News