BAKU, Azerbaijan, April 6
By Leman Zeynalova - Trend:
The impact of Covid-19 on natural gas demand mirrors some of the impacts seen with oil as mass office shutdowns and curtailments of industrial facilities hits headline demand, Trend reports citing Fitch Solutions Country Risk and Industry Research (a unit of Fitch Group).
However, gas demand is propped up somewhat by continued residential and power demand, reads the report.
“As oil continues to hit new multi-decade lows, we are likely to see curbs of LNG production as spot prices plummet and oil indexed contracts fall to below variable costs for some producers, in particular the US. On a project basis, we are also starting to see some LNG projects reorganise, with Shell having announced it will exit the Lake Charles LNG project,” said the company.
Fitch Solutions expects companies will look to delay projects over outright cancellations.
“We have already seen Qatar delay the selection of partners for its expansion project and reports have also emerged that ExxonMobil will postpone its FID decision on Rovuma LNG in Mozambique. Gas markets globally have been struggling with a huge increase in available supply over the past year. Over the medium term, production shut-ins of gas producers (as well as oil producers which have flooded the market with associated gas in the recent past) will support some strength in gas prices, as will the partial recovery in Brent,” said the company.
Further, Fitch Solutions expects that the unprecedented demand impact from the Covid-19 outbreak will cause huge disruption to the global refining sector.
“Refined fuel margins have capitulated as a huge proportion of global demand having been wiped out over the start of the year. Crack spreads - the overall price differential between the price of a barrel of crude oil and the price of the petroleum products refined from it- have plunged to their lowest levels in more than a decade with the double hit of extremely weak demand and mass surplus of crude. Globally, around 80 percent of global GDP is now affected by some form of social distancing measures or restrictions on daily life. The resultant effect on fuels demand is profound, with a huge number of people now stopped from travelling, commuting and a large proportion of industrial activity curtailed or shut down altogether,” reads the report.
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