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The Covid-19 pandemic will leave not only shortterm, but also long- term scars on the oil market, says Rystad Energy.
It stated further that even though the world is currently facing what is arguably the largest oil glut ever recorded, the tables will turn dramatically in coming years.
The lack of activity and investments currently planned by cost-conscious E&P firms, combined with an inevitable rebound in global oil demand, is set to cause a supply deficit of around 5 million barrels per day (bpd) in 2025, Rystad Energy calculates, with prices seen topping $68 per barrel to balance the market.
Already Nigeria has asked her operating partners to cut their operational cost by 40 percent and they have started operating that as most of their vendors doing one business have been duly informed about this development.
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Rystad Energy in its base case scenario, said global demand for liquids in 2025 will reach around 105 million bpd. Before the Covid-19 pandemic, it stated that it had expected supply to slightly exceed demand. However, due to the steep curtailment of investments and activity that the current crisis has brought this year, it now estimates that the down cycle in the upstream industry will remove about 6 million bpd from production forecasts for 2025.
To fill this gap, Rystad Energy believes that some of the core OPEC countries, like Saudi Arabia, Iraq and
UAE, will be able to ramp up production. In total these countries might fill 3 million to 4 million bpd of this gap. The remaining shortfall will most likely be filled with volumes from US tight oil.
To achieve this, prices may move above its current base case, which currently stands at an average price of $68 per barrel in 2025.
“The current low oil price has tightened the mediumterm supply and demand balance considerably. Despite high growth in tight oil, oil production outside the OPEC Middle East countries is expected to stay flat over the next five years. As demand is expected to recover, the core OPEC counties will need to increase their supply significantly or the market will face even higher prices than our base-case forecast,” says Rystad Energy Head of Upstream Research Espen Erlingsen.
Global E& P activity is poised to fall dramatically this year as upstream companies try to cope with the challenging market conditions, resulting in conventional project sanctioning activity falling to a 40- year low and tight oil investments dropping by almost 50 percent this year. The impact of the lower activity levels varies depending on the supply segment.
For tight oil ( including NGL) the impact on production is rather immediate, and we have reduced our 2020 forecast by close to 1.9 million bpd.
The organization also stated that the dramatic reduction in new tight oil wells will also have a long-term impact, as fewer wells will be available for production. “For 2025 our total tight oil production forecast is revised to 18 million bpd, or 2.7 million bpd lower than our pre-crisis estimate.”
