Analysts cast a wary eye over oil and gas sector for 2021
Oil and gas sector analysts are wary of the outlook for 2021 and beyond, cautious about continuing COVID-19 outbreaks and the effect on global financial recovery.
Private consultants including S+P, Deloitte and even the International Energy Agency have been circumspect in their forecasts as they try to factor in demand amid COVID-19 and the increasing challenges of the push toward net-zero emissions by 2050.
The difficulty of developing a meaningful forecast is summed up by Deloitte in its 2021 oil and gas industry outlook.
“The pace of recovery in the coming months remains highly uncertain as mounting COVID-19 cases amid winter conditions, especially in Europe and the United States, may trigger another round of shutdowns and restrictions,” the report said.
“Any further normalisation of economic activity largely depends on how the pandemic evolves during the winter and, most importantly, when COVID-19 vaccines reach the general public.
“Even when the virus is controlled, economies are expected to continue dealing with the adverse impact of deteriorated fiscal balances and the effect of muted business investment on the labour market and consumer spending in 2021.”
The International Energy Agency cut its crude oil demand recovery outlook for 2021 by 300,000 barrels per day, to 5.5 million bpd in its Oil Market Report released in January.
“It will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales,” the report said.
“For now, a resurgence in COVID-19 cases is slowing the rebound, but a widespread vaccination effort and an acceleration in economic activity is expected to spur stronger growth in the second half of the year.”
In a separate report released last year which examines the gas market to 2025, the IEA said that after a 4 per cent drop in 2020, natural gas demand is expected to progressively recover in 2021 as consumption returns close to its pre-crisis level in mature markets, while emerging markets benefit from the economic rebound and lower natural gas prices.
It said the Asia Pacific region would account for over half of incremental global gas consumption in the coming years, driven principally by the development of gas in China and India.
“Most of the gas demand lost in 2020 is expected to be recovered in 2021, supplemented by growth from the Asia Pacific region, as China and Asian emerging markets recover economically and benefit from attractive gas prices,” the IEA report said.
S+P Global, in a report last month, said global oil demand would rebound by more than 6 mbd this year and return to 2019 levels a year later despite the sharp acceleration in COVID-19 infections and new lockdowns which have hit energy consumption from the end of last year.
It forecast oil demand to average 99.3 mbd this year after a contraction of 8.8 mbd to 93.1 mbd in 2020. The 2021 forecast is a 280,000 bd downward revision to its previous estimate, reflecting the surge in COVID-19 infections at the end of 2020 which continue to crimp global mobility levels.
A separate S+P report on Asia forecast oil demand to grow by 1.7 mbd this year and will be flat to marginally above 2019, or pre-pandemic levels. China and India would account for around 70% of this growth.
Rising transport demand, a pick-up in industrial activity and government stimulus programs were some of the factors driving oil demand higher in the two countries.
“The pandemic has prompted a re-examination of the role of fossil fuels, including oil, and speeded up transition toward a low-carbon economy. China, Japan and South Korea, which together account for 20% of world oil demand, have all announced carbon neutrality goals,” the S+P report said.
“Though gradual, the impact of this on oil demand and oil investments cannot be ignored.
“Peak oil demand timelines have shifted. BP said in September the market may never recover to pre-pandemic levels of roughly 100 mbd, and OPEC, in October, for the first time forecast the peak in global demand, estimating the world's thirst for oil will stop growing in about 20 years.
“Oil demand is expected to face the biggest hit from clean transport policies and a growth in renewable energy. Though petrochemical demand and demand for long-distance transport fuels are expected to offset some of the demand destruction.”
Analysts FitchRatings believes the global oil and gas market will be on the way to recovery this year, but “improvements will be moderate and lack certainty”.
“The oil demand is unlikely to recover in full by end-2021 unless there is a quick progress with mass vaccinations against the coronavirus,” it said in a report released in December.
COVID-19 lockdowns were expected to be less severe and more localised than those in the first half of last year.
“Average annual natural gas prices should also improve globally driven by a stronger demand, though the global liquefied natural gas (LNG) market may continue to suffer from overcapacity,” it said.