Covid-19 Impact Analysis: Oilfield Chemicals Market
The oil and gas sector has been severely affected due to the Covid-19 outbreak as it resulted in lockdown which impacted numerous end-use industries owing to disruptions in vendor operations and supply chain. The production facilities have faced major disruptions. Additionally, closures of borders and export bans have led to a fluctuation in raw material prices and supplies. Oilfield chemicals are used in all the stages of the oil & gas industry, including initial well drilling and production of oil and gas; and all the aspects of maintenance of oilfields, including transportation and storage of oil and natural gas in geological conditions (in salt caverns or depleted reservoirs).
In April, the global oil demand reduced by about 29 million barrels a day from about 100 million a year ago. OPEC and other producers agreed to cut production by 9.7 million barrels a day, far less than the reduced demand, thereby resulting in oversupplied market with no buyers. The Covid-19 outbreak resulted in a global oil price crash, wherein oil price went negative, reaching – USD 37/barrel. The cut in oil and gas production owing to reduced demand from the end-use industries including chemicals, plastics, and automotive among others is likely to cause a negative impact on the oilfield chemicals market. Additionally, due to shortfall in demand for oil, the transport carriers such as rail tank cars and tank truck are getting queued up, which, has resulted in reduced demand for oilfield chemicals. However, oilfield chemicals have been widely used for the storage of oil.
The key players operating in the global oil & gas industry are emphasizing on reducing capital expenditure by postponing final investment decisions (FIDs) on new oil & gas projects. For instance, Royal Dutch Shell postponed FIDs on various projects including the Cambo deepwater oil project in the North Sea and the Bonga Southwest / Aparo in Nigeria. Also, ExxonMobil Corporation announced a 30% reduction in capital expenditure on upstream operations. Thus, the delay in start of oil & gas projects is likely to affect the demand for oilfield chemicals.
However, with the ease in lockdown and trade restrictions and government support, the demand for oil from end-use industries is likely to witness a massive surge in demand, which, is likely to result in increased oil production activities and thus, fuel the demand for oilfield chemicals.