The Coronavirus Impact On Oil Demand

Market Movers

- Rystad Energy this week predicted that because of the coronavirus, global oil demand would grow by only 820,000 bpd this year, down from its earlier forecast of 1.1 million bpd. With respect to oil prices, while the coronavirus has shaved demand and brought down prices, this week has seen a rebound, but if conditions get worse speculators expect output cuts to offset demand issues.

- Overall global oil and gas deal volume shed nearly 18% in 2019, while overall global deal value was down nearly 11% for the year, thanks to stagnating commodity prices and poor returns (EY). Based on information from GlobalData, December 2019 saw $37.6 billion in oil and gas deals globally, over 200% more than in November 2019, but only ~7% more than the previous 12-month average. The number of deals, however, was down nearly 4% compared to the previous 12-month average.

- Qatar is working to either re-route or reschedule LNG shipments to China due to the coronavirus outbreak. This emerges after the previous week's announcement by CNOOC, the largest Chinese importer, that it had declared force majeure on LNG deliveries with three suppliers due to the virus outbreak. On Thursday, four LNG tankers that were headed for North Asia were diverted over reduced Chinese demand.

- Total (TOTF.PA) is contemplating stopping fuel oil sales - a carbon-intensive petroleum product -for use in power generation, as the French energy giant jumps on the environmental bandwagon, determined to not be left behind in the race to clean up its act - and image. TOTF.PA's CEO said Total was looking to reduce its carbon footprint and grow its renewable power business. In 2019, Total produced and traded 4% of all oil products consumed in the world, and has the capacity to process 2 million barrels per day.

Deals, Mergers & Acquisitions

- Israel's Leviathan offshore gas field - the massive discovery that put Israel on the global energy map - started exporting first product in January, and is now seeking partners to build a floating LNG platform and potentially expand exploration into deepwater oil. The prospect of building an FLNG platform would mean bypassing heavily political pipeline choices, such as those mentioned above between Cyprus, Greece, and Turkey. Everyone would be cut out at this point. The main partners in the Leviathan gas field are Israeli Delek Drilling and US-based Noble Energy.

Discovery & Development

- The UAE believes it has just made the world's largest natural gas discovery since 2005, with as much as 80 trillion cubic feet of resources. The play is 5,000 square kilometers between Abu Dhabi and Dubai, and if proven, would render it the fourth-biggest gas field in the Middle East, just behind another Abu Dhabi field (Bab) and Qatar (North Field) and Iran (South Pars). It may have one major advantage, however: It's shallow comparatively, which means lower production costs.

- Chevron has boosted oil production at its joint venture with Venezuela's PDVSA to the highest in almost a year. Chevron, the only U.S. company still doing oil business in Venezuela, was granted a sanction exemption waiver by Washington and the waiver was last month extended until April. Petroboscan, the joint venture Chevron operates together with PDVSA, produced around 200,000 bpd as of October 2019, with Chevron's share of this at 34,000 bpd. Meanwhile, the U.S. administration is mulling new sanctions on foreign companies in Venezuela.

- Due to certain delays on the project, Google has dropped its plans to buy a 12.5% stake in Kenya's Lake Turkana Wind Power Project, Africa's largest wind farm that was commissioned in July 2019.

- Chinese energy company PowerChina has applied to Uganda for a license to develop a $1.4bn hydroelectric power plan on the river Nile. If approved, the plant will expand the East African country's power generation by 40%.

Politics, Geopolitics & Conflict

- In Libya, Haftar has banned the United Nations from using the only functional airport in the capital, Tripoli, after the international body passed a resolution demanding a ceasefire and appearing to apportion the blame on the General. For now, this remains a stalemate, with fighting on the southern outskirts of the city intensifying this week, but with no side making any clear gains. In the meantime, Libyan oil revenues have dropped to zero, with all ports for export blockaded, based on Central Bank data.

- The ongoing negotiations between Russia and Belarus continue, with Belarus failing to secure a deal with Putin during a meeting this week. Russia wants Belarus to join a "union state" or forget about winning any discounts on oil and gas supplies. Russia's leverage is that it supplies Belarus. Belarus' leverage is that it moves Russian supplies to Europe (about 10% of Europe's oil supply goes through the Druzhba pipeline). Belarus threatened on Friday to take oil from the pipeline if Russia refused to supply it with the oil it needs, which is about 2 million tonnes monthly. Belarus also said on Friday that Russia was hinting that a deal on energy prices could be forged if Belarus joined Russia in the unified state.

- Five U.S. citizens have been charged with an attempt to violate US sanctions against Iran by buying oil from Iran and selling it in China. The criminal complaint alleges that since last July, the five had tried to buy oil illegally from Iran to sell to a refinery in China. They planned to make two shipments of oil per month for a profit of around $28 million per month.