World Pipelines - March 2020

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COMMENT
MANAGING EDITOR
James Little
EDITORIAL ASSISTANT
Aimee Knight
SALES DIRECTOR
Rod Hardy
SALES MANAGER
Chris Lethbridge
DEPUTY SALES MANAGER
Will Pownall
PRODUCTION
Calli Fabian
DIGITAL EDITORIAL ASSISTANT
Sarah Smith
ADMIN MANAGER
Laura White
DIGITAL ADMINISTRATOR
Imogen Poole
WEBSITE MANAGER
Tom Fullerton
If you haven’t heard of the word
‘coronavirus’ or ‘Covid-19’ in recent weeks,
then you are an exception, because news
broadcasts have been rife with updates,
with each detailing another cancellation
or disruption. The Rugby Six Nations
Championship, Seoul Fashion Week, and the
Mobile World Congress are just some of the
events that have pulled the plug, and now
there is uncertainty over the Tokyo Olympic
Games, where there have been suggestions
of complete cancellation if the virus is not
contained by the end of May (the event takes
place in July).
The World Health Organisation (WHO)
has declared the
virus outbreak an
emergency, with
2770 fatalities since
it was first recorded
on 31 December
2019 in Wuhan,
China. A respiratory
illness that is spread
from person to person, the invisible country
borders are no hurdle for a virus, since more
than 81 800 people have been infected across
43 countries, and the situation does not seem
to be slowing.
The oil and gas industry has also fallen
victim to the coronavirus, with construction
projects stopped over concern for workforce
health and production halted at refineries.
Chinese company CNODC – a joint venture
of CNPC and PetroChina – has paused
construction of the Niger-Benin pipeline just
one month after the JV received the necessary
construction permit for the pipeline from
the Niger government. This action was taken
due to fears that specialist staff from China
could be carrying the virus into West Africa.
If coronavirus was to spread into countries
with weaker health systems, for instance many
African nations, this could have cataclysmic
consequences.
China’s demand for crude has dropped as
a result of coronavirus, causing refining rates
to be reduced and oil prices to fall. Nigeria
has seen its cargoes to China face restriction,
forcing the country to increase its dependence
on demand from Europe. Further, Nigeria’s
state oil company, NNPC, has cut its March
oil prices by $US0.50/bbl, as it anticipates
the continued fallout from the virus. China
is unusually flooded with product, which is
impacting the global oil market, so production
is being changed. Sinopec Corp. and China
National Offshore Oil Company (CNOOC)
have already scaled back their refinery
production, and PetroChina is next to follow.
The LNG industry is also suffering, with
CNOOC (China’s largest buyer of LNG)
declaring force majeure, whereby it can refuse
delivery of some LNG cargoes. Force majeure
can exempt companies from being penalised
for not honouring their contractual obligations
due to uncontrollable events such as natural
disasters. CNOOC
claimed that coronavirus
is hindering its ability to
accept shipments from
some oil companies
– a claim that has
been rejected by two
companies involved:
Total and Royal Dutch
Shell. CNOOC is not alone in applying for a
force majeure certificate, since 3000 other
certificates were issued in China within the
first few weeks of February. These certificates
do not actually guarantee that a force majeure
claim will be successful, but their increased
issuance is evidence of the unease companies
are faced with.
Traders and analysts are unsure how to
anticipate the continued effect of the virus on
global oil demand. 2020 began on a positive
note for the industry, with the US-China
trade war seeing some resolution on tariffs,
but the coronavirus outbreak has dampened
this positivity. The price of Brent is currently
5.73% down on its 30 January value – the
date the WHO declared the virus a global
emergency.1 More specifically, US crude is at
its lowest price in more than a year. Whilst
the WHO insists that coronavirus is not yet a
pandemic, its global reach is remarkable. The
world is more connected today than ever
before, with cross-border trade and travel the
norm. Consequently, the virus is incomparable
with outbreaks of the past, and what the
forthcoming weeks hold, we cannot predict.
1. Fortune, ‘Oil demand was set to rise in 2020, then the
coronavirus outbreak hit’, 26 February 2020.
DEPUTY EDITOR
Lydia Woellwarth
THE INVISIBLE
COUNTRY BORDERS
ARE NO HURDLE FOR
A VIRUS
BORDERS CAN BE BREAKABLE