OPEC producers and Russia, supported by the U.S. and Mexico, have agreed to cut output by about 10%, or 9.7 million barrels per day, after demand slumped due to coronavirus lockdowns. Though oil prices did not jump in early trading in Asia today, Wood Mackenzie says the supply cuts will lift oil and gas prices “significantly” starting from the second quarter.
Though China’s economy and gas demand is picking up, the coronavirus pandemic chocked energy consumption elsewhere. Delivered gas prices into Northeast Asia today fell below $2.40/MMBtu, hence Wood Mackenzie warns spot LNG prices in Asia might soon drop below breakeven costs of U.S. upstream companies, causing production shut-ins.
As markets reel from the coronavirus crisis, prices available to oil and associated gas producers have fallen to single digits in Western Canada and turned negative in parts of North America, according to the International Energy Agency (IEA). Analysts expect some existing production will soon grind to a halt.
Origin Energy, the Australian upstream company and utility, has slashed its capital expenditure in reaction to the global Covid-19 outbreak but maintained guidance for earnings and profits in FY2020. CEO Frank Calabria reassured investors on the utility’s resilient balance sheet, saying there was “significant headroom” in its debt covenants at current oil prices.
As China strives to rekindle its economy, after strict lockdowns in January and February to contain the coronavirus, energy demand slowly recovers. Beijing lowered gas prices for industrial users, but Wood Mackenzies deems it’s insufficient to stir a lost-demand recovery and new coal-to-gas switching.
Excess LNG supplies from the U.S. and diverted cargoes from Asia Pacific are heading for Europe, swelling gas storage and putting more downward pressure on prices as demand from industry and power generation stays subdued. IHS Markit says Europe's imports could swell to equal the monthly offtake of South Korea and Japan combined.