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Oil & Gas and Petrochemical Market Outlook on Q3 2020

The 9 Months 2020 Market Stands Robust vs 12/2019

Project Smart Explorer DatabaseSurprisingly, the Oil & Gas and Petrochemical Market stands robust after 9 months 2020 compared with the 12 months of 2019.

This statement refers to the volume in US$ of engineering, procurement and construction (EPC) contracts awarded by operators to contractors on respective periods.

This information comes from all the projects above $100 million capital expenditure (Capex) through the database

From this database, the barre graph below shows the volume of Capex sanctioned to contractors year per year.

Oil & Gas and Petrochemical Capital Expenditure 9 Months 2020
Oil & Gas and Petrochemical Capital Expenditure 9 Months 2020

Therefore, this barre graph reports actual figures of Capex, not forecast.

Until 2019, they cover 12 months per year, while in 2020 and beyond, they address the situation at the end of September, so 9 months only.

As a result, the Q3 market dynamic confirms Q2 as the 9 months Capex 2020 represent 93% of the 12 months 2019.

National and Independent Companies still Bullish

While all the medias reported bad news since the Covid crisis and the barrel price war, how can the market by that dynamic?

The picture below represents the Oil & Gas and Petrochemical Capex forecasted on the next 5 years split  according to the operator profile.

Market split between IOC, NOC and Independent Companies on September 2020

The national oil companies (NOCs), in red, lead the game with 54% market share.

The independent companies (Independents), in green, show good resilience at 30%.

The international oil companies (IOCs), in blue, lag behind at 17%.

Only six months ago, the IOCs were still at 20% and the NOCs at 51%.

This market shift trend from IOCs to NOCs and Independents started after the first barrel price crash in 2014. But it accelerated with the Covid-19.

While IOCs cut again expenditures, NOCs increased them again and Independents maintained them.

National Companies become Dominant

In exceeding 53% market share the NOCs become de facto dominant.

In fact, conjunctural and structural reasons explain NOCs policy:

  1. The local role of central banks
    On each crisis, the NOCs behave as central banks.
    They have the capability to borrow money on international financial markets to irrigate the local economy through investments.
  2. They play opportunism
    In tendering projects while IOCs turn down, they expect lower prices for their projects.
  3. Restore market shares
    OPEC members have easier to restore their crude oil market share from 32% to 40% and preserve their regulating power.
  4. Balance Upstream and Downstream
    High barrel price favors Upstream activities.
    While low price gives the opportunity to NOCs to increase Downstream sector.
  5. Downstream is strategic for manufacturing
    Most of the producing countries face a demographic and employment challenges.
    In practice, it means more local goods production whereas refining and Petrochemical are first source of supply. 

In conclusion, all these reasons explain the current market dynamic. They open excellent perspectives for 2020 to exceed 2019 and to continue on coming years.

As Saudis say: “Don’t waste a crisis”.

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