China has established itself as the most dominant country among the emerging economies. However, when Wuhan City in Hubei became ground zero for COVID-19 outbreak, it resulted into a pronounced slowdown in the global economy, including the oil and gas industry, says data and analytics company GlobalData.
Ravindra Puranik, Oil and Gas Analyst at GlobalData, commented, “China consumes 13.5 million barrels per day (bpd) of crude oil annually (2018 estimate), of which around 62% is obtained through imports. The lockdowns and travel restrictions imposed in some of the major cities across China have resulted in a drop in consumption of petroleum products in the country.”
The steep decline in the workforce, a consequence of lockdown, has also disrupted port activity in China. Major ports, such as Shenzhen and Shanghai exhibited about 20% year-on-year decline in the month of February. It prompted companies, such as PetroChina and China National Offshore Oil Corporation (CNOOC) to decline some crude oil cargoes from Brazil and West Africa.
In February 2020, China’s state-owned refiners announced a cut in the refining throughput of 940,000 bpd for the month. According to GlobalData, there could be some delays in execution of downstream projects that are under construction, such as Jieyang, Lianyungang II, Dayushan Island Phase II, and Zhejiang Petrochemical Daishan Xylene Plant 2 due to the disruption in supply chains amid travel restrictions.
Chinese firms have also invested in the oil and gas sector of several other emerging markets, especially Russia, Brazil, Nigeria, and Mexico. These countries too may witness some dip in their oil and gas income due to the faltering energy consumption in China. Brazil and Nigeria also export significant volumes of their crude oil production to China, which are likely to drop over the short term.
Puranik concluded, “In contrast to other emerging markets, India has been one of the beneficiaries of the COVID-19 outbreak in China and the resultant low oil prices. Following China’s cancellation of some crude oil imports, India refiners, such as Bharat Petroleum Corporation Limited (BPCL), have purchased stranded consignments of from Mediterranean and Latin American regions at discounted rates.”