Oil and Gas Industry Overview
2020 saw the greatest drop in oil demand in modern history brought about by the pandemic-related restrictions across the world. In April 2020, global consumption of liquid
In the first quarter of 2020, the global oversupply of liquid hydrocarbons reached 6.5 mmb per day, increasing to 9.3 mmb per day day in the second quarter. In the third quarter of 2020, the oversupply was replaced by a deficit of 1.6 mmb per day as a result of the OPEC+ (including Russia) production cuts, reduced production in other countries (including the US), and gradual demand recovery following the lifting of some restrictions. The deficit increased to 2.2 mmb per day in the fourth quarter. As at the end of 2020, the global oversupply of liquid hydrocarbons totalled 3.0 mmb per day, according to the International Energy Agency (IEA).
In 2020, global demand for liquid hydrocarbons decreased by 8.7% year-on-year (according to the IEA) to 91.0 mmb per day. In 2020, consumption of liquid hydrocarbons declined across the world, most notably in North America (35% of the global drop), European countries of the OECD (21%) and in the Asia-Pacific region (20%). These regions accounted for 24%, 14% and 37% of global oil demand in 2020, respectively.
The IEA estimates that the global production of liquid
The greatest reduction was in OPEC
In the USA, production of liquid hydrocarbons went down by 3.4% year-on-year to 16.6 mmb per day, with crude oil and gas condensate production falling by 7.7% year-on-year to 11.3 mmb per day. Since April 2020, production stopped at some of US wells, including in the shale regions, due to a significant oversupply in the domestic market. Crude oil and gas condensate production in the US fell from 12.7 mmb per day in March to 10 mmb per day in May.
Some of the suspended wells were gradually put back into production, with output volumes rising to 11.1 mmb per day in December 2020.
In Canada, production of liquid hydrocarbons in 2020 went down by 4.3% year-on-year to 5.3 mmb per day, with crude oil and gas condensate production falling by 7.1% year-on-year to 3.1 mmb per day.
In 2020, production of liquid hydrocarbons increased in Norway (by 15.2% to 2.0 mmb per day with the Johan Sverdrup field brought on stream in October 2019) and Brazil (by 5.2% to 3.0 mmb per day on the back of the rise in output from offshore pre-salt deposits).
Commercial crude inventories in OECD countries reached approximately 1.18 bb in 2020, up 8.5% from December 2019.
The IEA estimates from February 2021 show that global demand for liquid hydrocarbons in 2021 is set to grow by 6.0% to 96.4 mmb per day.
According to the forecast by the U.S. Energy Information Administration (EIA), global demand for liquid hydrocarbons in 2021 will rise by 5.8% year-on-year to 97.7 mmb per day, while global production will increase by 3.3% year-on-year to 97.3 mmb per day, with global supply shortages continuing in 2021–2022.
The global demand for gas in 2020 dropped by 4.6% year-on-year
In 2020, gas consumption was down across the world with the exception of the Asia-Pacific region, where demand for gas rose by 1.8% year-on-year (an increase of 15.2 bcm) to 868 bcm, mainly driven by China.
In Europe, gas consumption fell by 6.3% year-on-year (a decrease of 33.4 bcm) to 493.1 bcm (13.2% of global gas consumption) as a result of lengthy lockdowns and strong competition with renewable energy sources in the power industry. Demand for gas in North America, the world’s largest gas consumer (26.0% of global consumption), went down by 2.2% year-on-year (a decrease of 22.2 bcm) in 2020 to 967.8 bcm, which is equal to the 2018 consumption level. The greatest reduction was in the Middle East, where gas consumption dropped by 14.6% year-on-year (a decrease of 79.2 bcm) to 462.3 bcm (12.4% of global gas consumption). In Latin America, demand for gas fell by 8.4% year-on-year (a decrease of 18.5 bcm) to 200 bcm (5.4% of global gas consumption). Africa saw a reduction in consumption by 8.7% year-on-year ( a decrease of 13.7 bcm) to 144 bcm (3.9% of global gas consumption).
The decline in demand led to a considerable reduction in global gas
Every year approximately one third of natural gas produced globally is exported.
With the recovery of the world economy in 2021 and 2022, IHS Markit projects the global gas demand to grow by 1.5% and 1.3% year-on-year, respectively, while gas consumption is expected to increase to 3.78 tcm in 2021 and 3.83 tcm in 2022.
Despite the COVID-19 pandemic and decline in the world demand for gas, global LNG exports increased by 1.5% year-on-year in 2020 (the lowest growth rate since 2015), reaching 362.1 mmt
Asia contributed the most to the growing LNG trade in 2020, with supplies to the region rising by 4.3% year-on-year to reach 256.7 mmt. LNG exports to China increased by 12.2% year-on-year to 69.2 mmt, while supplies to India were up by 14.6% year-on-year to 26.4 mmt. Japan, the largest LNG consumer, once again reduced its imports by 2.6% year-on-year to 75.2 mmt.
In 2020, LNG imports to Europe went down by 3.2% year-on-year to 84.6 mmt, including to France – by 14.9% year-on-year to 13.8 mmt, Italy – by 9.2% year-on-year to 9.1 mmt, Spain – by 4.9% year-on-year to 15.4 mmt, and the Netherlands – by 7.0% year-on-year to 5.6 mmt. At the same time, LNG imports have significantly increased in Turkey (by 17.9% year-on-year to 11.2 mmt) and the UK (by 5.1% year-on-year to 14.0 mmt).
Following the 2019 reduction, the Middle East and North
A major component of the export growth in 2020 were new LNG trains coming on stream in the US:
- second and third trains of the Cameron LNG project (Cameron Parish, Louisiana) with a capacity of 4.5 mmtpa each;
- second and third trains of the Freeport LNG facility (Gulf Coast, Texas) with a capacity of 5.1 mmtpa each;
- second and fifth to tenth trains of the Elba Island LNG plant (Chatham County, Georgia) with a total capacity of 1.75 mmtpa.
In addition, the capacity of the first and second trains at the Corpus Christi LNG plant (Gulf Coast, Texas) and first to fifth trains at the Sabine Pass LNG plant (Sabine Pass, Cameron Parish, Louisiana) was expanded by 1.2 mmtpa and 3 mmtpa, respectively.
In total, 20.95 mmpta of new LNG facilities came on stream in the US, while the capacity of existing trains was expanded by 4.2 mmtpa in 2020.
In 2020, the largest decline in LNG exports was recorded in Trinidad and Tobago (a decrease of 2.3 mmt to 10.7 mmt), Malaysia (down by 2.2 mmt to 24.0 mmt), and Egypt (down by 2.1 mmt to 1.3 mmt).
The reporting year saw only one final investment decision (the fewest number in 23
The capacity of regasification terminals grew in 2020
Technological progress has been opening up new opportunities for the energy sector and energy needs of humankind at large. Energy transition and climate change are reshaping the way we think about the global energy sector going forward. All sources of energy, including renewable energy, have inherent limitations. The potential to replace fossil fuels with renewable energy sources is limited by considerable technological weaknesses of the latter, i.e. low energy flux density and intermittency.
The significant reduction in global oil and gas consumption in 2020 is due to the temporary restrictions on business activity related to the COVID-19 pandemic. The demand for hydrocarbons is set to rebound as global economy recovers. At the same time, the current low prices for traditional energy resources discourage energy saving, while also making hydrocarbons more price competitive against the renewable energy sources.
According to top global energy agencies, oil and gas producers, consulting
While oilIncludes the consumption of petroleum products from oil and gas condensate and consumption of oil as fuel. will continue dominating other resources in the energy mix worldwide, its share, along with that of coal, will be declining in favour of natural gas, nuclear energy, and renewable energy sources.
By 2040, global oil demand will increase by 420 mmt compared to 2019, amounting to more than 4.9 bt. This growth in demand will be mostly driven by the Asia-Pacific Region, which will account for 39.4% of global oil demand in 2040 or over 1.9 bt. In North America and Europe, oil demand will decline in 2040 to 856 mmt (17.3% of global oil demand) and 469 mmt (9.5% of global oil demand), respectively.
Until 2030, natural gas will be outperforming all other energy sources in terms of increase in global demand in absolute terms.
Global demand for gas will be adding an average of 1.4 % a year, reaching almost 5.2 tcm by 2040 and accounting for more than a quarter of the global energy mix.
Strong growth in demand for gas will be supported by its superior environmental performance as compared to other fossil fuels.
Gas consumption is expected to increase in all regions except Europe. In the forecast period, the Asia-Pacific Region will be the largest region by gas consumption, with its demand going up by 616 bcm vs 2019 to almost 1.5 tcm, exceeding the level of consumption in North America (1.3 tcm in 2040, an increase of 276 bcm against 2019).
North America will remain the leader in natural gas production (1.4 tcm of gas in 2040, 28% of global production).
The most considerable rise in gas output (around 29% of the global increase) in the forecast period will be seen in the Middle East, reaching over 970 bcm in 2040.
Russia is a top three oil producer globally (alongside the USA and Saudi Arabia). In 2020, oil and gas condensate production in Russia stood at 512.8 mmt, down by 8.5% year-on-year. The reduction in oil production in Russia was in compliance with the OPEC+ decision in April 2020 to significantly decrease production against the baseline level to balance global demand. Russia’s baseline level for oil production (excluding gas condensate) was set at 11 mmb per day, with the target output level for the period between 1 May and 31 July 2020 set at 8,492 kbpd and between 1 August and 31 December 2020 – at 8,993 kbpd.
Oil and gas condensate production was cut in all of Russia’s oil-producing federal districts with the exception of the Far Eastern Federal District, where oil production increased by 3.8% year-on-year in 2020, to 34.5 mmt (6.7% of Russia’s total production) owing to the output ramp-up in the Republic of Sakha (a rise of 19.9% year-on-year to 16.2 mmt, 3.2% of Russia’s production), which compensated for the production decline in the Sakhalin Region (a decrease of 7.2% year-on-year to 18.3 mmt, 3.6% of Russia’s production).
The greatest reduction in oil and gas condensate production was recorded in the Ural Federal District (down by 8.0% year-on-year to 285.3 mmt; 55.6% of Russia’s total production) and Volga Federal District (down by 10.7% year-on-year to 106.2 mmt; 20.7% of Russia’s total production). In the Ural Federal District, crude oil production decreased in the Khanty-Mansi Autonomous Area – Yugra (down by 10.7% year-on-year to 210.8 mmt; 41.1% of Russia’s total production) and the Tyumen Region (down by 10.3% year-on-year to 11.2 mmt; 2.2% of Russia’s total production). Crude oil production increased in the Yamal-Nenets Autonomous Area (up by 2.9% year-on-year to 63.3 mmt; 12.3% of Russia’s total production).
In the Volga Federal District, oil and gas condensate production declined the greatest in the Republic of Bashkortostan (down by 31.2% year-on-year to 11.1 mmt; 2.2% of Russia’s total production) and the Republic of Tatarstan (down by 10.8% year-on-year to 32.7 mmt; 6.4% of Russia’s total production). In 2020, oil and gas condensate production also decreased in the Orenburg Region (down by 4.7% year-on-year to 20.7 mmt; 4.0% of Russia’s total production), Samara Region (down by 3.6% year-on-year to 15.5 mmt; 3.0% of Russia’s total production), the Perm Territory (down by 6.0% year-on-year to 15.1 mmt; 2.9% of Russia’s total production) and Udmurtia (down by 9.7% year-on-year to 9.5 mmt; 1.8% of Russia’s total production).
In the Southern Federal District, oil and gas condensate production went down by 6.8% year-on-year to 13.6 mmt; 2.7% of Russia’s total production) most significantly in the Volgograd Region (down by 23.0% year-on-year to 1.8 mmt; 0.4% of Russia’s total production), Astrakhan Region (down by 2.5% year-on-year to 11.0 mmt; 2.1% of Russia’s total production), and the Krasnodar Territory (down by 16.2% year-on-year to 0.6 mmt; 0.1% of Russia’s total production).
In 2020, oil and gas condensate production continued decreasing in the Siberian, Northwestern and North Caucasian Federal Districts. In the Siberian Federal District production dropped by 12.9% year-on-year to 44.6 mmt (8.7% of Russia’s total production) mostly due to lower output in the Krasnoyarsk Territory (down by 15.4% year-on-year to 20.2 mmt; 3.9% of Russia’s total production), Tomsk Region (down by 24.5% year-on-year to 6.9 mmt; 1.3% of Russia’s total production), and Irkutsk Region (down by 3.5% year-on-year to 17.3 mmt; 3.4% of Russia’s total production).
In the Northwestern Federal District production declined by 11.6% year-on-year to 27.6 mmt (5.4% of Russia’s total production), including in the Nenets Autonomous Area by 12.0% year-on-year to 14.1 mmt (2.8% of Russia’s total production) and in the Republic of Komi by 11.2% year-on-year to 13.0 mmt (2.5% of Russia’s total production).
In the North Caucasian Federal District, oil production contracted to 0.9 mmt (down by 12.9% year-on-year; 0.2% of Russia’s total production), including in the Stavropol Territory to 0.7 mmt (down by 8.8% year-on-year; 0.1% of Russia’s total production), in the Republic of Dagestan – to 0.12 mmt (down by 25.8% year-on-year; 0.02% of Russia’s total production), in the Chechen Republic – to 0.05 mmt (down 29.1% year-on-year, 0.01% Russia’s total production), in the Republic of Ingushetia – to 0.05 mmt (down by 7.5% year-on-year, 0.01% of Russia’s total production).
In 2020, Russian oil and gas condensate refining volumes decreased by 5.4% year-on-year to 270.0 mmt, while oil exports declined by 12.6% year-on-year to 232.5 mmt. The export share in total oil and gas condensate production totalled 45.3% in 2020 (down by 2.2 p.p. year-on-year).
Oil and gas condensate exports to countries outside the CIS went down by 11.8% year-on-year to 219.2 mmt. Almost 58% of export volumes to countries outside the CIS were transported by sea (around 126.5 mmt), including 15.1% via Primorsk and 15.0% via the Kozmino oil port.
Oil and gas condensate exports to CIS countries declined in 2020 by 24.1% year-on-year to 13.3 mmt, all of which was transported via Belarus.
In 2020, Russia was the world’s No. 2 gas producer (surpassed only by the USA) and the world’s largest gas exporter.
Natural and associated gas production in Russia in 2020 decreased by 6.1% year-on-year
Gas produced in Russia is sold domestically and exported.
According to the Federal Customs Service of Russia and CDU TEK, Russia’s natural gas exports totalled 240.9 bcm in 2020, going down by 7.5% year-on-year. Export volumes via Gazprom’s
Exports of LNGLarge-scale production of LNG in Russia concentrates at the Sakhalin-based LNG plant built as part of Sakhalin-2, a project operated by Sakhalin Energy Investment Company Ltd., and the Yamal LNG plant (Yamal-Nenets Autonomous Area) controlled by Novatek. grew by 1.2 bcm in 2020 (up by 3.0% year-on-year) and reached 41.7 bcm.
Major gas consumers in Russia include power generation companies, households, utilities, and companies in the oil, metals, and agrochemical industries, which taken together account for around 80% of Russia’s total gas consumption.
Rosneft supplies gas to industrial consumers, households, and municipal utilities.
Rosneft’s selling prices for end consumers are not regulated by the Government and are based on agreements with customers.
Wholesale prices of gas produced by Gazprom and its affiliates and sold to domestic consumers are used as a benchmark. The prices are determined by orders of the Federal Antimonopoly Service of the Russian Federation (regulated gas price).
Current wholesale prices of gas for all categories of Russian consumers were set by Order of the Federal Antimonopoly Service No. 638/20 dated 10 July 2020 (for consumers other than households) and No. 636/20 dated 10 July 2020 (for households). In accordance with the Orders, gas prices for all categories of consumers were subject to indexation of 3.0%.
Regulated gas prices in Russia differ by region, generally depending on the distance from the gas production hub in the Yamal-Nenets Autonomous Area.
The indexation benchmark for regulated gas prices is the Forecast of Social and Economic Development of the Russian Federation published by the Ministry of Economic Development of the Russian Federation.
As the owner of the Unified Gas Supply System, Gazprom provides independent companies with services of gas transportation via trunk gas pipelines. The transportation charges are set by the FAS (previously
Current tariffs were approved by Order of the FTS No. 216-e/1 dated 8 June 2015 and were not indexed in 2016–2020.
Gazprom also provides independent gas producers with underground gas storage services. The main gas consumption regions currently have 23 underground gas storage facilities. Their usage fees are non-regulated and are set by Gazprom on a case-by-case basis for each facility for the duration of the storage season (from 1 April to 31 March of the next year). Rosneft relies on underground gas storage facilities to offset fluctuations in gas consumption by end consumers.
|Price increase for consumers other than households, %||0.0||July: 3.9||August: 3.4||July: 1.4||August: 3.0|
|Price increase for households, %||July: 2.0||July: 3.9||July: 3.4||July: 1.4||August: 3.0|
In recent years, the domestic gas market has seen increased competition for consumers and a gradually expanding share of independent gas producers in the total volume of domestic gas sales.
The St Petersburg International Mercantile Exchange (SPIMEX) was launched on 24 October 2014 pursuant to an instruction of the Presidential Commission for Strategic Development of the Fuel and Energy Sector and Environmental Safety. In 2020, the Exchange continued to develop organised trade in natural gas. Trading is based on three balancing points (Nadym, 622.5 Km (Lokosovo), and Parabel) with next month deliveries of natural gas.
In 12M 2020, natural gas sales under exchange-traded contracts stood at 16.05 bcm, with total sales since the launch of SPIMEX now exceeding 89 bcm.
|Wholesale price indexation for all categories of consumers other than households||July: 3%||July: 3%||July: 3%|
|Wholesale price indexation for households||July: 3%||July: 3%||July: 3%|