The global oil market ushered in a recovery, and the industry's prosperity rebounded

On April 12, the "2021 Domestic and Foreign Oil and Gas Industry Development Report" (referred to as "Industry Report") compiled and managed by the National High-end Think Tank China National Petroleum Corporation Economic and Technological Research Institute was officially released in Beijing. The "Industry Report" pointed out that the main keynote of the development of the oil and gas industry at home and abroad in 2021 will be recovery and transformation, and this keynote will continue this year. However, the abandonment of major powers is intensifying and the impact of major geopolitical conflicts continues to ferment. The international environment is more complex and severe. Instability and uncertainty will become an important feature in 2022. Risks in recovery and transformation will become an important issue for the entire industry to guard against. content.

Oil market recovers from trough

In 2021, the global oil market will usher in a recovery. World oil demand will increase by 5.55 million barrels per day year-on-year to 97.35 million barrels per day, reaching 96% of the pre-epidemic level. The market changed from a surplus of 2 million barrels per day to a deficit of 2.05 million barrels per day. OECD commercial oil inventories fell below the 5-year average.

Affected by the transformation of supply and demand, the average price of Brent oil for the whole year in 2021 will be US$70.95/barrel, up 64% from 2020 ($43.32/barrel).

Li Ran, a senior analyst at the Oil Market Research Institute, said that the most prominent feature of the international market in 2021 is the sharp rebound in crude oil prices, with the rebound growth rate hitting the highest level in 30 years.

At the same time, the prosperity of the world oil refining industry has rebounded significantly, and the average operating rate of refineries has come out of the trough. The world's major oil demand rebounded sharply. Among them, gasoline and diesel recovered significantly, while the demand for jet fuel recovered slowly. Oil prices are significantly higher than in 2020.

Looking forward to 2022, oil demand will continue to recover gradually, and it is expected to increase by 3.23 million barrels per day year-on-year to 102.58 million barrels per day, which is higher than the level before the new crown epidemic. Demand growth mainly comes from developing countries in Asia and Europe and the United States. Brent is expected to average $80-$85 a barrel.

Relevant experts at the meeting said that although the fundamentals of the global oil market will improve in 2022, the geopolitical premium will be difficult to eliminate in the short term, which will not only support the overall high level of oil prices, but also increase the volatility of oil prices. The global security situation, the geopolitical situation, the progress of the Iran nuclear negotiation, and the OPEC production policy will become important factors affecting the trend of international oil prices in 2022.

In the oil market, the world oil market will further recover, and the demand for oil products is expected to increase by 3.22 million barrels per day year-on-year to 85.75 million barrels per day. Gasoline, diesel and jet fuel demand recovered to 99.6%, 100.5% and 79% of pre-COVID levels. It is estimated that the world's refining capacity will increase by 130 million tons per year, and the supply of oil products is still higher than the increase in demand.

It is worth noting that oil prices remain high, and the smooth operation of the global refining and chemical industry has been impacted. Some enterprises experienced periodic operating losses, and the processing volume was reduced. The competition for ethylene production from three raw materials, petroleum, coal and light hydrocarbons, is more intense.

Natural gas supply is tight and prices are high

The global natural gas market will see major changes in 2021. Affected by factors such as the continuous energy transition and extreme weather in the carbon neutral scenario, demand rebounded strongly, exceeding the level before the new crown epidemic. The annual consumption was 4 trillion cubic meters, a year-on-year increase of 4.6%.

However, supply growth was less than expected, the market was tight, and new liquefaction capacity was insufficient. In particular, the contradiction between supply and demand in the European market is particularly prominent, and the international gas price has risen to a historical high. The average spot price of T TF in Europe was US$15.9 per million British thermal units, a year-on-year increase of 397%, the highest since price records began in 2004. Northeast Asia, Asian LNG spot prices also rebounded to the high price level in 2014.

Behind the skyrocketing natural gas prices, it reflects the structural contradiction between supply and demand in the energy transition. In recent years, Europe has vigorously developed renewable energy power generation to restrain the development of fossil energy. In 2021, the abnormal climate in the northern hemisphere, insufficient wind power generation, and a sharp drop in power generation compared to previous years will force European countries to restart high-cost coal power and gas power, resulting in soaring natural gas prices. Coupled with geopolitical influence, the gas supply of major energy countries is limited, which brings risks and challenges to the regional energy transformation.

Looking forward to 2022, it is expected that the global natural gas supply tension will further intensify. Global natural gas demand will still rise to 4.08 trillion cubic meters. In the context of geopolitical conflicts, tight supply and demand in Europe may intensify and push global gas prices higher. High gas prices are good for natural production. The global output is expected to be 4.3 trillion cubic meters, a year-on-year growth rate of 3.3%. In addition, the new liquefaction capacity is insufficient, and the global LNG supply and demand is becoming more and more tense. It is estimated that in 2022, the global new liquefaction capacity will be about 13.2 million tons per year.

Bai Hua, a senior economist at the Natural Gas Market Research Institute, said that tight supply and demand pushed up gas prices, and geopolitical factors exacerbated short-term price fluctuations. Affected by geopolitical conflicts, natural gas from major energy countries is blocked from entering Europe, and the incremental part is likely to flow to Asia. As a result, the incremental natural gas demand in Europe will be supplemented by LNG trade, which will further affect the global natural gas trade pattern.

Oil and gas companies invest cautiously and accelerate transformation

In 2021, with the rising international oil prices, the operating performance of major international oil companies will rebound significantly. The combined operating income of the five major international oil companies will increase by 53%; the total net profit will turn from negative to positive, an increase of US$159.6 billion year-on-year to US$82.4 billion. Free cash flow soared to 7 times the same period in 2020.

Although oil companies have gotten out of the predicament, their confidence in the future development of the oil and gas industry has not yet fully recovered, and capital expenditures are still relatively cautious. The combined capital expenditures of the five companies decreased by 5.9% year-on-year, and oil and gas production continued the downward trend in 2020, down 2.4% year-on-year.

In 2021, the progress of major international oil companies has accelerated the process of transformation and development of upstream, midstream and downstream businesses. The upstream sector accelerated its concentration in core areas and regions, and took advantage of the rebound in oil prices to accelerate the asset divestiture plan. For example, Shell spun off US Tertiary Basin assets for $9.5 billion.

SonMobil also divested and sold shale gas assets. The refining business continued to shrink in size, accelerated transformation and upgrading, and divested non-core refineries and inefficient refining capacity. In the downstream field, it will pay more attention to improving the terminal's ability to create benefits, seize the zero-wei business market, and make advance arrangements for medium- and long-term business transformation in order to develop oil, gas-electricity, and hydrogen energy comprehensive service stations.

Although oil prices have risen sharply, major international oil companies are still actively deploying and promoting low-carbon transformation and development. The upstream focus is "oil to gas" and the downstream focus is "oil conversion". According to the actual situation of each company, they selectively develop new energy businesses on a large scale to become oil companies. The major trend of transformation and development. bp said that despite the recovery in oil prices, the company will still fulfill its commitment to cut oil and gas volumes by 40%. Total plans to reduce sales of petroleum products by 30% by 2030. ExxonMobil said it will invest $15 billion in low-carbon sectors over the next five years. Chevron first committed to net-zero emissions by 2050.

Since the beginning of this year, the investment of major international oil companies has gradually increased, and they are more inclined to assets with high economic efficiency and low cost. Upstream quality and efficiency will be improved, downstream scale will be controlled to promote upgrading, and at the same time, diversified transformation and development such as clean energy will be accelerated. Huang Yingjia, an economist at the Institute of Development Strategy, said that major international oil companies will continue to adhere to investment discipline, and oil and gas investment will pay more attention to low carbon and high profitability; continue to adjust upstream layout, and return oil and gas business to traditional advantageous areas; strengthen confidence in energy transformation and develop new energy Continued acceleration, low-carbon investment in oil companies will pay more attention to advantageous areas and technological innovation; production will not increase significantly, and performance will be further improved.