Coronavirus creates problems in the pipeline

The Trans-Alaska Pipeline System in Fairbanks, Alaska, the US. (AFP)
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Updated 20 May 2020

Coronavirus creates problems in the pipeline

  • The pandemic has disrupted maintenance at oil and gas projects and refineries

MOSCOW: The coronavirus pandemic has disrupted maintenance at oil and gas projects and refineries from Russia’s Far East to the coast of Canada, storing up problems for an industry already reeling from slumping prices, analysts say.

Lockdowns to stop the spread of COVID-19 have snarled the supply of spare parts and prevented maintenance workers from doing their job.

Regular repairs are needed to keep wells pumping, pipelines and refineries functioning and ships moving. Without maintenance, the risk of glitches or unplanned outages increases and delays risk driving up the cost of work later — partly because there will be a rush to do maintenance when lockdowns ease, and partly because plants have lost the optimal timing and weather for work during the northern hemisphere spring.

“When the virus and the quarantine measures have been eased and it is safe to get back to work, it doesn’t mean the same work can be done with the same intensity because the weather windows could be missed and that can push maintenance even to the next year,” said Matthew Fitzsimmons, vice president of the oilfield service team at research firm Rystad.

In the meantime, companies that service the oil industry are being hit by the lack of work.

“A lot of service companies are not getting the revenues they had otherwise expected in 2020. That is going to have a huge impact on the health of the service industry,” said Fitzsimmons.

Oil and gas companies involved in exploration and production spent an average of $80 billion a year on maintenance between 2015 and 2019, according to Rystad.

The industry often takes advantage of slow demand to do repair work but with oil prices nearly halved since the start of the year, this is no ordinary trough. Companies, many of them lumbered with high debts, are slashing all but the most essential work.

Some units were shut down for maintenance but the work never started according to Amanda Fairfax, downstream oil market analyst at Genscape, a firm that monitors refineries activities. “They don’t want either to invest the capital expenditure into the maintenance project or they don’t want to have as many contract workers on sites as the additional influx of workforce might compromise people who have to remain at the refinery as essential personnel,” she said.

A large maintenance program in Russia’s Far East Sakhalin-2 project faces delays as the firm could not get pre-ordered pieces of machinery, two sources said.

“There was a major headache with parts manufactured in China. After the coronavirus outbreak there, the supplier told us it couldn’t deliver our order. There are attempts to replace it, but the time has been lost,” an industry source said.

European bank ramps up stimulus package

Updated 05 June 2020

European bank ramps up stimulus package

FRANKFURT: The European Central Bank approved a bigger-than-expected expansion of its stimulus package on Thursday to prop up an economy plunged by the coronavirus pandemic into its worst recession since World War II.

Just months after a first raft of crisis measures, the ECB said it would raise bond purchases by €600 billion ($674 billion) to €1.35 trillion and that purchases would run at least until end-June 2021, six months longer than first planned.

It also said it would reinvest proceeds from maturing bonds in its pandemic emergency purchase scheme at least until the end of 2022.

ECB President Christine Lagarde scotched speculation that the bank could follow the US Federal Reserve in buying sub-investment grade bonds, saying that option was not discussed by policymakers.

The announcement, which comes just weeks after Germany’s Constitutional Court ruled that the ECB had already been exceeding its mandate with a longstanding asset purchase program, prompted a rally in the euro and bond markets.

“Today’s easing measures were another illustration that the ECB means business and stands ready to do whatever is necessary to help the euro area survive the corona crisis in one piece. The ECB will do its part, and it hopes the governments will do their part,” Nordea analysts said in a note.

The bank dramatically revised downward its baseline scenario for euro zone output this year to a contraction of 8.7 percent from the modest 0.8 percent rise it had forecast only in March.

“The euro area economy is experiencing an unprecedented contraction. There has been an abrupt drop in economic activity as a result of the coronavirus pandemic and the measures taken to contain it,” Lagarde said.

She said she was confident that a “good solution” could be found on the legal stand-off with Germany’s top court.