With only a week to go before OPEC+ countries start flooding the world’s total oil production with an estimated extra 2.5 million barrels per day (bpd) amid the Covid-19 crisis, building one of the biggest oil supply gluts the world has ever seen, UK operator INEOS has decided to postpone its scheduled maintenance for the North Sea Forties pipeline system (FPS) in a move that Rystad Energy calculates will add several hundred thousands of extra barrels to the market every day.
Indeed, the Brent Crude dropped to $28.89 yesterday, as COVID-19 pandemic hits harder. Based on this development, Rystad Energy has raised its North Sea oil production forecast by 330,000 bpd to 2.96 million bpd for June 2020 and by 190,000 bpd to 3.04 million bpd for July 2020.
“This just adds another ripple to the growing oversupply pool of global liquids – an overhang for 2Q20 that is already so incomprehensibly massive that it will eventually force shut-ins as oil prices fall below short-run marginal costs and logistical challenges arise,“ says Rystad Energy oil market analyst Milan Rudel.
“Given the current struggle, E&Ps are understandably trying to mitigate the coronavirus risk by implementing their version of social distancing,“ adds Rudel.
Although INEOS has not yet officially decided on a new date for the FPS maintenance, except stating that it is postponed until August 2020 at the earliest, operators see a case for delaying the turnaround to 2021. They alsi incorporate a two-month delay to mid-August 2020 in our base case.
The FPS carries oil from UK and Norwegian fields in the central North Sea to Cruden Bay in Scotland. In addition, we also expect maintenance of the Scottish Area Gas Evacuation (SAGE) pipeline to be delayed in line with FPS maintenance, as several fields connected to FPS feed gas into the SAGE system. Thus, we also revise our maintenance forecast for Grane (Edvard Grieg and Ivar Aasen), Alvheim, Flotta (Golden Eagle), Beryl and Gryphon crude streams accordingly.