Oil Price Crash & COVID19 Pandemic – Global and Local Impact and Opportunities:- By Mma Okezie
Mr. ‘Mma Okezie is a Geophysicist and the MD of foremost indigenous Geoscience company, Geomarine Systems Ltd. In this article Exclusively Published by Intel News Nigeria, he explains the Global and Local Impact and Opportunities that will arise from the Oil price crash and the Covid 19 Pandemic.
The COVID19 pandemic and the nose diving price of crude oil are a double whammy for most of the world’s economies. China, the world’s workshop had been battling a sluggish economy before the Wuhan disaster. It had to literally shut down to be able to contain the spread of the contagion. Although China acted fast and effectively in my opinion, it was already late as it had spread to its neighbours and even as far afield as Italy, UK and the US. A culture of secrecy and almost mortal fear of the acerbic criticism of the Western media appear to have stultified what should have been immediate acceptance of the fact of a looming disaster and the kick-start of the containment effort.
On the international level, the US that should have been in the driver’s seat has more or less resigned from that job, in view of its populist insular politics and foreign policy. The effect on the US has been stark, confounding and devastating. Ditto other western and Asian powers.
The near total global shut down of all production processes, and air travel, Has severely curtailed demand for oil and its derivatives to the extent that oil cargos are lying around with no takers. Prices are reported to have plunged to well below cost of production and in some cases, in theoretical negative territory.
The COVID19 shut down has forced large scale work from home across the globe. The effects and lessons of this forced global experiment will be varied and consequential.
Climate change, technology, hygiene, psychology, health management, emergency management, etc will benefit from this pandemic.
Developing and poor countries such as Nigeria Should not permit this crisis to go to waste. There has been innovative activity spurred by this crisis. Are the various govts in Nigeria geared and ready to take advantage of the spirit of innovation being unleashed by this crisis? I doubt it. I fear it will relapse to business as usual as soon as the COVID19 boot is removed from our necks.
On the economic level, there will be moderate rebound, given that Russia and Saudi Arabia have called a truce in their oil price war.
Kachi Okezie, a management expert specializing in MSMEs, posits that there will be an innovation boom in the developing world, which will be backed by funds form the global North. I tend to agree with that prediction but I still have my doubts about the ability of Nigeria’s political leaders to muster the necessary savvy to midwife this linkage. There seems to be a feeling that the much craved political restructuring of Nigeria will now be a self fulfilling prophecy. I have my doubts for the same reasons. If however oil prices continue to be in the doldrums, then it will become apparent to these political leaders that it cannot be business as usual. It will be a shame if we again let this crisis go to waste.
The IOC’s ride a dual traction system, moderated by their operating agreements with the host government. Sometimes, the systems pull in different directions.
Presently we have a very unique situation where crashing oil prices have struck coincidentally with a devastating global pandemic. Reactions to this situation by the partners will be determined by both economic and socio-political considerations, but with the economic imperatives pulling more weight. To this end, govt and the operators are scaling back projects and seeking downward price reviews from contractors and service providers. Although that is a strategy that I would advise, I would proffer that advice with some caveat – the price reductions should apply to projects above a certain benchmark value. If we classed contractors /suppliers as (going downscale) AA > USD500m, AB >200m, A > 100m, B > 50m, C>50m, D <20m, there should be a sliding downward scale of expected reductions and no reductions for the USD<20m range. This lower range is where a greater %age of local entrepreneurs fall and it would be devastating to shear off their margins.