“Using Wood Mackenzie’s Lens Direct data, we calculate a $10/bbl change in price (the pull-back in Brent since January) has a $40 billion impact on global cash flow per quarter. For some companies, this could make the difference between increasing shareholder distributions or another year of negative cash flow.”
As there has been little effect on flowing supply so far, industry concern has instead focused on newbuilds. McKay said: “We estimate projects with peak capacity of 1.5 million b/d and nearly 4 bcfd are at risk of delay relative to our start-up estimates. A total of 2 million b/d and 6 bcfd is under construction across Southeast Asia.
“If delays do occur, an average of 3 months would only reduce 2022 production (the peak year of impact) by 160,000 b/d. A mere scratch on the surface of global supply. But if control of the disease takes a turn for the worse, the impact multiplies quickly.”
In a scenario of accelerated international infection rates, the supply impact would quickly become more severe. If ongoing virus containment efforts prove unsuccessful, production operations at more producing assets in Southeast Asia and beyond could be directly affected. Project delays would get longer, and further component inventory tightening would have knock-on cost effects globally.
Globalised supply networks could be augmented with a resurgence in local manufacturing. But to offset the increased cost, investment in technology-led regionalisation, would need to accelerate.
