Monday, 04 May 2020 11:18

Novak: Cheese is a more in demand product on the market than oil

 I am sure that the model of our economy will also be diversified and built on the basis of modern realities, Energy Minister Alexander Novak told Russian media last week, Caspian Energy reports, citing the Ministry of Energy of RF.

"We should not also forget that the oil industry shall not only produce oil, but also process it. In addition, new technologies and IT communications require new materials, including hydrocarbon. This means that more modern materials will be produced out of hydrocarbons and the demand for petrochemical products will continue to grow," a high-ranking official said.

Now the market is also quite nervous, first of all, it is assessing the situation that has developed for May futures, but it also affects the June trade.

Demand has now fallen from more than 100 million barrels per day to, according to various estimates, 70-80 million barrels per day, that is, 20-30 million barrels per day, but no one really knows the exact figure. The Minister cited other industries where manufacturers gather and think of how to coordinate actions to reduce production. A good example is the cheese producers in France.

The issue of a proportional reduction in cheese production due to the closure of restaurants was discussed for five days. As a result, the cheese makers agreed to reduce production by 8% for several months. So this is a rational approach. The point is that we need to take joint measures to prevent a collapse in the oil market.

 We agreed to monitor the situation on a monthly basis among OPEC+ countries, as well as within the framework of the G20 agreement. A corresponding monitoring committee will be set up among the energy ministers out of representatives of different G20 countries, which will also monitor the situation on demand and production in other countries that are not members of OPEC+.

Probably for the first time in history, it is non 23 OPEC+ countries which participate in market balancing in a consolidated way. In total, more than 30 countries have declared their readiness to take measures. Yes, they can't make this decision at the Federal level, but they are trying: The USA, at least, is working to regulate and formalize the issue at the state level. It is being considered by the Texas railroad commission, and we hope that it will make an appropriate decision, which will serve as a positive signal to stabilize the market.

No one expected this to happen. Those who were heavily indebted — those businesses are now at risk, those who have a more stable financial condition- they will survive.

Given such a significant drop in prices and oversupply, all companies in the world will certainly review their investment plans. Many are already declaring about reduction of investment volumes. We can assume that it will involve about tens, maybe hundreds of billions of dollars in the world as a whole. According to experts, investments, worth at least $100 billion, in oil and gas production projects will be postponed in 2020, and another $110 billion is at risk. Thus, the reduction in capital investment due to the coronavirus and the decline in oil prices may total 30%. Two-thirds of new production projects may be delayed until 2021 or later, and new LNG plants may also face a substantial damage.


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