Wider macroeconomic and business environment risks are at the forefront of oil, gas, and chemical executives’ minds as they look towards 2020, according to Deloitte's 2020 Oil, Gas, and Chemical Industry Outlook. Among the risks which seem to be strengthening according to the outlook are:
- Weakening economic growth, not only in the US but also in Europe and China.
- Ongoing, perhaps intensifying, trade tensions, which can create uncertainty, dampen growth, and lead to modifications in long-established supply chains.
- Political risks, including the US election cycle, the outcome of the Brexit process, and tensions in the Middle East between multiple states and non-state actors with different objectives.
Deloitte forecasts that US gross domestic product growth will slow in 2020, with a 25% chance of recession and only 10% change that growth will match recent years. It also sees trade disputes as creating high debts and weak currencies in several countries and notes that regulatory changes like IMO 2020 could leave refiners pinched, not by not having enough IMO 2020 compliant low-sulfur fuels, but by having too much product overall.
LNG volumes are up, the company notes, while cautioning that sanctioning new projects will be hard. Once current projects are fully operational exports from the US could reach 10 bcfd. But these exports will be facing a soft global gas market, posing potential problems for project developers looking to sanction in 2020.
“While the [low-priced] US gas market remains a key strength for domestic developers, the contract terms are no longer as differentiated as they once were,” Deloitte said, with international competitors willing to provide greater flexibility in a buyers’ market. “Add in tariffs and low oil prices, and US cargo pricing is not as attractive as it once was.” Most projects sanctioned in 2019, both in the US and internationally, were either brownfield or sold without long-term offtake contracts. “This will not be an option for greenfield developers relying on project financing. Instead, finding anchor buyers in 2020 is expected to be key,” Deloitte continued, noting that global gas markets are soft today but could tighten in the next few years, “and new projects will need to be sanctioned to meet future demand.”
Chemical sales are slowing due to not only trade tensions between the US and China, but also mixed signals about domestic manufacturing. US industrial production has been declining for the past few months, a trend that will likely continue into 2020, Deloitte said, also noting a first-half 2019 dip in the chemical industry’s revenue and margin growth trends.
