Industry

How oil logistics firm plans to ride out Covid-19 storm

tanker

Oil tankers. Low demand due to restrictions on transportation and industrial activities has hit the entire supply chain — oil refining, freight and storage globally. FILE PHOTO | NMG

Summary

  • The troubles of the global oil industry have faced have been aggravated by the Covid-19 pandemic, with oil prices declining and markets experiencing turbulence.
  • Low demand due to restrictions on transportation and industrial activities has hit the entire supply chain — oil refining, freight and storage globally.
  • The ripple effects are being felt in other economies, leading to cuts in investments and forcing companies to redesign business models to sustain growth.

The troubles of the global oil industry have faced have been aggravated by the Covid-19 pandemic, with oil prices declining and markets experiencing turbulence. Low demand due to restrictions on transportation and industrial activities has hit the entire supply chain — oil refining, freight and storage globally. The ripple effects are being felt in other economies, leading to cuts in investments and forcing companies to redesign business models to sustain growth.

Before the coronavirus shocks and the oil prices slump, Oilfield Movers, a logistics solutions provider for the oil and gas sector, had embarked on diversification plans that saw it take up projects in power generation and mining.

Fred Mbote, the CEO of Oilfield Movers, spoke to the Business Daily on the company’s diversification plans to survive and the future of Kenya’s oil industry in the era of coronavirus.

WHAT ARE YOU ON AT THE MOMENT?

At the moment, we are servicing contracts in upstream and midstream oil and gas sectors, mining and power generation. We have enough headroom to take up new projects, be it in terms of financial, human talent and projects support equipment deployment.

HOW MUCH HAVE YOU INVESTED IN THE KENYA OPERATIONS AND DO YOU HAVE ANY EXPANSION PLANS?

Our expansion plans are now targeted in diversifying our revenue mix as well as win the trust of our clients to extend or expand our existing contracts. We are investing more in human talent and targeted sectors’ compliant and reliable equipment and assets certified to international standards.

HOW ARE YOU SURVIVING NOW THAT MUCH UPSTREAM ACTIVITY HAS STOPPED?

Before the oil prices slump, we engaged in a process of revenue mix diversification. We are now providing solutions in power generation and mining so that we can ensure continued growth. We are looking at more uptake of projects in these two sectors as well as venturing in large infrastructure to offset the slow growth in the upstream and midstream oil and gas and delayed projects. We also have plans to diversify our operations in the region especially in the upstream projects that are much ahead of Kenya in their development milestones.

HOW HAS THE LOWER OIL PRICE ENVIRONMENT AFFECTED THE BUSINESS?

We cannot speak of others but yes, the slump in the global benchmark oil prices has had a negative effect on upstream and even midstream sectors in Kenya, the region, and indeed the whole world. This is more so reflected in delayed investment deployment and decision making by project drivers. Best approach now is to diversify into other sectors that will appreciate the value propositions that oil and gas service providers offer.

WHAT DO YOU SEE AS THE FUTURE OF KENYA’S UPSTREAM SECTOR AND ITS CONTRIBUTION TO THE COUNTRY'S ECONOMY?

From a service provider’s view, because we cannot speak on behalf of the authorities or our clients, we believe that there is still a great future for Kenya’ oil and gas sector. There may be delays occasioned by the lowering benchmark crude oil prices as well as the current Covid-19 pandemic but all is not lost.

Also, despite the competition from other energy sources, the world will require more oil in the foreseeable future, at least to replenish depleting reserves and production from existing wells. Once Final Investment Decision (FID) for Kenya is reached, we should be able to see a promising sector which will also provide support to the economy as well as act as an enabler to the growth of other sectors such as manufacturing. We just need to be patient.

HOW ARE THE CRUDE OIL PRODUCTION WARS LIKELY TO HAMPER OR DELAY KENYA'S OIL PRODUCTION DREAM?

The greatest effect will be delayed FID, which then means delayed investment by the operators. If this happens, it will lead to delayed building up of production from what has been produced at the current pilot phase. As an industry norm, when the benchmark oil prices slump, then investment in non-producing ventures is delayed. We are likely to suffer from this.

WHAT IS YOUR TAKE ON THE NEW TAX LAWS (AMENDMENT) BILL THAT IS SET TO SEE AN INCREASE IN FUEL PRICES?

Whereas the policy maker may be looking at uniformity of procedure and to reduce complexity, expanding the eight percent VAT on fuel products to cover all cost element will lead to a slight increase in fuel prices by approximately 3-4 percent. However, consumers will continue to benefit greatly from low global prices and the lower VAT rate locally as other products get charged 14 percent.

HOW LONG DO YOU THINK THE LOW PRICES WILL LAST?

It is crucial to understand that Opec+ has already reached an agreement to cut production. The targeted cut was 10 million barrels per day but they have so far agreed to a level of 9.7 million barrels of oil equivalent per day. This cut is meant to commence in May 2020 and to last for two years through to 2022. G-20 is also supporting the production cuts. Involuntarily, American shale oil producers are also shutting down as the current prices do not support their costs of operation. This is leading to the largest production decline in the American history.

However, the Covid-19 crisis is projected to reduce the global oil demand by up to 30 million barrels per day, which will keep supply well above demand.

The great reduction in air and ground transportation as well as reduced manufacturing in big takers like China and India due to the pandemic will delay any recovery. It is thus an industry to watch for the next few months. We can only remain very hopeful.

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