– This is the script of CNBC's news report for China's CCTV on January 27, Wednesday.
Welcome to CNBC Business Daily, I'm Qian Chen.
Global oil and gas prices will remain weak in 2016 on continued oversupply that will result in at least 20-25% reduction in capital spending in upstream oil and gas exploration and production, according to a report published by Moody's.
RAVI KRISHNASWAMY, VP of Energy & Power Systems from Frost & Sullivan, told CNBC that the following 3 factors are behind this year's energy weakness.
Factor 1: Supply glut that is likely to worsen, before getting better
- Rising global inventories
- Saudi Arabia will continue to pump. Aramco IPO to help Saudi Arabia sustain prolonged low prices (hence more supply)
- Iranian supply - 50 million barrels stored capacity, potential 600k-1 million barrels extra to global markets which will more than offset shale loss
- Shale producers have managed better than anticipated
- Who will blink first - seems to be less powerful ones like Nigeria, Venezuela, Canada than Saudi, Russia or US
CLN CAP CON 01_27_2016 1300
[RAVI KRISHNASWAMY Frost & Sullivan VP, Energy & Power Systems, Asia Pacific ] "133655 I think US shale has seen the economy dropping, obviously that is a gradual process but the blinking will not be OPEC as a bloc but will be individual countries in the OPEC, could be Vernezuela, could be Nigeria, could be Algeria, one of those, it's not going to be a bloc, i think the OPEC bloc has pretty much gone out. 133712"
Factor 2: Slackening global demand, amidst lack of economic growth catalyst
- Global demand growth for oil likely to fall from 1.7 million barrels/day to 1.2 million barrels/day, with a lower daily consumption average of 95.7 million/day
- China Factor - moving away from export driven model to domestic consumption led growth, new normal of single digit GDP growth, China accounted for almost half of growth in energy demand so far in 21st century (which will not be the case moving forward), broader focus on improving energy efficiency across sectors
- India - GDP growth not enough to absorb the global surplus
- Lack of global catalyst - China and emerging markets woes, No visible accelerator for commodities, No dot com boom etc.
- Climate change concerns and green growth will suppress oil demand
CLN CAP CON 01_27_2016 1300
[RAVI KRISHNASWAMY Frost & Sullivan VP, Energy & Power Systems, Asia Pacific] "133529 In a situation like this, that's what you will expect, you'll expect consumer sentiment to go up. of course in the US autosales have gone up, probably that's a small part of the market that is picking up but i don't think we are seeing it anywhere else in a big way. I think the emerging markets are complete down, Russia down, Brazil is down, China is kind of wobbling, India is the only that has bright spots but this is because of other issues like the rural economy, I think the urban economy is good but the rural economy's growth has not been tackled up to the level which is a big concern. 133602 "
Factor 3: New geopolitical reality
- Loss of OPEC clout
- US oil exports
- Growing Saudi-China relationship. Saudis looking towards China to help non-oil diversification of economy
- US-Iran relationship. Again changing the dynamics in Middle East
- Impact of terrorism and security concerns on trade
CNBC's Qian Chen, reporting from Singapore.