Fall In Oil Prices Research Articles

تقلب الإیرادات النفطیة وفرض الضریبة على القیمة المضافة فی دول مجلس التعاون الخلیجی

تعتبر الضرائب جزءا مهما من الأنظمة الاقتصادية، و تشکل مصدرا رئيسيا لميزانية الدولة وبرامجها التنموية في الدول المتقدمة أما في الدول المنتجة للنفط، بما فيها دول مجلس التعاون الخليجي، فإن تمويل الموازنات السنوية وبرامج التنمية يعتمد أساسا على عائداتها من الصادرات النفطية. وقد شهدت دول مجلس التعاون الخليجي تحولات کبيرة بسبب التغيرات المتلاحقة في أسواق النفط وتأثير ذلک على أسعاره. مما يؤثر على مسارات التنمية في دول مجلس التعاون الخليجي، نظرا لأهمية الإيرادات النفطية في اقتصادها فهي الممول الرئيس لموازنتها وبالتالي تعتمد معدلات النمو والاستثمار في القطاعات الاقتصادية الأخرى فيها على تلک الإيرادات، کما أن عدم النظر بجدية في الماضي إلى الضرائب کأداة تنموية وتوزيعية، وکمورد رئيسي من موارد الدخل، قد تسبب في غياب المحاولات الجادة لتطوير السياسات الضريبية في دول مجلس التعاون الخليجي. إن هبوط أسعار النفط والضغوط على الميزانية المرتبطة بها في منطقة تستمد الحکومات فيها معظم عائداتها من قطاع النفط والغاز أدى إلى زيادة التوجه نحو الإصلاح الضريبي. ومن ثم فإن فرض ضرائب جديدة وخاصة ضريبة القيمة المضافة في المنطقة سيخفف من اعتماد الحکومات على عائدات النفط والغاز المتدنية وسيوفر لها مصدرا بديلا للإيرادات المستدامة. وقد خطت دول مجلس التعاون الخليجي خطوة کبيرة للتأقلم مع انخفاض سعر النفط حينما وافق وزراء المالية على فرض ضريبة القيمة المضافة، والذي يعتبر أحد أبرز الإصلاحات الاقتصادية المهمة، فقد صادق وزراء مالية دول مجلس التعاون الخليجي على مشروع اتفاق حول الضريبة على القيمة المضافة، والتي تصل إلى 5 %، بعد اتفاقهم على حزمة من الضرائب الأخرى، والغرض من ذلک هو إدخال نظام متکامل وموحد يتم من خلاله فرض ضريبة القيمة المضافة على استيراد وتوريد السلع والخدمات في کل مرحلة من مراحل سلسلة التصنيع والتوزيع. وسيتم تناول ذلک الموضوع من خلال مقدمة- مبحث تمهيدي بعنوان ضريبة القيمة المضافة و الملامح الأساسية لتطبيقها في دول مجلس التعاون الخليجي. و مبحث أول بعنوان دوافع فرض ضريبة القيمة المضافة في دول مجلس التعاون الخليجي. ومبحث ثاني بعنوان تأثيرات فرض ضريبة القيمة المضافة ومعوقاتها في دول مجلس التعاون الخليجي. ثم خاتمة ، النتائج، و توصيات Taxes are an important part of economic systems, and they constitute a major source for the state's budget and development programs in developed countries. In oil-producing countries, including the Gulf Cooperation Council countries, financing annual budgets and development programs depends mainly on their revenues from oil exports. The countries of the Gulf Cooperation Council have witnessed major transformations due to the successive changes in the oil market and its impact on its prices. This affects the development paths in the countries of the Gulf Cooperation Council, given the importance of oil revenues in their economy, as they are the main financier of their budget, and consequently the rates of growth and investment in other economic sectors in them depend on those revenues, and the lack of serious consideration in the past to taxes as a development and distribution tool, and as a major resource From income sources, it has caused the absence of serious attempts to develop tax policies in the Gulf Cooperation Council countries. Falling oil prices and associated budgetary pressures in a region where governments derive most of their revenues from the oil and gas sector have increased the trend towards tax reform. Hence, imposing new taxes, especially a value-added tax, in the region, will reduce governments' dependence on declining oil and gas revenues and provide them with an alternative source of sustainable revenue. The countries of the Gulf Cooperation Council took a big step to cope with the low price of oil when the finance ministers agreed to impose a value-added tax, which is considered one of the most important economic reforms. Up to 5%, after they agree on a package of other taxes, and the purpose is to introduce an integrated and unified system through which value-added tax is imposed on the import and supply of goods and services at every stage of the manufacturing and distribution chain. This topic will be addressed through an introduction - an introductory topic entitled Value Added Tax and the basic features of its application in the Gulf Cooperation Council countries. And a first topic entitled Motives for imposing value-added tax in the Gulf Cooperation Council countries. And a second study entitled the effects of imposing value-added tax and its obstacles in the Gulf Cooperation Council countries. Then a conclusion, results, and recommendations

The Pricing Relationships between Oil and Renewable Firms under Extreme Conditions: The Effects of Negative WTI Prices (Online Appendix 1/3)

We test for the existence of volatility spillovers and co-movements among energy-focused corporations during the outbreak of the COVID-19 pandemic, inclusive of the April 2020 events where West Texas Intermediate (WTI) oil future prices became negative. Employing the spillover index approach of Diebold and Yilmaz [2012]; as well as developing a DCC-FIGARCH conditional correlation framework and using estimated spillover indices built on a generalised vector autoregressive framework in which forecast-error variance decompositions are invariant to the variable ordering, we examine the sectoral transmission mechanisms of volatility shocks and contagion throughout the energy sector. Among several results, we find positive and economically meaningful spillovers from falling oil prices to both renewable energy and coal markets. However, this result is only found for the narrow portion of our sample surrounding the negative WTI event. We interpret our results being directly attributed to a sharp drop in global oil, gas and coal demand, rather than because of a sudden increase in oil supply. While investors observed the US fracking industry losing market share to coal, they also viewed renewables as more reliable mechanism to generate long-term, stable and low-cost supply.

The Pricing Relationships between Oil and Renewable Firms under Extreme Conditions: The Effects of Negative WTI Prices (Online Appendix 2/3)

We test for the existence of volatility spillovers and co-movements among energy-focused corporations during the outbreak of the COVID-19 pandemic, inclusive of the April 2020 events where West Texas Intermediate (WTI) oil future prices became negative. Employing the spillover index approach of Diebold and Yilmaz [2012]; as well as developing a DCC-FIGARCH conditional correlation framework and using estimated spillover indices built on a generalised vector autoregressive framework in which forecast-error variance decompositions are invariant to the variable ordering, we examine the sectoral transmission mechanisms of volatility shocks and contagion throughout the energy sector. Among several results, we find positive and economically meaningful spillovers from falling oil prices to both renewable energy and coal markets. However, this result is only found for the narrow portion of our sample surrounding the negative WTI event. We interpret our results being directly attributed to a sharp drop in global oil, gas and coal demand, rather than because of a sudden increase in oil supply. While investors observed the US fracking industry losing market share to coal, they also viewed renewables as more reliable mechanism to generate long-term, stable and low-cost supply.

The Pricing Relationships between Oil and Renewable Firms under Extreme Conditions: The Effects of Negative WTI Prices (Online Appendix 3/3)

We test for the existence of volatility spillovers and co-movements among energy-focused corporations during the outbreak of the COVID-19 pandemic, inclusive of the April 2020 events where West Texas Intermediate (WTI) oil future prices became negative. Employing the spillover index approach of Diebold and Yilmaz [2012]; as well as developing a DCC-FIGARCH conditional correlation framework and using estimated spillover indices built on a generalised vector autoregressive framework in which forecast-error variance decompositions are invariant to the variable ordering, we examine the sectoral transmission mechanisms of volatility shocks and contagion throughout the energy sector. Among several results, we find positive and economically meaningful spillovers from falling oil prices to both renewable energy and coal markets. However, this result is only found for the narrow portion of our sample surrounding the negative WTI event. We interpret our results being directly attributed to a sharp drop in global oil, gas and coal demand, rather than because of a sudden increase in oil supply. While investors observed the US fracking industry losing market share to coal, they also viewed renewables as more reliable mechanism to generate long-term, stable and low-cost supply.

The Pricing Relationships between Oil and Renewable Firms under Extreme Conditions: The Effects of Negative WTI Prices

We test for the existence of volatility spillovers and co-movements among energy-focused corporations during the outbreak of the COVID-19 pandemic, inclusive of the April 2020 events where West Texas Intermediate (WTI) oil future prices became negative. Employing the spillover index approach of Diebold and Yilmaz [2012]; as well as developing a DCC-FIGARCH conditional correlation framework and using estimated spillover indices built on a generalised vector autoregressive framework in which forecast-error variance decompositions are invariant to the variable ordering, we examine the sectoral transmission mechanisms of volatility shocks and contagion throughout the energy sector. Among several results, we find positive and economically meaningful spillovers from falling oil prices to both renewable energy and coal markets. However, this result is only found for the narrow portion of our sample surrounding the negative WTI event. We interpret our results being directly attributed to a sharp drop in global oil, gas and coal demand, rather than because of a sudden increase in oil supply. While investors observed the US fracking industry losing market share to coal, they also viewed renewables as a more reliable mechanism to generate long-term, stable and low-cost supply.

Gender Socio-Economic Perspective of the Covid-19 Pandemic in Nigeria

The global outbreak of the Covid-19 pandemic which emanated from Hubei, China, has hit Nigeria very hard. The adverse impact on the Nation’s economy has been exacerbated by the fall in crude oil prices. Women in Nigeria generally lived in poverty even before the advent of the pandemic. The lockdown and isolation enforced by the government since the entry of the Covid-19 pandemic in Nigeria have disengaged some Women and left many of them unemployed, thereby worsening their socio-economic conditions. Women are considered an important factor in socio-economic development in every nation. The objective of engaging them in the economic relief and recovery packages during the Covid-19 pandemic cannot be over-emphasized. Women are the main pillars that can lead to quick intervention in the fight against the pandemic. This paper analyzes how the absence of socio-economic activities has impacted the livelihood and opportunities for women during the pandemic, using secondary data such as journals, newspapers, books, and the internet. The paper underscores that the crisis has largely affected women, as many who are petty traders and entrepreneurs have lost their means of subsistence. Therefore, it concludes that it is imperative for the government to formulate socio-economic policies for women that can create opportunities in all areas of life, during and after the Covid-19 pandemic. This will revamp the economy and fast track recovery from the pandemic and give Nigeria a quick turn around.

Co-movements and spillovers of oil and renewable firms under extreme conditions: New evidence from negative WTI prices during COVID-19.

We test for the existence of volatility spillovers and co-movements among energy-focused corporations during the outbreak of the COVID-19 pandemic, inclusive of the April 2020 events where West Texas Intermediate (WTI) oil future prices became negative. Employing the spillover index approach of Diebold and Yilmaz (2012); as well as developing a DCC-FIGARCH conditional correlation framework and using estimated spillover indices built on a generalised vector autoregressive framework in which forecast-error variance decompositions are invariant to the variable ordering, we examine the sectoral transmission mechanisms of volatility shocks and contagion throughout the energy sector. Among several results, we find positive and economically meaningful spillovers from falling oil prices to both renewable energy and coal markets. However, this result is only found for the narrow portion of our sample surrounding the negative WTI event. We interpret our results being directly attributed to a sharp drop in global oil, gas and coal demand, rather than because of a sudden increase in oil supply. While investors observed the US fracking industry losing market share to coal, they also viewed renewables as more reliable mechanism to generate long-term, stable and low-cost supply.

SMALL AND MEDIUM-SIZED BUSINESS’ EXPORT SUPPORT IN TERMS OF GLOBAL ECONOMY CHANGED BY CORONAVIRUS

Modern conditions of the world economy are characterized by a significant restriction of world economic relations, which is caused by the coronavirus pandemic and the resulting decline in economic activity in national economies, which coincided with international sanctions practices and falling oil prices. This created new conditions for international trade and required export-oriented companies to adapt quickly. This ability is most inherent in small and medium-sized businesses, which can become the engine of the national economy, including through the implementation of export potential. The purpose of the analysis: taking into account the global economic trends caused by the coronavirus pandemic, to make recommendations on the development of export support measures for Russian small and medium-sized enterprises. Methodological support was provided by an analysis of the world economic situation and its forecasts, taking into account the opinions of domestic and foreign researchers, as well as an analysis of existing export support measures. The analysis showed that the pandemic factor contributed to the strengthening of geo-economic instability and fragmentation of the economic space. A decrease in economic activity leads to a reduction in exports and imports of countries, which changes the international maps of supply and demand. Under these conditions, state support for exports-informational, legal, consulting, marketing, analytical, and organizational – is valuable for small and medium-sized enterprises, taking into account the possibilities of digitalization, new foreign trade and legal realities, including sanctions practices, technical standards, and restrictions caused by the pandemic, based on industry specifics, and changing international supply and demand maps. Appropriate recommendations are proposed

A Case Study on Boeing's 737 MAX Crisis on Account of Leadership Failure

American multinational corporation Boeing is one of the reputed organizations in the field of aerospace manufacturing. Since its inception by William Boeing in Seattle, Washington in July 15th, 1916, it has surpassed several milestones and grown from strength to strength. It started its venture in areas such as designing and crafting airplanes, rotorcraft, rockets, satellites and also stepped into production of telecommunications equipment, missiles and made a mark in every field of operation. It has a revered status in Dow Jones Industrial Average and made a glaring presence in the Fortune Global 500 list. But the global recognition got eclipsed after fatal crashes in October 2018 and March 2019. Boeing 737 Max planes remained grounded across the world for more than a year. The culpability was overlooking of safety features, hiding the new anti-stall system from pilots, circumvention of standard certification rigours by Federal Aviation Administration, in the hustle of launching ill-prepared product into the market to beat arch rival Airbus. Product malfunction also hinted at systematic problems that needed to be addressed. The company thereby faced lawsuits and claims for compensation. The investigations by FBI began and the House and Senate panels too joined in the foray. Losses worth billions of dollars had been incurred along with displacement of trust and support of loyal customers, severe decline in share price and market capital and ignominy for being short-sighted and lackadaisical in its approach. The outbreak of global pandemic led to further delay in their recovery as demand for fuel efficient 737 Max plummeted due to fall in oil price and delay or cancellation by airlines in buying Boeing planes without being penalised.

Financial Impact of Digital Technologies as a Promising Element of Import Substitution

This article examines the financial elements of agricultural production digital architecture in Russia during the transition to the fourth technological stage in order to compete and import substitution in the agro-industrial market of the country. The pandemic and its consequences have had a negative impact on the Russian economy, in the context of the country's insufficient food security and the inevitable increase in prices for imported goods, due to rising prices for hydrocarbons and the predominance of low-value-added food products in exports. Due to the weakening of the ruble against the falling oil prices, the economy may face the need for a new wave of import substitution. This study identifies the problems of the agricultural sector and the reasons for Russia’s high dependence on imports justify the need to develop high-tech technologies. Authors determined the development directions of agricultural production digitalization in Russia through innovative agricultural technologies based on the Internet of things, distributed computing, and artificial intelligence technologies. Increasing the level of the agro-industrial complex development, bringing it to a new independent stage, is vital. However, it is impossible without state support and the digitalization of technological processes.

A Review of Nigerian Potential Hop Substitutes in Beer Brewing: 1983-2020

The Nigerian economy depended mainly on crude oil during the era of oil boom of 1973 which lasted up till1983. Agriculture was grossly neglected by successive governments. Following the economic recession that occurred years after and due to fall in crude oil price, the Nigerian government began to advocate for economic diversification. Consequently, agriculture became the area of interest and priority for industrial raw material sources. Unfortunately, Nigeria had imbibed the tradition of importing raw materials for all her industrial productions thereby creating unfavourable balance of trade between Nigeria and her foreign trading partners thus resulting in increase in the prices of finished products. Beer production is not exempted from the price increase since its raw materials are equally imported with their attendant problems on Nigeria’s foreign exchange. One of such raw materials is hops. The hop (Humulus lupulus L.) is a perennial dioecious climbing plant of hemp (cannabis) family and belonging to the order (urticales) which are grown in the temperate regions of the world, solely to meet the demand of the brewing industry. Hop extracts give beer its bitter taste, improve foam stability and act as antiseptics towards microorganisms. The quest to substitute hops with some tropical bitter vegetables in Nigeria’s brewing industry dates back to 1983 and since that time, many have compared hop extracts with those of Nigerian bitter plants such as Garcinia kola, Azadirachta indica, Vernonia amygdalina and Gongronema latifolium. This review takes a critical look on the efforts made so far since 1983 in investigating the potentiality of using Nigerian bitter plant extracts as suitable substitute for those of hop in the Nigerian brewing industry with special emphasis on Gas Chromatography Mass–Spectrometry (GC–MS) and Gas Chromatography–Flame Ionization Detector (GC–FID) techniques. It was concluded that none of the Nigerian plants has perfect potential as suitable substitute for hops in the Nigerian brewing industry. Consequently, further research efforts in the area of mixtures/blends of extract of plant species which mimic hop taste is strongly recommended.

Nigeria’s automotive policy and the quest for a viable automotive industry: a lesson for the developing economies

PurposeIt is of concern that several attempts at making Nigeria an automobile producing country have not yielded much success. This paper aims to re-examine the history of automobile manufacturing and the consequences of auto policies of successive governments towards having a viable automotive industry in Nigeria and the lessons therefrom.Design/methodology/approachDispersed data were assembled from both primary and secondary sources on the automobile industry activities in Nigeria. The historic data cover Nigeria’s vehicles need, production levels, importations and local content developments. Time series data on Nigeria’s crude oil prices and the devaluation of the local currency were obtained and analyzed to elucidate effects and provide the trajectory. A comparative analysis of the policies of successful countries with initial status with Nigeria was carried out to elucidate the policy pitfalls in Nigeria’s industrial policies.FindingsThe automotive policies in Nigeria are not self-sustaining. It has been curiously observed that the automotive policy on import substitution and local content development approach did not include the key components in automobile manufacturing, making it a footloose industry. Nigeria’s crude petroleum mono-economy affects the manufacturing sector negatively. A fall in international crude oil price causes free fall of the country’s currency in the international market, the cost of imported new vehicles and parts become prohibitively high, consequently, individuals, as well as corporate organizations, resorted to imported fairly used vehicles and parts for their transportation needs. Capacity utilization dropped abysmally.Originality/valueNigeria’s experience has demonstrated the critical role the government can play in safeguarding the automobile industry in the developing economies. Apart from diversification of the economy, there is a need, therefore, for a more refined and pragmatic approach in the formulation of policies to enable only genuine investors to operate in the automobile industry which hitherto has been an all-comers affair with many taking advantage of unguarded and unguided government incentives.

IMPACT OF COST REDUCTION TECHNIQUES ON BUSINESS STAKEHOLDERS IN THE NIGERIAN UPSTREAM HYDROCARBON SECTOR

In the recent past, the oil and gas upstream sector was faced with challenges of fall in revenue due to fall in crude oil prices and the continuous increase in costs of finding and lifting oil. The expectations of business stakeholders are high on the operators. The research was designed to examine Impact of cost reduction techniques on business stakeholders in the Nigerian upstream hydrocarbon sector. The objectives of the research were achieved using a quantitative method. A survey was conducted on 7 randomly sampled oil service companies in the Nigerian upstream sector: A total of 70 questionnaires were sent by mail to the responded and 60 responded representing 86% response rate. The responses elicited were analysed using Chi-Square test method of data analysis. The study revealed that there was no statistical evidence that cost reduction measures used by oil and gas companies operating in the Nigeria upstream sector has any significant impact on business stakeholders.

Technology Focus: Reservoir Performance (September 2020)

2020 is going to be remembered in oil and gas history for its unexpected free fall in oil prices in less than 2 months. This year’s severe supply-and-demand imbalance is going to have tremendous implications for adopting new business models, developing new technologies, and attracting new talent into the industry. Collaboration and automation are going to continue being drivers for both operators and services providers in all their business segments. While the ongoing trends in data science and engineering analytics are going to show more benefits in lowering production costs and increasing efficiencies, the well-established reservoir and production engineering disciplines will continue to be critical for reservoir performance improvements. In the past 12 months, 93 technical papers were presented at various conferences with a reservoir performance focus and were reviewed for this feature, showcasing further advances in reservoir performance monitoring and optimization. For comparison, 133, 157, and 160 technical papers were reviewed for the 2019, 2018 and 2017 features, respectively. Interestingly, this year, 34 papers had first authors from academia (37%), 49 had first authors from operating companies (53%), and 10 had first authors from oilfield services companies and consulting firms (11%). For comparison, the review for the 2019 feature included 39 papers with first authors from academia (29%), 63 with first authors from operating companies (47%), and 31 with first authors from oilfield services companies and consulting firms (23%). It will be interesting to see this data for the 2021 feature. The three primary papers selected and three alternative papers recommended as additional reading are a representative sample of the 93 papers reviewed for this feature. They have been selected on the basis of their technical contributions and geographic diversity.

Regulation of Exchange Rate and Economic Growth and Its Effect on Chinese Economy

Recently, China has become the world’s second largest economy behind only the United States of America. Until 1994, China used the fixed exchange rate and dual pricing system. A sharp fall in global oil prices aggravates the global downturn. Our key data were gotten from Macrotrends expertise in economic development and exchange rates. GDP Growth rate was more fluctuating pattern (variance 0.014, standard deviation 0.122) than exchange rate (Variance 0.004, standard deviation 0.07). From 1990-2019 both variables were analyzed. That means these do not vary systematically over time. In other words, they are time invariant. Regressing two series that are non-stationary likewise, yields a spurious (or nonsense) regression. So, to check it lets check the rule of thumb. We found a Durbin Watson Statistic of 0.612 and R square of 0.117. If we look the calculated t statistic with critical values at 5% significance level only Domestic Demand shows a significant relationship (4.00 >2.756) with GDP of China. A variety of analytical studies suggest that Competitive Exchange Rate strategies are suitable for economic development. We also argued that, considering some constraints on usable policy alternatives, there are theoretical origins in a policy approach such as an ideal strategy. 

An Insight into the Influence of Corona Virus Surge on Nigerian Economy

The study explored the emergence of a novel virus disease called covid-19 that is ravaging, devastating both human health and global economy and dissect vis-à-vis Nigerian economy. Ordinary Least Square Regression (OLSR) was used to analyse Total Nigeria Confirmed Cases (TNCC), Total Africa Confirmed Cases (TACC) and Total Global Confirmed Cases (TGCC) as exogenous variables while the endogenous variables are market capitalisation, (mcapt), foreign exchange rate of US-Dollar to Naira (usnaira) and crude oil price per day (copd) for period of 182 days. The result revealed that covid-19 pandemic has had an adverse impact on market capitalisation, exchange rate and crude oil price and Nigerian economy as a whole. We recommend that bailout funds should be made available to stakeholders in the capital market, funds in foreign exchange reserve accounts should be used to hedge foreign exchange fluctuations and funds in excess crude oil accounts should be used to cushion the effect of fall in crude oil price. Keywords: COVID-19, Foreign exchange rate, Crude oil, Market capitalisation JEL: D 53, F 31, I 15 DOI: 10.7176/RJFA/11-18-02 Publication date: September 30 th 2020

The Future of Floating Production Systems

This article, written by JPT Technology Editor Judy Feder, contains highlights of paper OTC 30715, “Floating Production Systems: What’s Next?” by William Judson Turner, SPE, Welligence Energy Analytics, prepared for the 2020 Offshore Technology Conference, originally scheduled to be held in Houston, 4-7 May. The paper has not been peer reviewed. Copyright 2020 Offshore Technology Conference. Reproduced by permission. The complete paper provides insight on the commercial drivers that significantly changed floating-production-system (FPS) design philosophy after 2014, with a particular focus on the US Gulf of Mexico (GOM). The paper explores near-term and longer-term outlooks for FPS design, touching on technology and automation that can relocate staff onshore to increase safety, reduce capital expenditure (CAPEX) and operating expenses (OPEX), and increase return on investment (ROI). The authors note that the commercial analyses presented in the paper are indicative and are subject to revision. Introduction The drastic fall of oil prices in late 2014 forced a harsh but necessary overhaul to the design philosophy of deepwater projects. Bigger was no longer better; the industry set to work using methods such as lean design and standardization for commercial improvement. Through a slow recovery in commodity prices and a steady persistence in innovating and implementing improvements, the deepwater sector made significant strides in commercial and operational efficiency. This overhaul was a rough 4-year journey as investment capital, and even some operators, retreated from deep water for lower-cost and faster-cycle onshore projects - at least, that was the perception at the time. Deep-water projects were delayed or canceled, and the industry saw consolidation among operators and the service sector. While the period may have been uncomfortable, it was a much-needed turnaround for an industry with average breakeven costs at $70 per barrel. The rework resulted in an industry fit to compete with onshore production, with breakeven costs reduced by half in some cases.

Technology Focus: Offshore Facilities (September 2020)

Welcome to the Offshore Facilities feature of this month’s JPT. It was my pleasure to review 161 conference papers submitted in this field during the past year. As noted in the May JPT, our offshore industry began January 2020 with its third-best year on record. The breakeven point (BEP) for deepwater projects prefinal-investment decision had fallen to approximately $50/bbl, and greenfield offshore development BEP was expected to reach below $40/bbl. In mid-January 2020, I attended and enjoyed the first International Petroleum Technology Conference in Saudi Arabia and witnessed an optimism across our industry. But all excitement changed unexpectedly in April 2020, when COVID-19 became a global pandemic, oil was oversupplied, and markets crashed. This low-oil-price situation is not the first in the history of our industry, and we again are going to see the challenges of reduction in demand; equipment; services, including financial support; asset and manpower excess reduction; and supply-change distraction. Yes, it is a cycle, and survival is the only mode to be able to move forward. However, what is different nowadays is that we should begin to propose a radical approach in how to improve our offshore development business cycle to be more agile and resilient. The COVID-19 pandemic accelerates transformative moments, particularly the search for the best strategy and innovation to secure offshore megaprojects not underpinned by higher oil prices. We have seen a drop of almost 20% in capital expenditures (CAPEX) this year, and Rystad predicted that total industry spending on exploration and production (E&P) will be cut by $100 billion by the end of the year and another $150 billion in 2021. As with previous downturns, three classical examples exist with regard to how offshore E&P companies typically react. First, capital spending is reduced. Second, projects are delayed. Third, companies reorganize. If we look back to 2014, the drastic fall of oil prices has successfully pushed more innovation and efficiency. The crisis is a catalyst to innovation. The new normal might become an opportunity to standardize unmanned offshore design. Radical thinking such as demanning and reuse of offshore oil and gas facilities might become a breakthrough to keep CAPEX and operational expenditures (OPEX) low. I have been fortunate to have some discussions with Robert Perrons, a professor from the Queensland University of Technology, about how to succeed at innovation with-in the industry under these conditions. He mentioned that the key for startups is to have the business case clearly articulated. Discussions about startups are far less likely to sound interesting unless you can explain to an operator how you can save them money right away. For offshore greenfield projects, standardization of design, efficiency of subsea technology, increase in digitization and automation, CAPEX/OPEX discipline, and increasing return on investment will trend after COVID-19. Meanwhile, for brownfield projects, digitalization and facilities debottlenecking can reduce OPEX significantly. Innovations related to nonintrusive and robotic methods for inspection also will be demanding after COVID-19. The three papers and recommended additional reading presented here support CAPEX/OPEX discipline, cost optimization, offshore development breakthroughs, and technology transformation. I hope you enjoy reading these papers as much as I did.

Quantifying international oil price shocks on renewable energy development in China

ABSTRACT It is a common belief that renewable energy is an effective alternative to traditional fossil energy, namely, oil; thus, an international oil price shock is a significant factor affecting renewable energy development. This paper builds a recursive dynamic computable general equilibrium model to explore the effects of rise and fall in international oil price on the investment and outputs of renewable energy industry, as well as the macroeconomy and environment in China. In addition, the role of renewable energy policy is verified through simulating the combination scenario of oil price fluctuation and renewable energy policy. The results reveal that an increasing international oil price can advance the outputs and investment of renewable energy, decrease China’s real GDP and exports, and improve the atmosphere environment, and the influence of a decreasing international oil price is the opposite. Furthermore, renewable energy policy can attenuate the negative effect of a decreasing oil price on renewable energy development and the environment, and strengthen its contribution to GDP.

Dynamic dependence and extreme risk comovement: The case of oil prices and exchange rates

AbstractThis article aims at investigating the dynamic dependence and extreme risk comovement of oil price and exchange rates in seven oil‐importing and seven oil‐exporting countries. For this purpose, we use six representative time‐varying copula models and four kinds of tail dependences to assess the downside and upside conditional value‐at‐risk measures (CoVaRs). Our findings indicate that the dependence of crude oil returns and exchange rates is negative for most pairs, that is, the rise (fall) in oil prices was accompanied by the appreciation (depreciation) of foreign currency against the US dollar. The oil price–exchange rate dependences in oil exporters is slightly larger than in oil importers, even though the dependence is weak in general. More interestingly, we find strong evidence of significant risk comovement between crude oil returns and exchange rates through the analysis of lower–upper and upper–lower tail dependence as well as downside and upside CoVaRs. This comovement particularly showed asymmetric effects. Finally, we sum up some implications for investors, policymakers and exchange rate regulators from a holistic perspective of empirical findings.