INTERVIEW: 'Prolific scope' for Asian E&P revival as dark clouds fade: Essar E&P CEO

The sustained recovery in Asian oil demand is a sign that the worst may be over as far as the pandemic was concerned, creating ample opportunities for the region's upstream sector to rebound strongly, although governments will be keeping an eye on the new variant of the pandemic, Pankaj Kalra, CEO of Essar Exploration and Production Ltd., told S&P Global Platts.

With Asia's energy consumption being primarily oil and gas centric, the positive market trend is expected to not only benefit oil producers, but also refiners and associated businesses, he added.

"The Asian market is the major driver in the global energy dynamics. Therefore, with about 40% share in global energy consumption, primarily oil and gas centric, I see this as a prolific scope for the Asian E&P sector to strongly rebound and have significant activities in this year, which is exciting," Kalra said in an interview.

S&P Global Platts Analytics expects the impact of omicron on Asian oil demand to be relatively less severe compared with the delta strain, with many countries still moving toward the reopening of their economies, especially now that the region is better placed with higher rates of vaccination.

Asian oil demand is expected to grow year on year by 1.5 million b/d in 2022, up from 1.2 million b/d in 2021, and the region will continue to depend heavily on crude imports to meet the rising oil demand, it added.

The worst may be over

"As we leave the worse days of the pandemic behind, the oil and gas market is already on a steady volume and price recovery mode since the historic lows in mid-2020 and in 2022," Kalra said.

According to market participants and analysts, Asia's oil demand is already on a sustained upward trend after a long period of uneven growth as consumption in China and India is looking increasingly resilient, but how OPEC+ members plan their supply response will be crucial in supporting the recovery.

Affirming a 400,000 b/d output increase for February on Jan. 4, the OPEC+ alliance signaled continued confidence that the omicron variant will have a smaller impact on global oil demand than previously assumed. Crude prices have so far proved resilient, rising above $90/b.

The decision by OPEC and its Russia-led partners to approve another hike in production quotas is a strong indication that the market can absorb more oil in the coming months despite surging COVID-19 infections.

"Asian oil demand is perceived to have surpassed the pre-pandemic 2019 demand levels. The Asian market is a mosaic of some of the fastest developing countries in terms of economic and energy growth, with a focus for energy self-sufficiency. Thus, there is a positive market trend, which will benefit the entire oil market value chain from producers to refiners," Kalra added.

Asian refiners believe global crude supply remains tight and outright oil prices overheated. End-users in this region are continuing to call for the OPEC+ to raise supply by at least 800,000 b/d, doubling the producer group's current stance to increase output by 400,000 b/d.

"The resurgence of new variants of the coronavirus and its impact will be a close lookout for the sector. The associated restrictions by governments will impact the bullish hydrocarbon outlook," Kalra said.

"There is still a lot of hydrocarbon resources to be explored and developed in this part of the globe," he added.

Energy transition focus

Kalra added that the energy transition focus in the region will also have its impact on the oil sector. As a result, oil producers need to be vigilant and adapt their business to changing needs.

"We need to keep a close vigil on the oil sector's future. I also feel, as managers of upstream entities, we need to consciously have renewed focus on energy transition, starting with maximizing natural gas output in the energy mix toward global averages, beginning 2022," he said.

"This is since natural gas is the bridge fuel between now and the future decarbonized energy world," he added.

According to Platts Analytics, as the energy transition push deepens, it would mean less oil consumption, which would benefit most Asian countries as they are net importers. Another impact of the changing energy landscape would be the tightening of oil product specifications across the region.

On one hand, it is more costly to produce cleaner refined products to fuel the economy. On the other hand, it promotes regional oil product trade as product specs will become more stringent across the region with smaller differences in quality as time goes by, it added.

Essar is a leading producer of unconventional gas in India, and is also a stakeholder in one of the largest emerging gas-condensate plays in offshore Vietnam.

"Our efforts as an ESG-centric corporate is to accelerate the hydrocarbon production for energy securitization in the Asian market, while also taking continuous steps toward other sustainable energy scope," Kalra added.