The impact of COVID-19 on Asian oil demand
Over the past decade, Asia has been the global driver of hydrocarbon demand. Since 2011, the region has accounted for nearly 70 percent of the growth in demand for oil and oil products.
The coronavirus pandemic and regional lockdowns have put the brakes on Asia’s growth. In 2020, Oliver Wyman expects Asian demand for oil and gas to fall by 15 percent, with the possibility of a 17 percent drop if a second wave of lockdowns occurs. That translates to a demand drop of five million barrels a day, roughly the consumption of the entire Indian market.
China is expected to be one of the harder hit markets, given the impact of the lockdown was felt from the beginning of 2020. While recovery has been relatively swift, the potential for subsequent waves is still present, as evidenced by aggressive approaches in tackling regional outbreaks with quick control measures.
Across other key Asian economies, Japan and Korea are less badly affected—with 10 percent hit in the base case scenario. While transportation fuels have not been spared, their export-oriented petrochemicals sector continues to drive demand for feedstock fuels, particularly naphtha.
Beyond 2020, Asian oil demand will likely see some recovery in 2021, though overall consumption is expected to fall three percent short of its 2019 peaks. Asia will not see growth from pre-pandemic figures until 2022, when we project a one percent expansion. In the worst-case scenario, multiple waves of COVID-19 infection and lockdowns continue to create demand drag of 12 percent in 2021 and 10 percent in 2022.
Winning business models for the future
Changing nature of the customer relationship
In the wake of COVID-19, oil players will need to sharpen their ability to drive customer relationships and loyalty through digitization of customer touchpoints, given in-person interactions are likely to be more controlled.
There is also significant potential to retool petrol stations in a push towards non-fuel offerings such as as logistics centres and grocery pick up points, given that filling up at retail petrol sites will likely remain a key physical interaction point in customers’ day-to-day lives.
Shifting value across the value chain
Radical shifts in market dynamics gives existing players the opportunity to reposition and retool assets, particularly by adjusting refinery product slates away from the traditional focus of transportation fuels towards petrochemicals.
Oil and gas players will also likely further develop trading arms to capture incremental revenue, particularly valuable and effective during periods of prolonged volatility. This will also be a crucial capability as companies look to enhance supply security in preparation for future shocks.
Opportunities for new entrants and acceleration of transitions
Fresh private investment by large regional players including family-owned SEA conglomerates will likely be a recurring theme in the near-to-medium term. Depressed valuations in the market will support players looking for exposure to sub-sectors with more attractive recovery profiles, which include retail fuel sites and petrochemicals.
Finally, there will likely be divergence in how incumbent players tackle the fallout of the COVID-19 crisis. On one hand, current dislocation of assets and equity prices creates opportunity to pivot effectively and accelerate down the renewables path. On the other, some players will see this as an opportunity to double down on hydrocarbons by pushing towards greater vertical integration or expanding geographically into markets with demand upside.
