The COVID-19 pandemic has put the international economy in a tailspin. International Monetary Fund Managing Director Kristalina Georgieva has declared the world economy has entered a recession due to the outbreak of the virus. The result has been a drop in demand for oil and gas.
Add the price war between Saudi Arabia and Russia and oil and gas producing states like Pennsylvania, Colorado and Texas are struggling after years of economic success. America’s energy producers must navigate a new world where sub-$20 crude prices are a reality. In a statement to Inside Sources, American Petroleum Institute (API) spokesperson Scott Lauermann calls the challenges facing domestic production “short-term” concerns.
“Although short-term demand for our products is down, the long-term outlook for our industry remains strong with the world continuing to demand more energy as populations grow, economies expand, and quality of life improves,” Lauermann said. “This is an industry that time after time has demonstrated its ability to weather uncertain times and is well-equipped to emerge from today’s challenges more resilient, focused, and disciplined.”
Despite the optimism espoused by the API, U.S. producers remain concerned about the impact of plunging prices on domestic production — especially during a period of crisis. The Pennsylvania Independent Oil & Gas Association (PIOGA) issued guidance to state producers including “information and resources to help keep Pennsylvania’s oil and natural gas industry safely operating so that we are able to continue providing our essential products during the coronavirus pandemic,” according to its website.
Democratic Gov. Tom Wolf recently extended the Keystone State’s stay-at-home order through April 30, ordering additional restrictions on businesses deemed “non-essential” and “essential.” Fortunately for the energy sector, oil and gas producers were declared essential under the governor’s directives.
But the ability to produce is irrelevant if prices remain near 20-year lows. The Wall Street Journal reports that some players in the U.S. energy sector want government intervention to bring prices back up. Some want the federal government to intervene in the Russia v. Saudi Arabia squabble. Others want production limits imposed on Texas in order to reduce supply and raise prices.
“This is monumentally bad,” PIOGA executive director Dan Weaver told the Pittsburgh Post-Gazette. “The industry will not look the same coming out of this as they did going in. It just depends on how long it lasts.”
Julianne Geiger, a senior editor at Oilprice.com, writes that COVID-19 “is not only impacting demand, but oil and gas companies are also having to adjust to the new world reality of social distancing, ill workers who are out sick for an extended period, sending workers home who perform non-essential tasks, halting all company travel, and taxing companies with strict hygiene measures that are prompting companies to sanitize equipment and high-touch surfaces.”
As for government intervention, Lauermann pointed InsideSources to an opinion piece written by API president and chief executive officer Mike Sommers arguing that the solution to COVID-19 is the need for market-based solutions and not protectionism.
“This is a challenging situation, compounded by the impact of the coronavirus, but interventions like protectionist trade measures are not the answer,” Sommers wrote for Fortune. “We’ve seen time and again that free-market policies provide greater stability and growth. Certain reactions in times of global market unrest — such as tariffs or sanctions — ultimately hurt U.S. producers and consumers.
“Instead, the administration should resolve these issues diplomatically and engage with our global supply partners to address the currently oversupplied market environment.”