Get the latest updates on the Coronavirus impact on engineers.Click Here
Oil and Gas

A slim glimmer of optimism

The pandemic is hitting the oil and gas industry hard, but there are glimmers of hope on the horizon.

By Kevin Parker June 15, 2020

On May 19, oil held near a two-month high of $35 a barrel as supply curbs tightened the market and demand rebounded in the world’s largest consuming countries, according to the Houston Chronicle. It would seem the situation may be stabilizing.

Oil & gas companies involved in exploration and production spent an average of $89 billion a year on maintenance between 2015 and 2019. Companies, already facing huge debts, are slashing all but the most essential work, either because of lack of capital, fears of having contract workers on job sites or supply chain challenges, according to a recent piece in Energy World.

Fall and rise

Exploration and production companies and oilfield service companies saw stock price declines ranging from 30% to 75% or more through the end of 2019. Over the same time, the S&P 500 was up over 60%, according to a post written by Michael J. Blankenship and J. Eric Johnson of Winston & Strawn LLP. Investors were prioritizing the need for capital discipline.

What was needed was for oil & gas supply to tighten and demand to grow. It didn’t happen. “The one-two punch of the COVID-19 pandemic and the Saudi-Russian oil price war generated the exact opposite result — concurrently destroying global demand and oversupplying the markets, both at unprecedented levels,” said the piece, published by Lexology, the legal news feed.

The International Energy Agency reports projects that energy demand will fall 6% in 2020 – seven times the decline after the 2008 global financial crisis. The unprecedented decline is the equivalent of losing the entire energy demand of India, the world’s third largest energy consumer. Advanced economies are expected to see the biggest declines, with demand set to fall by 9% in the United States and by 11% in the European Union.

The impact of the crisis on energy demand is heavily dependent on the duration and stringency of measures to curb the spread of the virus. For instance, the IEA found that each month of worldwide lockdown at the levels seen in early April reduces annual global energy demand by about 1.5%.

The longer term

According to the U.S. Energy Information Administration (EIA), as mitigation efforts to contain the pandemic continue to lead to rapid declines in petroleum consumption around the world, the production of liquid fuels globally has changed more slowly, leading to record increases in the amount of crude oil and other petroleum liquids placed into storage in recent months.

In its May Short-Term Energy Outlook, the EIA expects global inventory builds will be largest in the first half of 2020. EIA estimates that inventory builds rose at a rate of 6.6 million barrels per day (b/d) in the first quarter and will increase by 11.5 million b/d in the second quarter because of widespread travel limitations and sharp reductions in economic activity.

After the first half of 2020, the EIA expects global liquid fuels consumption to increase, leading to inventory draws for at least six consecutive quarters and ultimately putting upward pressure on crude oil prices that are currently at their lowest levels in 20 years.

Longer term, many are urging that the pandemic is an opportunity for an oil & gas industry sea change. The digital transformation of the industry must be accelerated by the crisis, rather than retarded. It is, in fact, a nascent opportunity.


Kevin Parker
Author Bio: Senior contributing editor, CFE Media