“Has the oil and gas industry ever had a worse year than it’s had in 2020?”
That’s the question I was asked recently by host Kym Bolado on the weekly “In The Oil Patch” radio program that airs in various markets across Texas. It’s an interesting question, and one that comes with no easy answer.
When contemplating the question, it’s easy to look back and 2015, or 1985 or some of the years during the decade of the 1970s, a time when it often appeared that the prophets of “Peak Oil” theory might actually be correct as years that might compare. I first came into the oil business right out of college in 1979, so my frame of reference encompasses all of those down years and more. They were all bad for the industry in their own ways, and the devastation the industry suffered in 1985 and the half-decade afterwards would certainly compare to the job-losses, bankruptcies and general carnage experienced in the U.S. industry in 2020.
Suffice it to say that no one in the oil business will be sorry to see this year finally come to a merciful end.
Comparisons between 2020 and 1985 seem especially relevant since the collapse in oil prices that took place in both years initially germinated for the same reason: An effort by Saudi Arabia to flood the global market with crude motivated both by a desire to reclaim lost market share and to slow a booming upstream industry in the United States.
It’s tempting to blame the 2020 price collapse on the COVID-19 pandemic, mainly because that is a true story in large part. But no one should discount the price war between Saudi Arabia and Russia that broke out on March 4 due to the collapse of the OPEC+ agreement as a big factor in taking an already-deteriorating situation and turning it into an existential crisis for many companies.
The OPEC+ collapse endured for only a handful of weeks but it led directly to that memorable day in April when the price for West Texas Intermediate turned deeply negative – falling as low as -$37.63 per barrel – in an unprecedented manner. That event was motivated by fears among traders that U.S. crude storage would become completely filled at some point during May amid reports of a flotilla of oil tankers containing 50 million barrels of Saudi crude headed to U.S. refineries. Those reports turned out later to have been not so accurate, but the damage had been done, and it was all quite a shock to the system.
By comparison, 1985 saw crude prices drop into the single digits – I personally knew multiple producers who sold oil in South Texas below $2 per barrel during that desperate year – but not below zero.
The business destruction in 2020 was not limited to the upstream segment of the industry: The midstream and service sectors suffered mightily as well. For the pipelines, the carnage related as much to bad politics and unprecedented court decisions as much as any other factor.
The politics in North Carolina became so convoluted in early July that Dominion Energy
All of that, and the year comes to a close with the election of a new President, Joe Biden, whose administration promises to implement policies overtly hostile to all segments of the oil and gas business in the U.S.
But even with all of these factors and others, there remains plenty of room for optimism for the oil and gas business to carry forward into 2021. The Baker Hughes Rig Count, after hitting all-time lows in August, has risen dramatically since the first of September, a trend that promises to continue into 2021. The number of active rigs working today remains a fraction of what it was as 2020 dawned, but at least the trajectory is positive.
Oil prices have also been on a steady upward trajectory in recent months, and rose above $48 per barrel of West Texas Intermediate for the first time since February as this piece was being finalized. Other positives as this terrible year approaches its conclusion include the fact that U.S. exports of Liquefied Natural Gas (LNG) reached an all-time high during November and that the Port of Corpus Christi and other Gulf Coast ports continue forward on their various expansion and new business projects designed to facilitate their grown crude oil export volumes.
This kind of year-end recovery was not a feature of 1985. The industry depression that started that year carried over throughout 1986, and its after-effects lingered for the remainder of that decade.
Most men and women who choose to make a career in the oil and gas business tend to be optimists by nature – you almost have to be in order to survive the ups and downs in such an unpredictable business. Unlike 1985, the dynamics at play as this terrible year comes to a close at least provide a level of hope that did not exist in the industry 35 years ago.
In this industry, hope is a great thing to have.