The Oil And Gas Situation: Storm Clouds On The Horizon

Oil and Gas, Hurricane

By: David Blackmon – Forbes – Just when you thought 2020 could not get any worse for the oil and gas industry, it goes and proves you wrong. Offshore oil and gas producers are making preparations this weekend, shutting in production and evacuating platforms as the National Oceanic and Atmospheric Administration (NOAA) projects that not one, but two tropical storm systems will enter the Gulf of Mexico early next week.

As of early Saturday morning, Tropical Storm Marco was projected to skirt the coast of the Yucatan Peninsula and enter the central Gulf of Mexico on Sunday morning. NOAA forecasts the storm to continue on a northwestward trajectory and to strike the Texas coast on Tuesday without reaching full hurricane force. Still, even a tropical storm carries winds up to 74 miles per hour, presenting a significant hazard for offshore infrastructure.

Tropical Storm Laura is projected to traverse the length of Cuba before entering the eastern Gulf early Tuesday morning on a similar northwestward path. That track would take it through the heart of the Gulf before making landfall as a category 1 hurricane just to the west of New Orleans. While category 1 is the lowest classification on the hurricane scale, it should be remembered that Katrina was also a category 1 storm when it made landfall near New Orleans in August, 2005. These are serious storms.

As a result, much of the oil and gas production from the Gulf of Mexico – which produces roughly 15% of U.S. oil and 3% of U.S. natural gas – will be shut-in for most of the following week. Just one more hit on the domestic industry, and for consumers who will likely be paying slightly more for gasoline in the weeks to come. Those consumer impacts could become more severe should either or both storms result in significant flooding and shutdowns of refinery installations along the Gulf Coast, as Hurricane Harvey did in 2017.

It’s a hit the business can ill-afford to sustain. A new report from the BW Research Partnership finds that, from March through July, U.S. fossil fuel industries – including oil, gas, and coal – lost 118,000 direct jobs, with almost 70,000 of those coming from oil and gas. According to BW Research, that represents roughly 17 percent of the industry’s pre-pandemic workforce.

Note that these numbers do not include the tens of thousands of jobs lost in the oil and gas service sector, or the hundreds of thousands of indirect jobs also being shed by businesses that are dependent on the industry. Overall, it’s a very bleak picture.

But at least the rig count broke its losing streak. The Baker Hughes +0.8%BHI weekly rig count rose for the first time since the week of January 11, with the U.S. industry adding 1o new active drilling rigs to end the week at just 254. Meanwhile, the Enverus Daily Rig Count, which employs a slightly different methodology, stands at 285, an increase of 5 from the previous week. While that may sound slightly encouraging, it should be noted that a year ago, the Enverus count sat at 960.

There are storms brewing on the political front as well. There was pretty much no mention of the oil and gas industry at this week’s Democratic National Convention, or the promises made by nominees Joe Biden and Kamala Harris to pretty much end it if they should be elected. That’s not surprising given that the four nights were structured to be a continuous assault on President Donald Trump, which the party’s leaders obviously see as their best strategy for winning the election.

So we will have to wait and see whether or how Biden and Harris decide to moderate their language around energy. Everyone should note, though, that any such effort would present a real and problematic balancing act for the candidates, given that they must keep the more radical elements of the party’s base engaged to have any hopes of winning. Industry leaders who recently expressed optimism about finding “common ground” with the Biden/Harris ticket could find themselves searching in vain in the weeks to come.

If you think 2020 still can’t get any worse for the oil and gas industry, just wait to see what November 3 has in store. Trust me: It could get a lot worse.

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