Clark Weeks may not be liking the oil industry as much these days. The oil and gas industry has not been doing well lately due to several factors, including the reduced costs of renewable energy, concerns about global warming and climate change, and the overproduction of gas and oil. But the worst happened once the COVID-19 pandemic arrived when people were bound to stay at and work from home worldwide.
So, what are the effects of the pandemic on the gas and oil industry? Let us have a look.
Lowered Prices Due to Oversupply
The US was recognized as the world’s largest natural gas producer in 2011 and the largest oil producer in 2018. But that caused many gas and oil companies to go bankrupt since they borrowed large amounts of money when the prices were sky high and produced so much gas and oil that overabundance of supply resulted in lower prices.
So far, the prices of oil have dropped around 40% this year and the cost of a barrel now hovers around $40. But so many fossil-fuel projects now require a minimum of $50 per barrel to be monetarily feasible and secure investment.
What’s more, a number of large conglomerates have heavily invested in oil and gas exploration. But with such low prices, it is not economically viable to exploit the new-found resources that could be considered “stranded assets;” which refers to investments that are fruitless and of no value.
Failing Demand Resulting in Bankruptcies
More than 200 US-based oil and gas companies have gone bankrupt since 2015. The small oil wells that small investors such as Clark Weeks had liked are also struggling depending on their cost of production. The COVID-19 impact has caused the global oil demand to fall by 30 million barrels a day. Since 1980, US oil production saw its sharpest decline in May 2020 to around 2 million barrels a day. The IEA expected that 2020 might see the largest fall in oil demand in US history and this economic slowdown would take months to reverse back.
What the Future Holds?
Now the question arises, is the gas and oil industry heading towards an irreversible decline? Well, there is no surefire way to answer this question since we do not yet know when the COVID-19 pandemic will eventually stop affecting our lives worldwide. Many factors are at stake here, including when a vaccine will be available and how the governments will respond.
However, industry experts are predicting that better days are coming for the oil industry. People are now using one-time plastic products more than ever, which equals to an increased demand in plastic; and plastic production requires the use of oil in case you did not know that already.
Another possibility of increased oil consumption lies in use of used cars. Since public transportation is now being avoided by people most of whom do not have enough money to buy a new car, they are now purchasing used cars that are not so fuel-friendly.
Wrapping It Up
The gas and oil industry might be able to recover from the severe COVID-19 impact spread worldwide. However, over the next few decades, many large companies might change their course and focus on green businesses. For now, let us see when this pandemic ends and how the industry performs once recovered.