COVID-19: Important Energy Lessons Learned re Coronavirus Scare
As we have often pointed out, if we could have anyone else’s brain in the shale business, it would be our friend Tom Shepstone’s brain. Tom, who writes at Natural Gas Now, has given some thought to the COVID-19 coronavirus and the lessons we have learned so far from this public health crisis. As Tom points out in the following post, many of the lessons learned relate to the energy industry.
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Drilling, whirring, humming, thumping, grinding, engines running, hammering, back-up warning beeps, banging, clanging. Those are the sounds of progress happening in Chester County, PA. Contrary to the griping and moaning mainstream media reports about those who live near Mariner East 2 (ME2) pipeline construction, the sounds of ME2 construction are music for at least one local resident because he knows about the economic prosperity this project will bring to the region.
One of our favorite Energy in Depth writers, Nicole Jacobs, has just published a great post that outlines the huge impact new natural gas-fired (mostly Utica Shale gas) power plants have had and will have in Ohio. She includes a list of 10 projects either already built and running, under construction, or on the books to get built. When you add up the total capacity for all 10 plants, they will generate an amazing 9,215 megawatts of electricity, enough to power upward of 9 million homes! The companies building those 10 plants are investing $15.9 billion. This is huge for Ohio’s economy.
If you operate a company that sells a product (particularly a commodity product) you only have two ways of making a profit: Sell the product for more money or cut expenses (or both). For oil drillers, the price of the product sold is pretty much fixed. Some drillers have “hedged” their production, pre-selling future production at a specific price. But many don’t hedge. And hedging contracts typically don’t extend beyond a year. In the case of oil, the world market sets the price, and the price this week is about half of what it was last week. That means most shale oil drillers won’t make a profit–unless they can trim costs. One of the ways drillers are attempting to cut costs is by asking the companies that do the actual drilling and perform services for them (oilfield services companies, or OFS) to cut the rate they charge.
According to super-secret sources, The White House is “strongly considering” a federal aid package for oil and gas companies affected by the Saudi-Russia oil price war and lingering effects from COVID-19 coronavirus panic. The proposed federal aid is called by some a “bailout.” But the Trumpsters and the O&G industry reject that label. Reportedly under consideration is a program of low-interest government loans. Regardless of what you call it (bailout or help), the U.S. has a vested interest in ensuring our domestic O&G industry does not get wiped out, plunging us back into dependence on despotic foreigners for our energy.
On Monday there were dueling rallies at the Capitol in Harrisburg, PA, for and against a new petrochemical bill, House Bill (HB) 1100, that promises to bring thousands of new jobs and billions of dollars of investment to the Keystone State (see 
IHS Markit employs more than 5,000 analysts, data scientists, financial experts and industry specialists. Their global information expertise spans numerous industries, including finance, energy, and transportation. Yesterday IHS Markit issued a bulletin to say its analysts expect when the tabulating is all done that world oil demand, due to fear over the COVID-19 coronavirus, fell by some 3.8 million barrels per day over the same quarter from 2019. That would be a new all-time, world record quarterly drop in oil demand. The previous record happened during the worldwide recession of 2009 when demand dropped 3.6 million bpd. Should we be worried that we are about to experience another worldwide recession?
The American Petroleum Institute recently released the results of a study they commissioned that outlines the “dire consequences” of a ban on hydraulic fracturing–the kind of ban being pushed by Bernie Sanders, Elizabeth Warren, and Joe Biden. Here’s how dire it gets: If a frack ban is slapped into place by a Democrat President, by 2022 it will result in 7.5 million lost jobs, and by 2030 a total loss out of the economy of $7.5 TRILLION! You might as well say we will enter a new economic depression, the likes of which we haven’t experienced since the 1930s.
A great many things affect the price of oil and natural gas–weather, economic conditions, supply/demand balance, sunspots. Can a human virus affect the O&G industry too? It seems the answer to that is, YES. We’ve resisted bringing you blow-by-blow the daily coronavirus tripe peddled by mainstream media in their attempt to harm the American “Trump” economy. But we can’t ignore how media-generated panic is affecting world markets–and (now) the oil and gas industry, including the industry here in the U.S.
It doesn’t happen often, so when it does, it’s worth noting. Both business (Chamber of Commerce) groups from Philadelphia and Pittsburgh, along with labor union groups from both cities, have reached across the aisle to work together in an effort to try and convince Pennsylvania Gov. Tom Wolf to sign House Bill (HB) 1100–a bill that would attract new petrochemical investment (and jobs) to the state. Inexplicably Wolf has pledged to veto the bill when it hits his desk (see 
You’ve read the news that Democrats like Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez, along with most (if not all) of the Democrat presidential candidates, support a full-on ban of hydraulic fracturing for oil and gas (see 
Pennsylvania House Bill (HB) 1100, aimed at attracting new petrochemical investment to the state, was previously passed by the PA House, and last week, by the Senate (see 
We’ve reported on the divestment meme for years–the effort by anti-fossil fuel radicals to force banks and investment firms to withdraw funding and refuse to invest in (or lend money to) any company that produces “fossil fuels.” Most recently Jim Cramer from CNBC’s “Mad Money” said, “I’m done with fossil fuels. They’re done. They’re just done.” (see 
Pennsylvania House Bill (HB) 1100, aimed at attracting NEW petrochemical investment to the state, is due to be voted on (and passed) by the PA Senate this week. Gov. Tom Wolf (liberal Democrat) has vowed to veto the bill–denying the state billions of economic stimulus it could receive. Why the veto? Your guess is as good as ours. Likely because it will encourage more use of PA’s abundant natural gas supplies, and that doesn’t sit well with radicalized enviro types.