With long gestation periods, new oil and gas projects may not get online when needed.
International oil and gas exploration and production are in the doldrums and won’t likely rebound any time soon.
Canada has curtailed its crude output by one million barrels per day (bpd). The country’s active oil and gas rig count had fallen to an all-time low of 17 in early June, Baker Hughes reported. That was 102 rigs, or 86 per cent, below this time last year.
The number of people working in Canada’s energy sector has also fallen by more than 14,000 so far this spring. Oil and gas producer Ovintiv – formerly Encana – has slashed its workforce by 25 per cent, affecting roughly 650 jobs. Enbridge has also announced that 800 of its employees would be taking voluntary buyouts, including early retirement.
The COVID-19 pandemic is having a similar impact on the industry worldwide. The number of rigs in the field is going down, projects are getting stalled and people are being laid off.
Saudi Arabia, a long-term player, was striving to keep spare capacity so as to be able to respond to any urgent demand. To maintain its leadership role in the sector, the country’s leaders felt keeping spare capacity was a necessity. Now they seem to be rethinking the strategy.
According to Bloomberg, the Saudi-state-owned giant Saudi Aramco, the world’s largest oil exporter, has idled two offshore drilling rigs and suspended development work on some of its crude and natural gas deposits.
In early May, offshore drilling contractor Noble Corp. said its jack-up rig Noble Scott Marks, located offshore Saudi Arabia, will be idled for up to a year. Later, Shelf Drilling reported it had received notification from Aramco to suspend operations of the High Island IV jack-up rig for up to 12 months.
Aramco has also announced it’s slashing capital expenditure this year to between US$25 billion and US$30 billion from the initial target of US$40 billion, while putting 2021 spending under review. As a consequence, expansion projects worth US$18-billion have been postponed in recent weeks.
A project to expand oil and gas output at the Marjan and Berri fields has been deferred for six months to a year. According to the International Energy Agency, the expansion would have increased oil production capacity in the fields by 550,000 bpd to a combined 1.35 million bpd. The project was also expected to boost gas flows.
Aramco has also started laying off, hundreds of employees – mostly non-Saudi staff – across several divisions in response to the oil price crash.
More than 100,000 oil and gas jobs have already been lost in the United States, a Rystad Energy analysis revealed. The active U.S. oil and gas rig count fell to a record low for a seventh week in a row, dropping by 13 to 266 in the week to June 19, Baker Hughes reported. That was 701 rigs, or 72 per cent, below this time last year. U.S. oil rigs fell 10 to 189 in recent weeks, the lowest level since June 2009, while gas rigs dropped by three to 75, the lowest total on record according to data going back to 1987.
Earlier this month, major oil producer BP announced it was cutting 10,000 jobs or around 15 per cent of its total workforce.
The long-term view of these circumstances is frightening. With long gestation periods, new oil and gas projects may not get online when needed.
In addition, any geopolitical flare-up could result in the energy markets spiking.
And under the current circumstances, no solution is obvious. The industry is headed for a significant downturn.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris.
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