CASPER, Wyo. – It was becoming increasingly clear early this year that Natrona County, along with the entire state of Wyoming, was facing troubling times ahead.
No one could have predicted just how troubling the times would become.
“I hate to use the cliche, but this is the best time to use the term ‘perfect storm,’” said Ryan McConnaughey, communications director at the Petroleum Association of Wyoming.
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With Wyoming’s coal market rapidly shrinking and an oversupply of natural gas keeping prices and profits low, the world’s steady demand for oil was seen as the one reliable foundation in Wyoming’s financial future.
Then March happened.
Saudi Arabia and Russia started a price war after the two countries failed to reach an agreement about lowering oil production.
This glut of lower-priced oil saturated the market just as demand for the product began to plummet when the world’s economies ground to a halt because of the coronavirus COVID-19 pandemic, which so far has killed an estimated 231,000 people worldwide.
The oil crash will no doubt cause pain in Wyoming. No one can say how deep and long that pain will last.
“We’re in a boom and bust cycle so I guess it’s not uncommon for Casper and Wyoming,” said Natrona County Commission board chair Rob Hendry.
“But what makes it really difficult is the COVID deal on top of the downturn of oil and gas. That just compounds it.”
“Oil and gas pays a lot of sales tax,” said Hendry. “All the workers are here and they’re buying stuff, and the companies are buying materials from Natrona County because we’re a hub, so our sales tax numbers are going to be really low,” he said.
In 2018, the latest year with the most complete financial numbers available, the oil and gas industry generated $5 billion in economic activity in the state, according to Pete Obermueller, president of the Petroleum Association of Wyoming.
“That’s more than travel, tourism and agriculture combined,” he said.
The state was forecasting reductions anywhere from $555 million to $2.7 billion in revenue over the next two years, but that was before price wars and a pandemic.
Production slows to near-standstill
When oil is produced and has nowhere to go, it goes into storage. Worldwide oil storage is near capacity, so much that one of the benchmark prices for oil fell into negative territory last week.
McConnaughey says Wyoming has a little storage space left in the Guernsey tank farm, and the pipeline to Cushing, Oklahoma, is full.
The decision to stop production isn’t easy. Wells can be temporarily shut-in, but that’s not an optimal solution. It’s expensive and can damage wells, and regulations stipulate that wells can be dormant for a limited time.
“You can’t just turn it off when you shut in, you have to be very careful with what’s going on in that well where you don’t destroy the ability to access the resource later,” he said.
Wells can also be abandoned altogether.
“When you plug a well, that’s the end of that well and you end a resource in that area basically forever,” said Obermuller.
The outlook is bad enough that Obermueller said wells in Wyoming have been shut-in at “an alarming rate.”
“All that takes so much time that even if we had some sort of miracle and get demand really fast, it’ll take us a long time to ramp back up the shut-ins.”
That’s even after the remaining glut is utilized, and that’s not likely to happen anytime soon.
“The slow reopening of major economies, risks of reinfections and a possible worse return of COVID-19 in the winter will do no favours for crude demand,” said OANDA senior market analyst Edward Moya said in The Economic Times.
“I think we know that demand is going to be pretty terrible for a while,” said Obermueller.
“I think a year ago there were like 34 rigs, and at the beginning of April this year there were seven,” said McConnaughey last week. “I think it’s probably even lower than that now.”
He said when every drilling rig shuts down, they estimate around 100 jobs are lost. He predicted Wyoming could start seeing significant layoffs in the oil industry very soon.
“In normal times, we’d say those jobs would be ‘displaced’ from Wyoming’s economy because they’d just go to another oilfield,” he said, “but I think we’re seeing that nobody’s drilling now.”
Remember the 1980s?
Wyoming’s economy took a tailspin in the 1980s as oil markets crashed and local refineries closed. The downturn lasted for years, and Wyoming’s population shrunk as people looked for work elsewhere.
That dark decade followed an oil crisis caused by OPEC in the 1970s, which triggered massive nationwide inflation and gas shortages.
Since then, thanks in part to better technology, the United States has become the largest producer of crude oil.
However, this crash feels different to Hendry.
“What you’ve got to remember, in the 1980s we were still driving,” he said. “We were driving our cars and trucks, and right now we’re not driving. Everybody’s at home. They aren’t using the oil and not using gas,” he said.
“I think it’s going to be pretty tough for people to go on vacation because they’re scared to death because of COVID,” he said. “They aren’t going to be going on vacation and burning up oil and gas. The only thing we’ve got going for us is the trucking industry, thank God for the truckers.”
“I think with the nature of this drop in demand, it feels to me if we can start opening up the economy and people start driving and flying again, I’ll think we’ll still see a lower demand but some of it will come back pretty quickly,” said McConnaughey.
Obermueller said this particular crash was so “sudden and violent,” he think’s there could be a return of demand and an eventual rebound. “Just not a quick one,” he said.
“I can’t say there’s a sunny side, but what I can say is it’s not going to last forever,” said Obermueller.
“There have been pretty tough times in this field and we’re gonna come back from it,” he said.
“It’s gonna be tough times for a few years,” said Hendry.