Report from CIEL describes COVID-19 impacts on O & G industry
Pandemic Crisis, Systemic Decline: Why Exploiting the COVID-19 Crisis Will Not Save the Oil, Gas, and Plastic Industries
From the Center for International Environmental Law (CIEL), April 2020
Amidst a global pandemic caused by the novel coronavirus, the oil, gas, and plastic industries are exploiting the crisis by aggressively lobbying for massive bailouts and special privileges in a desperate attempt to revive an oil and gas industry already in decline.
Pandemic Crisis, Systemic Decline: Why Exploiting the COVID-19 Crisis Will Not Save the Oil, Gas, and Plastic Industries documents how long-term systemic declines in the oil and gas industry had been accumulating long before the coronavirus pandemic emerged. Compounded by the impacts of the pandemic and related economic crisis, the industry’s collapse has accelerated, with leading companies losing an average of 45% of their value since the start of 2020.
While the current crises have exacerbated the industry’s collapse, its underlying risks remain unchanged. Ultimately, government bailouts and regulatory rollbacks will not reverse the inevitable decline of the oil, gas, and plastic industries.
Recommendations:
>> Public Officials taking policy action to respond to COVID-19 and the economic collapse should not waste limited response and recovery resources on bailouts, debt relief, or similar supports for oil, gas, and petrochemical companies.
>> Institutional Investors and Asset Managers should recognize the overwhelming evidence that the risks of continued investment in fossil fuels now substantially outweigh the benefits, and they should rebalance their portfolios to eliminate their exposure to volatile and declining oil and gas assets.
>> Frontier Countries considering whether to open their lands, waters, and democracies to new oil and gas extraction should urgently reassess their prospects in light of the collapse in oil prices and demand, demonstrated severe risks of economic dependence on volatile oil markets, ongoing long-term decline of the sector, and its fundamental incompatibility with climate action.
>> Local Communities and Decisionmakers should reject demands from the oil, gas, and petrochemical sectors for public subsidies, tax abatements, lax environmental enforcement, or other special concessions. They should interrogate industry promises of long-term sustainable employment actively and skeptically, and they should require evidence to support those claims that goes beyond simplistic assumptions of market growth. In the rare circumstances where these burdens are met, affected communities should require project proponents to irreversibly commit the funds required to restore communities and the environment when the project reaches the end of its economic life.
Read the full report here: Pandemic Crisis, Systemic Decline: Why Exploiting the COVID-19 Crisis Will Not Save the Oil, Gas, and Plastic Industries, CIEL, April 2020, pp. 28.
CIEL Overview — Since 1989, the Center for International Environmental Law (CIEL) has used the power of law to protect the environment, promote human rights, and ensure a just and sustainable society.
>>> CIEL (Headquarters), 1101 15th St NW, 11th Floor, Washington DC, 20005. E-mail: info@ciel.org
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See also: Bankruptcy looms over U.S. energy industry, from oil fields to pipelines – Oil & Gas 360, April 23, 2020
More shale producers are expected to seek bankruptcy protection in coming weeks, industry and banking sources say, following Whiting Petroleum, which announced such steps earlier this month. Many small and mid-sized producers, including Chesapeake Energy Corp., have retained debt advisers.
The forecast loan default rate for 2020 among energy companies is 18%, according to Fitch Ratings, while nearly 20% of all energy corporate bonds are trading below 70 cents on the dollar, indicating distress, according to data from MarketAxess.
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THE PROGRESSIVE POPULIST — JUNE 2020 ISSUE —
Why the Oil and Gas Industry Will Never Be the Same
By MARSHALL AUERBACK. Progressive Populist, June 1, 2020
Upheavals in the oil market are flipping the world on its head and again proving that rational industrial policy is a better guidance.
For years, the US shale patch has been sustained by Wall Street-driven Ponzi financing, in which drilling and production for natural gas have not generated cash flows that come even close to offsetting costs of the debt service. The latest collapse should finally constitute the death-knell for this sector, even as the president and the GOP in particular (which largely represents American oil-producing states) scramble to provide funding to the sector. Storage capacity will take several months to build up and, at a time of increasingly fraught relations between the United States and China, the latter is hardly likely to do US oil producers any favors, particularly when there are ample other (geopolitically friendlier) sources of crude in other parts of the world, which are also far cheaper.
Even if there weren’t a coronavirus pandemic, it would still be a peculiar moment for the global energy market, where many conditions are rapidly changing. The debt-fueled shale oil bonanza has hitherto enabled the US to flood world supply and weaken the revenues of perceived geopolitical rivals. That leverage is now gone. Furthermore, as John Dizard of the Financial Times has observed, “Asian LNG prices have collapsed much faster than US prices. That means it no longer pays to chill American natural gas, load it on to LNG tankers, ship it across the Pacific, and re-gasify it. So US LNG exports are ex-growth.” That shifts the balance of geopolitical power in the energy markets in the near and mid-term back to countries like Russia and Tajikistan, as they are likely to re-establish a pipeline primacy that it looked like they had lost.
http://populist.com/26.10.auerback.html