COVID-19: The oil and gas industry today and tomorrow

We don’t need an economist to tell us that 2020 has taken a death grip on the oil and gas industry and with the COVID-19 virus continuing to spread, the year has yet to loosen its grip.
Oil Prices Fall in 2020

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As economies around the world, including major players that influence global trading, attempt to find a foothold to lessen the pandemic’s impact, oil prices continue to drop, and many of us are left wondering not only when this will end—but how the industry is going to fare.

Lower global demand in oil as coronavirus planning ramps up

The U.S. economy has felt a tremendous shock in the wake of COVID-19 as travel is minimized, stocks continue to drop, and we watch our country move closer day by day towards an impactful recession. It is difficult to separate the ups and downs of the oil and gas industry from economic performance. Our market is designed to not only work with the ebbs and flows of the economy but has shown itself capable of weathering drastic changes brought on by global influences. This environment, however, has left us in unknown territory.

The oil and gas sector is familiar with change, and while the factors at play due to COVID-19 are recognizable scenarios, the way in which changes are occurring are not all predictable. Of the many influences on our industry, two remain consistently impactful on today’s O&G market—the drop in demand and the OPEC situation. With restricted travel locally and globally, it is difficult to know exactly how hard the oil and gas arena will be hit. However, some researchers suggest that it could be as high as a 20% drop in demand, which could resemble the oil crisis of the 1980s. Add to that the previous battle for market share between Saudi Arabia and Russia, and our industry has been pummeled from both sides.

Are we close to the market bottom? Graph shows the prices of brent crude and QTI crude over the last year, down 55%.

Declining prices & public health safety concerns trigger swift response

These factors have led to a drastic drop in oil prices, more than 50% since December, something that no operator, regardless of size, has been able to avoid. Such a trend—one that brings to mind the catastrophic price drops of 2008—always has its disruption. As of April 9, prices experienced a small recovery, with some areas rising as much as 10%, before a historic OPEC meeting that launched an agreement between participating countries to cut production drastically with the intention of re-stabilizing the market. 

But the effects on the industry are far reaching. With a lowered demand and flooded market, storage capacity has become scarce. The U.S. Department of Energy announced on April 2 that it was opening up 30 million barrels of storage from its Strategic Petroleum Reserve (SPR) to assist producers who were growing dangerously close to running out of storage options, which would bring about a drastic cut in U.S. production. The U.S. announced that another 47 million barrels of storage were available if needed to further assist producers.

The Oil & Gas industry isn’t alone in feeling the effects of COVID-19 in the market: Companies across market caps, geographic region, and industry sectors are experiencing internal crises of their own. With many states and cities implementing stay-at-home orders that urge, and in some cases require, companies to work remotely outside of critical personnel, the environment in which oil and gas production, transport, and storage is conducted has been forced to evolve as well.

Pipeline safety is evolving in the post-COVID era

As critical infrastructures to the U.S. economy, the business of oil and gas operators, meaning the safe production, transportation, storage, and refining of products—is expected to continue as usual. The American Petroleum Institute (API) assured the industry of its ability to address this issue in a statement on the sector’s response to the COVID-19 crisis, stating that “energy companies are prepared for a wide variety of public health scenarios. Emergency planning is ingrained in the daily operations of natural gas and oil facilities.”

Now, as with other disasters, natural and man-made, operators are leaning on their contingency plans to achieve business continuity and reduce potential losses in every area of operation. From guiding employees on how to work remotely and securing their communication systems to addressing symptomatic workers in critical areas and reducing exposure of 24-hour environments, operators are implementing drastic changes in their day to day operations in an effort to protect their employees while minimizing business disruption. This has proved especially crucial for environments that require 24-hour operation with traditionally shared workspaces, such as control centers. The Congressional Research Service (CRS) released a recommended response for oil and gas operators that draws attention to key areas of operations that pose a higher risk for exposure during the pandemic.

Anticipate operational changes to pipeline control rooms

Control centers and their operators are at a higher risk than most environments and their employees due to the proximity in which most controllers work. This is a new concern, as most disasters affect control centers by requiring use of a recovery location; however, some operators have been modifying their control rooms and establishing parameters that allow even some of the most essential control center personnel to socially distance themselves during shifts, proving that our industry is capable of modifying nearly every aspect of operations to maintain safety.

As operators continue to adapt, the climate has led industry leaders and organizations to not only reassess their own operations but work to assist others through the process as well. The American Petroleum Institute (API) has released a resource hub for oil and gas operators that includes a guide to planning for operational disruption caused by the pandemic. Safety regulators have also taken action by enforcing safe operations but slowing or temporarily halting their auditing practices. The Pipeline and Hazardous Material Safety Administration (PHMSA) announced last month that, while not relieving operators of their responsibility to safety, they would be halting certain enforcements during the COVID-19 crises to allow oil and gas operators to more effectively manage their assets and protect their employees.

Introducing COVID-19 resource Hub for Pipeline Operators

As a technology company, SCADA integrator, and the largest network of third-party control rooms in Oil & Gas, we have partnered extensively with pipeline operators of all shapes and sizes — from modest operations with a handful of wells to many of the transnational oil majors.

Clients have reached out to us during this time to express concern and ask for assistance as they transition from normal operations to a state of response. As we’ve continued to assist our clients, it is difficult to comprehend how such drastic changes have occurred within our sector alone over the past two months, let alone throughout the economy. But it is imperative that we remember that our industry has a history of weathering such storms. Despite the changes ahead, we know that our work is vital to the security of the economy and that people depend on our success.

As we approach what researchers hope to be the climax of the outbreak in the U.S., NuGen Automation seeks to provide you and every operator with a resource to help make this time more tolerable.

That’s why we’ve established an information hub on our website to provide companies like yours with reliable information regarding the COVID-19 crisis and how you can better respond to the changes.

COVID-19 Resource Hub for Pipeline Operators

Whitney Vandiver Ph.D.

Whitney Vandiver Ph.D.

Pipeline Compliance Specialist & Thought Leader, NuGen Automation

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