Guy Caruso, former EIA administrator joined Hart Energy’s Jessica Morales to discuss his views on oil prorations and the best path forward for the industry as states begin to lessen COVID-19 restrictions.

“I think the possible prorationing schemes that have been discussed in Texas, Oklahoma and nationally by some members of Congress are probably unlikely to be successful in terms of the proper allocation of resources,” said Caruso, who currently serves as non-resident senior adviser for the Center for Strategic and International Studies.

Oil and gas producers in the U.S. have already started slashing spending plans for the year in response to the current market downturn. Caruso said the ones cutting the most are the high-cost producers, which he believes is the best way for the market to allocate the expenditures in upstream.

“The market gives the signals and companies react quickly,” he said. “What happens with a lot of these prorationing schemes and things like quotas and tariffs is, there is usually a lag until either state or national level legislation is passed and I think that is the less efficient way of doing this.”

Additionally, Caruso spoke about the drastic effect the COVID-19 pandemic has had on the oil and gas industry.

“Everything is off…even the large and major companies are announcing huge cutbacks for the rest of 2020,” he said. “My guess is this could very well spill over into 2021.”

Looking forward, Caruso believes the best path is to let the market determine the production side. Meanwhile, for demand, he said: “The best way forward is to do the best we can with respect to getting our economy back to moving again. That is directly tied to how well we do as a nation in our individual states on dealing with COVID-19.”  

Caruso also shared his take on the natural gas market, which included the possibility of future anti-flaring and -venting regulations by certain states.

“In some ways, the reduction in shale will reduce the associated gas that’s produced. That could even have a secondary effect of reducing gas supply,” he said.

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