(Source: Shutterstock.com)
The plunge in oil and gas stocks could nudge the industry toward a restructuring, as crude oil prices collapse and the rapid spread of the COVID-19 illness threatens global economic growth.
The S&P Oil and Gas index closed down almost 34% and was more than 70% below its level of a year ago. For the year, the index has fallen 64%. On March 9, the Dow Jones industrial average was off 7.8%.
The U.S. benchmark WTI price, which closed at $41.28 per barrel (bbl) on March 6, dropped almost 26% to $30.44/bbl. Global benchmark Brent was off about 26% at $33.70/bbl.
The price collapse, combined with slowing demand growth from an increasingly shaky world economy, could result in a harsh setback for an oil and gas industry burdened by heavy debt.
“The price collapse could be the trigger for a new phase of deep industry restructuring—one that rivals the changes seen in the late-1990s,” said Tom Ellacott, Wood Mackenzie’s senior vice president for corporate upstream, in a released statement.
“This is not the first time we’ve seen a price war—the last was as recently as 2015-2016,” he said. “But this time, oil demand is also weak as the coronavirus outbreak depresses global economic growth. The macro-economic backdrop is completely uncharted waters for oil and gas companies.”
WoodMac has calculated a Brent price of $53/bbl as a breakeven point. If the price were to average $35/bbl for the remainder of the year, the cost to the global industry would be around $380 billion.
Since the most recent downcycle, energy companies have focused on capital discipline, meaning that this time there is not much excess spending to cut.
“More highly leveraged players will be forced to make the deepest cuts to stave off bankruptcy,” Ellacott said. “Aggregate cash burn from the companies we cover in our corporate benchmarking tool amounts to US$130 billion in 2020 in the US$35/bbl Brent scenario.”
Raising capital is also more difficult now, especially for independents, and many companies have already made their obvious asset sales, he said.
Recommended Reading
Equinor’s Norwegian LNG Plant Likely Shuttered for a Week
2025-01-02 - An outage at Equinor’s Arctic facility, Hammerfest LNG, will temporarily close Europe’s largest LNG export facility.
Gas-Fired Power Plants Create More Demand for Haynesville Shale
2025-03-04 - Expansions and conversions of Gulf Coast power plants are taking advantage of the plentiful Haynesville Shale gas.
LNG, Data Centers, Winter Freeze Offer Promise for NatGas in ‘25
2025-02-06 - New LNG export capacity and new gas-fired power demand have prices for 2025 gas and beyond much higher than the early 2024 outlook expected. And kicking the year off: a 21-day freeze across the U.S.
US NatGas Prices Retreat From 2-Year Peak on Forecasts of Less Cold
2024-12-26 - U.S. natural gas futures fell more than 5% on Dec. 26 from a near two-year high in holiday-thinned trade.
US NatGas Prices Hit 23-Month High on Increased LNG Feedgas, Heating Demand
2024-12-24 - U.S. natural gas futures hit a 23-month high on Dec. 24 in thin pre-holiday trading.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.