Research Brief January 2021 COVID-19’s Impacts on Utah’s Oil & Gas Industry By Thomas Holst, M.B.A., Senior Energy Analyst, Kem C. Gardner Policy Institute At the onset of the COVID-19 pandemic, the oil and gas sector group, failed to reach agreement on crude oil production was caught unprepared for the global shock of diminished targets in March. Saudi Arabia, the de facto leader of OPEC, had energy demand by shelter-in-place and stay-at-home policies. At previously adjusted its own production levels to accommodate the same time, two OPEC+ members battling for market share the hard currency needs of other cartel members. However, oversupplied global energy markets, creating an unanticipated when Russia refused to decrease production, Saudi Arabia hit energy supply shock and sending crude oil prices into a tailspin. back with a price discount and increased its own production These combined shocks threatened the viability of oil and gas levels. Markets reacted immediately to the oversupply, driving companies lacking the robust balance sheets needed to remain crude oil prices down to $30 per barrel. COVID-19 shelter-in- solvent until normal market conditions return. place orders dampened demand for gasoline and jet fuel. In the The magnitude of the coronavirus shock to energy demand is United States, year-on-year consumption of gasoline and jet forecasted to be the largest in the seven decades since World fuel showed decreases ranging from 48% to 80% as travel by 30% $70 War II. The H1N1 influenza pandemic of 1918 spread worldwide automobileSpanish and u airplaneWorld Wardwindled. II FirstBy contrast, dieselGlobal fuel, $60 oil shock Financial $50 in four waves and infected nearly 500 million people, causing used in trucks and trains that transport consumer Crisisproducts, 20% $40 Great Second 50 million fatalities. By contrast, the 2009 H1N1 influenza dropped only 25%, showing resilience in supporting increased $30 Depression oil shock pandemic was muted by a vaccine developed seven months e-commerce during COVID-19. Diesel fuel is the largest $20 10% after the outbreak. component of distillate shown in Figure 2. $10 $0 A crude oil supply shock and an energy demand shock, COVID-19 supply and demand shocks affected the price of Price per Barrel 0% -$10 caused by COVID-19, occurred in March 2020. On the supply West Texas Intermediate (WTI), the marker crude oil for the -$20 side, members of the Organization of the Petroleum Exporting western hemisphere. A marker crude is a fungible, highly traded -$30 Countries (OPEC), along with their partners in the larger OPEC+ -crude10% oil used as a benchmark for setting prices of other -$40 Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 Figure 1: Annual Change in Global Energy Demand, Figure1900 2:1910 Year-Over1920 1930 Change1940 1950 in1960 United1970 States1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover 1900–2020 Petroleum Consumption, 2020 vs. 2019 Uinta Basin operating expenses 30% 20.0%$70 Spanish u World War II First Global 10.0%$60 oil shock Financial 0.0%$50 Crisis Wasatch 10.2% 20% -10.0%$40 Great Second -20.0% $30 San Juan 9.5% Depression oil shock -30.0% $20 -40.0% 10% Grand 9.4% -50.0%$10 -60.0%$0 Price per Barrel Uintah 9.4% 0% -70.0%-$10 -80.0% -$20 Tooele 9.2% -90.0%-$30 -10% -$40 Duchesne 8.5% Gareld 8.5% Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 May-20 -20% Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected range ofMay 08, 2020 WTIMay 22, 2020 prices needed to cover Uinta BasinGasoline operating expensesDistillate Jet Fuel Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Source: International Energy Agency, Global Energy Review 2020 Source: U.S. Energy Information Administration, U.S. Weekly Product Supplied 0.0% 20.0% $80 10.0% $70 -5.0% 0.0% $60 Wasatch 10.2% -10.0% $50 -20.0% Kem C. Gardner Policy Institute 411 East South Temple Street, Salt Lake$40 City, Utah 84111 801-585-5618 gardner.utah.edu -10.0% I San Juan I I 9.5% -30.0% $30 -40.0% $20 Grand 9.4% -50.0% $10 -15.0% -60.0% $0 Uintah 9.4% -70.0% -$10 -20.0% -$20 -80.0% Daily Spot Price per Barrel Tooele 9.2% -90.0% -$30 -$40 -25.0% Duchesne 8.5% Uintah Duchesne Uinta Basin Gareld 8.5% Jul-20 Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19 Aug-20 May-20 Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 May 08, 2020 May 22, 2020 Brent WTI Gasoline Distillate Jet Fuel 7,000 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 0.0% $30 $80 6,000 $70 -5.0%$20 $60 5,000 $50 $10 4,000 $40 -10.0% $0 $30 3,000 $20 Well Count -15.0%-$10 $10 2,000 $0 -$20 -$10 Nominal Price per Barrel -20.0% 1,000 -$20 -$30 Daily Spot Price per Barrel -$30 -$40 -$37.63 0 -$40 -25.0% Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 4/1 4/3 4/5 4/7 4/9 Uintah 4/11 Duchesne4/13 4/15 4/17 Uinta4/19 Basin4/21 4/23 4/25 4/27 4/29 Active Oil-Producing Wells Shut-in Oil Wells Active Gas-Producing Wells Shut-in Gas Wells Jul-20 WTI Paper Contract WTI Physical Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19 Aug-20 May-20 Brent WTI $607,000 40 $30 $55 $506,000 35 $20 $45 5,000 30 $40 $10 $36 25 $354,000 $30 $32 20 $0 $28 $253,000 $26 $26 Well Count $23 15 -$10 Price per Barrel $20 $152,000 10 -$20 $10 Nominal Price per Barrel 5 1,000 Yearly Average of Rotary Rigs -$30 $5 $0 0 -$40 -$37.63 0Eagle Ford Delaware Midland Bakken Other Non-shale Jan.(TX) Feb. (TX)Mar. Apr.(TX)May Jun.(ND) Jul.PermianAug. Sep.(USA)Oct. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4/1 4/3 4/5 4/7 4/9 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 Active Oil-Producing Wells Shut-in Oil(TX) Wells WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells $60 40 $55 $50 35 $45 30 $40 25 $35 $36 $30 $32 20 $28 $25 $26 $26 $23 15 Price per Barrel $20 $15 10 $10 5 $5 Yearly Average of Rotary Rigs $0 0 Eagle Ford Delaware Midland Bakken Other Non-shale (TX) (TX) (TX) (ND) Permian (USA) (TX) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 30% $70 Spanish u World War II First Global $60 oil shock Financial $50 Crisis 20% $40 Great Second $30 Depression oil shock $20 10% $10 $0 Price per Barrel 0% -$10 -$20 -$30 -10% -$40 Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover Uinta Basin operating expenses 30% $70 Spanish u World War II First Global $60 20.0% oil shock Financial $50 10.0% Crisis 0.0% 20% $40 Great Second Wasatch 10.2% $30 -10.0% Depression oil shock -20.0% $20 10%San Juan 9.5% -30.0% $10 -40.0% Grand 9.4% $0 -50.0% Price per Barrel -$10 -60.0% 0% Uintah 9.4% -$20 -70.0% -$30 -80.0% -10%Tooele 9.2% -90.0% -$40 Duchesne 8.5% Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 Gareld1900 1910 1920 1930 1940 19508.5%1960 1970 1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Uinta Basin operating expenses Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 May 08, 2020 May 22, 2020 Gasoline Distillate Jet Fuel 20.0% Figure 3: Global Oil Prices Plummet sales outletsJan.