When the price of oil collapsed to $9 per barrel in the late 1980’s, it was jokingly said that banks in Oklahoma were offering people who opened new accounts their choice of a toaster or a drilling rig. However, signs in the bank windows lamented “Sorry, out of toasters!”
During the Great Depression in the 1930s, gasoline prices fell to 10 cents a gallon; some service stations in Texas were giving out a free chicken with every sale of gasoline.
No one seriously expects oil prices to sink that low now, though gasoline in some states is rumored to be selling for less than $1 a gallon. The reality is that crude oil supplies have been driven to unprecedented high levels because of the drop in oil demand due to the Covid-19 crisis and the price war between Saudi Arabia and Russia. That’s what happens when global economic activity comes to a screeching halt.
The question now is how long will businesses stay closed? How long will industries remain shut down? How long will people refrain from driving? Energy expert Daniel Yergin says this is possibly the most serious crisis the oil industry has experienced since World War II.
Shale oil and gas drilling and production requires continuous investment. Low oil prices and especially low natural gas prices in the Appalachian region have severely hurt cash flow. Many smaller oil and gas companies operating in the shale regions of the U.S. will be unable to obtain loans. Consequently, many companies are scaling back drilling, cutting budgets, and are just trying to survive.
Shale companies, however, have shown an uncanny ability to bounce back when faced with adverse market conditions. When oil and gas prices tanked during the 2009 financial crisis, companies hunkered down and cut production costs sharply by developing innovative ways to do hydraulic fracturing more efficiently. They didn’t think of all the ways in which production costs could be reduced, but they will likely think of more now. A drop in oil and gas prices of this magnitude drives innovation of world-changing magnitude and originality and scale. Additional cost-cutting will be done, and oil and gas production will resume once the crisis is over, though it’s possible it will never return to the very high level it had been.
Most experts expect global oil and gas production to stabilize by 2023, if not sooner. One fact is indisputable — the Marcellus and Utica shales have enough oil and gas remaining to last for decades. Investment will eventually pick up, production will climb back, and jobs will return. Shale production — and new manufacturing facilities like petrochemical and steel plants — will continue to undergird the economies of Ohio, Pennsylvania, and West Virginia.
Shale is supplying almost 100% of the new oil and gas production in the United States. What’s more, the growth in shale production has helped catalyze solar and wind development. The sundry calls from around the world and across the political spectrum for low-carbon energy can draw on this strong incentive.
Thanks to natural gas, and the switch from coal to gas in electricity production, the International Energy Agency says that U.S. carbon emissions have dropped faster than those of any other country in the world. And no other energy system creates so much citizen value — dollars for state and local economies, thousands of well-paying jobs — than the oil and gas industry.
Dr. Robert W. Chase holds B.S., M.S., and Ph.D. degrees in Petroleum and Natural Gas Engineering from Penn State. He served as professor and chair of the Department of Petroleum Engineering and Geology at Marietta College from 1978 to 2015. He worked previously for Halliburton Services, Gulf Research and Development Company, and the Department of Energy and has consulted for numerous companies. You can reach him at firstname.lastname@example.org