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Article compares impact of COVID with historic ups, downs for O&G
Kristen Nelson Petroleum News
The current disruption to Alaska’s oil industry is not the first, but because of the pandemic, previous downturns don’t necessarily show how industry will weather this one, Alaska Department of Labor and Workforce Development economists Neal Fried and Sara Teel said in an article in the June issue of “Alaska Economic Trends.”
There have been five previous downturns, “nearly all due to falling oil prices,” the authors said, with the most recent ending just last year and the other four between 1989 and 2003.
Some of the downturns, such as that from 1985-87 and that from 2001-02, “were shallow and short-lived … and others were longer and deeper.”
The authors focus on the job impact since 1990.
While oil industry employment (oil producers and oil field service companies) in the 1990s went from 10,700 in 1991 to 7,900 in 1999, “job levels remained within a fairly tight range,” as illustrated by a graph accompanying the article (Trends is available on the department’s website at https://labor.alaska.gov/trends/home.htm).
Oil employment continued to trend down, only reversing in 2006 when industry jobs again topped the 10,000 mark. It continued to climb, reaching 14,000 in 2013, peaking at 14,800 in 2014 and remaining above 14,000 through 2015.
Oil price impact For four years, oil prices hovered around $100 per barrel, but in 2015 they fell to half that, remaining low for three years, with resulting job declines of about a third, nearly 5,000, between 2015 and 2018.
“That was more than double the amount the industry had lost at any point in history,” the authors said.
Jobs bottomed at 9,400 in 2018, grew to 9,900 by the end of 2019 and to 10,500 by March 2020.
The forecast had been for employment growth to continue in 2020, “but the industry took a double hit from COVID-19 restrictions and plunging oil prices in late March, and jobs and prices began to fall in concert,” with employment dropping to “an estimated 8,900 in April, the lowest since 2005, and is anticipated to fall further.”
Job growth was already being restrained by improvements in technology and production decline, but those impacts aren’t clear, the authors said, as production fell in 2015 and employment remained near its peak.
How do jobs relate to production? The department’s forecast for jobs for 2004-14 had projected zero job growth for the oil industry. Production was down to half its peak by 2006, a decline accepted as permanent, with employment presumed to follow.
But high oil prices, new exploration and development “and the need for more labor to produce the same amount of oil kept industry employment at much higher levels than observers had thought possible.”
The average Alaska oil industry employee accounted for 197 barrels of oil per day in 1992, but in 2005 that number was 107 bpd with a low of 36 bpd per worker in 2015, “around the same time employment hit its highest level to date,” the authors said.
Prices were driving employment, doubling between 2002 and 2005 to some $53 per barrel, “allowing employment to resume growing and hit new heights within just two years.”
The average price of oil in 2008 was $98 a barrel; it briefly hit $144 that July.
And while prices came down during the U.S. Great Recession, they rose above $100 a barrel in 2011 and remained that high for four years.
“The job count followed a similar pattern, surpassing 12,000 in 2008 and breaking new records each year before topping out at 14,800 in 2014,” the authors said.
What’s different? “The price of oil will be the biggest variable in determining the size of the state’s oil workforce in the coming years,” the authors said, “but COVID-19 means additional pressures and uncertainty. Production has never fallen so hard or so fast, and prices have never fallen so low. The related oversupply and how long it lasts is another concern,” they said.
A barrel of Alaska North Slope crude sold for $65 in January, by March it was $33, by April $17, finally dropping below $10 for four days near the end of April, “with one day registering a negative price - something that’s never happened before.”
The authors said the price had moved back into the $30s by the time their article went to press.
The oil glut was primarily caused by the pandemic and global shelter-in-place orders and other restrictions which resulted in “an unprecedented and sudden drop in demand for crude oil worldwide, estimated at 20 million fewer barrels per day during the early weeks.”
Saudi Arabia and Russia also fought a price war, with the Saudis flooding the market with crude, putting “immense pressure on storage capacity and price.”
In response, oil producers “are taking far-reaching measures such as curtailing production, slashing capital budgets, and laying off workers,” the authors said.
“With such uncertainty, Alaska’s oil and gas employment is likely to remain at lower levels for an extended period,” they said.
(Above abbreviated from “The oil industry’s ups and downs” in the June issue of Alaska Economic Trends.)
- KRISTEN NELSON
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