Coronavirus And Slumping Prices Hit Ohio Valley’s Oil & Gas Sector
Energy producers, utilities and energy sector workers across the Ohio Valley are adjusting operations and bracing for continued economic impacts as the fast-moving coronavirus pandemic continues to unfold.
Efforts to limit the spread of the virus include shuttering schools and businesses and limiting travel, all of which reduce demand for energy. The federal government is moving to stabilize the economy, including a possible bailout for oil and gas producers.
Oil prices fell to their lowest level in 18 years Wednesday as travel restrictions tighten and air travel plunges. Crude was trading at $20.48 Wednesday afternoon. Natural gas prices were causing Appalachian Basin producers anxiety earlier this year while they were hovering near $2. On Wednesday that price fell to about $1.60.
Although it’s hard to nail down an exact number, the natural gas industry supports thousands of jobs across the region and contributes millions of dollars in taxes to state governments. In West Virginia, for example, drillers paid $146 million in severance taxes to the state in 2019. Projections for 2020 are $98 million, according to the state tax department.
Natural gas production in the Appalachian Basin has grown rapidly since 2012 and is projected to grow exponentially over the next few decades.
While West Virginia, Ohio, Kentucky are not major oil-producing regions, drillers in the gas-rich Appalachian Basin do produce oil and are being impacted, said Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia.
“These falling prices present a challenge for lots of small companies who are already with the low natural gas prices striving to remain viable and in existence,” he said.
Anne Blankenship, head of the West Virginia Oil and Natural Gas Association, agreed lower crude prices tighten the margins for some companies.
“But our members have continually committed to being a big part of West Virginia’s economic present and future,” she said in an email. “They are invested in this state and its communities.”
Falling oil prices are being driven both by shrinking demand due to the coronavirus and the price war between Saudi Arabia and Russia, which flooded the market with cheap crude, said Mark Agerton, an assistant professor at the University of California, Davis who studies energy and resource economics.
He said while drillers in the Marcellus and Utica shale formations will undoubtedly see an impact from lower prices, he believes as big oil-producing regions like the Permian Basin slow oil production, associated gas production there will fall too, which could benefit drillers in the Appalachian Basin.
"That’s going to maybe potentially mean that the Marcellus doesn’t have to ramp down production quite as much,” Agerton said. “The other thing is that with reduced drilling for oil, all of the oilfield services and rigs are going to become available, and those costs for services should come down, which would help cushion someplace like the Marcellus.”
In a press call Wednesday morning, Suzanne Lemieux, manager of operations security and emergency response policy for the national trade group the American Petroleum Institute said the group doesn’t see threats to the broader oil supply chain from the coronavirus outbreak. She added many producers have developed pandemic plans, especially after the 2016 Ebola outbreak.
“A lot of conditions we’re operating under or see in the future are similar to operating under a hurricane or another type of natural disaster,” she said.
Agerton said with the situation changing so rapidly it’s unlikely we yet know the full extent of how the virus will affect both the economy and energy sectors.
On Wednesday, Shell said it will temporarily suspend construction of its ethane cracker in Beaver County, Pennsylvania to prevent the spread of the coronavirus.
Smaller producers, which account for many in the Ohio Valley, may be at risk, Agerton said.
It’s unclear if and what type of measures the federal government could take to help the oil and gas industry. In a letter, the head of the trade group the American Exploration & Production Council encouraged lawmakers to ease requirements under the Jones Act, a federal maritime law that requires goods shipped between U.S. ports to be transported on ships that are American-made, owned, and operated. The administration is also considering purchasing oil for the U.S. Strategic Petroleum Reserve.
Agerton said direct aid to the industry would be purely a political move.
“As far as bailing out the energy sector, I mean, I'm not sure why other than the political advantage,” he said.
Burd, with IOGA WV, said some companies may also benefit from low-interest loans offered by the Small Business Administration, but he’s largely optimistic, at this time, that the industry will be OK.
“We are a resilient industry and we believe everyone will try to maintain all the production wells and I don't think that's going to be an issue,” he added.
Utilities Suspend Shutoffs
Across the Ohio Valley, companies that generate and distribute electricity to homes and businesses are also adjusting. Many utilities have announced they will not disconnect customers who cannot pay their bills during the coronavirus crisis.
The Public Utilities Commission of Ohio last week ordered all electric, natural gas, water, wastewater and landline telephone companies to suspend disconnection policies. The Kentucky Public Service Commission issued a similar order Monday, which includes an order to suspend late payment fees for at least 30 days. Regulators in West Virginia are urging utilities to temporarily suspend shutoffs.
Utilities are also taking steps to protect workers. Aaron Ruegg, a spokesman for FirstEnergy Corp. said some travel is being reconsidered including for workers who were set to help during a planned outage at the Harrison Power Station, located in Haywood, West Virginia.
He said that lineworkers and service technicians have been instructed on measures such as social distancing.
At this time, Ruegg said no measures are being considered to sequester workers at power stations to maintain operations.
That is something Appalachian Power is looking at, said Communications Director Jeri Matheney. She said decisions are being made on a plant-by-plant basis, but no final decisions have been made.