A majority of American oil industry executives don’t think U.S. oil production will ever return to its record-high, pre-pandemic levels, the Federal Reserve Bank of Dallas said announcing survey findings in its quarterly report Wednesday.
The prognosis is a remarkable turnaround for an industry that — before the pandemic and a Saudi-Russian price war in March — had exploded to global dominance, led by a boom in the sprawling Permian Basin oilfield of West Texas and southeastern New Mexico.
Executives given the survey were asked whether they thought U.S. oil production had already peaked — 66% said yes.
“This is only because of the pandemic that you’d ask this question,” said Kunal Patel, an economist at the Dallas Fed. “Things have really changed.”
The U.S. was on an upward oil production trajectory until almost the moment the pandemic hit. In February, the Energy Information Administration was still expectingU.S. oil production to grow from a record 12.2 million barrels per day in 2019 to 13.2 million this year.
Instead, as the worldwide spread of the virus shut down economies and brought travel to a crawl, U.S. oil output collapsed to a recent low of 10 million barrels per day in May. Though the EIA estimates that number rebounded to 10.8 million in August, the government only expects it to reach an average of 11.4 million for the whole year.
“What more could possibly go wrong?” one anonymous executive of an oilfield service company wrote in the survey’s comments section.
Oilfield service companies who handle the actual drilling of wells have shed more than 100,000 jobs since the pandemic began, according to one industry group’s count. Patel said Wednesday’s survey results suggested that job losses over the summer shifted away from those types of firms and toward the companies that actual produce and sell the oil.
“On the [exploration and production] side, they were a little bit slower to cut employment, and then they started to cut more in the third quarter,” he said.
More broadly, the survey found that declines in production, jobs and capital spending in the U.S. oil sector all continued in the third quarter, but the pace of the fall had slowed.
The U.S. industry’s peak-oil thinkers are not alone: Wednesday’s survey comes about a week after global oil giant BP released its own report suggesting the entire world’s demand for oil may never recover to pre-pandemic levels.
“I think the fact that executives and BP are talking about peak oil is notable,” said Michael Webber, a University of Texas energy expert and research group leader. “It’s not peak oil enthusiasts or environmentalists saying it, but business people in the oil patch.”
Peak oil predictions have been proven wrong before, especially after advances in fracking technology led to a surge in oil production from areas that were previously thought of as too hard to pull oil from or not worth the effort. Still, Webber said the circumstances this time around are different.
“In 2005 peal oil enthusiasts were saying it was because we were running out of oil,” he said. “Today industry insiders are saying peak oil has arrived because of vehicle electrification, COVID-induced telework and travel bans, broader economic slowdown, widespread policies for decarbonization, municipal prioritization of multi-modal transit options, and fossil fuel disinvestment campaigns.”
Analysts with the Oslo-based firm Rystad Energy said in a report this week that eight of the world’s leading energy firms might have to abandon their oil and gas assets in more than 60 countries as the world transitions toward cleaner forms of energy, a divestment campaign that could amount to more than $100 billion. Still, the analysts said those companies were likely to “keep a presence” in the U.S.
Meanwhile, the Dallas Fed survey showed not a lot of optimism from American oil executives about the near-term future, with much of the industry’s recovery depending on how the pandemic plays out.
“The word ‘uncertain’ was used so many times in the comments, which means that there’s just a lot that can happen,” Patel said. “I think all eyes are really on the demand for oil.”