In April, the streets of the world’s greatest cities emptied, offices and businesses shuttered, and humans huddled in their homes. The quiet grew, and the earth seemed to stand still.
It was the worst possible outcome for the oil and gas industry, which depends on all manner of movement—car and truck travel, airline flights, deliveries, logistics—for customers. By mid-April, as the coronavirus pandemic blazed through Europe and the U.S., the virus claimed 130,000 lives and restricted the movement of more than 300 million Americans. A supply war between Saudi Arabia and Russia only helped to further suppress oil prices.
Whether weeks or months of shelter-in-place orders—and lessened energy demand—lay ahead, the implications for the oil and gas industry are dire. The dog-eared E&P survival guide for the year ahead has once more been dusted off, but there’s no chapter for this. Generally, operators were responding rapidly through capex cuts, preparing for chaos and leaving all options on the table. And it may not be enough this time.
The swiftness of the March-April oil shock is unlike any that producers have faced before. In a matter of eight weeks, demand for oil was crushed, and prices skittered from $60/bbl to the low $20s.
The effects have been felt throughout all sectors of the economy, including hospitality, entertainment, travel and leisure. By early April, traffic through Transportation and Safety Administration checkpoints fell 94%—meaning 2 million fewer people traveled compared with the same time last year. Over New York, California and Texas, satellites tracking traffic showed declines of at least 50% each, according to Rystad Energy. In the U.S., jet fuel use is projected to fall by as much as 70% and gasoline by 50%, according to Regina Mayor, KPMG’s global and U.S. energy sector leader.