By Velda Addison, Hart Energy
News that crude oil production in the U.S. is falling may be good news when it comes to helping to lower the worldwide hydrocarbon glut and narrowing the supply-demand gap, but it doesn’t bode well for the workforce.
More job losses appear to be ahead as the decline has not yet led to improved market conditions, considering similar moves are needed by other top-producing countries.
The U.S. Energy Information Administration (EIA) reported March 8 that U.S. crude oil production averaged about 9.4 million barrels per day (MMbbl/d) in 2015. But output is expected to fall to an average 8.7 MMbbl/d in 2016 and dip again—although slightly—to about 8.2 MMbbl/d in 2017.
Crude oil production in February 2016 averaged 9.1 MMbbl/d, which was about 80,000 bbl/d below the January 2016 average, the EIA said in its Short-Term Energy Outlook.
“Domestic oil production has generally declined month to month since reaching a 44-year peak of almost 9.7 MMbbl/d in April 2015. Even as production declined, output was still above levels from the same month a year earlier until EIA published production for December 2015,” the EIA said March 9 in a report.
Lower crude prices, which the EIA said have dropped more than 70% since summer 2014, prompted producers to pump less. In December 2015, an average 9.3 MMbbl/d were produced, a 166,000-bbl-d drop from a year earlier.
“Most of the decline in oil production has occurred in states where a large portion of output comes from tight oil formations, including North Dakota, Texas, and New Mexico,” the EIA said. “Oil production from tight formations accounted for most of the increase in U.S. oil production during the past five years, and it is now making up most of the decline in output.
The declines are somewhat encouraging.
“But until both production and storage volumes begin to reflect meaningful declines, there is little reason to expect any appreciable improvement in market conditions,” said Karr Ingham, the economist who created and updates the Texas Alliance of Energy Producers’ Texas Petro Index (TPI). The TPI is a composite index based on several upstream economic indicators, which include production volumes, prices, rig counts, completions, drilling permits and employment. The TPI, which gages the health of the industry in Texas, experienced a year-on-year 40% drop, falling to 181.9 in January.
Crude oil production in Texas totaled an estimated 102.2 MMbbl in January 2016, 2.3 percent less than in January 2015.
“It is at least somewhat encouraging that estimated crude oil production in Texas actually posted a year-over-year decline in January,” Ingham said. “Although the decline was modest, we can expect the pace of production decline in Texas and the U.S. to accelerate in 2016.”
Unless market conditions improve, more job losses appear to be inevitable, Ingham added.
He estimated that about 76,000 oil and gas jobs were lost in Texas between December 2014 and January 2016.
The U.S. Bureau of Labor Statistics said the U.S. oil and gas industry has lost around 100,000 jobs over the last 16 months, Reuters reported in February, noting the losses were jobs of people directly employed by oil and gas producers, drilling contractors and other oilfield services firms. Many more jobs have been lost throughout the supply chain, and major oil companies, including Chevron, said they plan to lay off more employees this year.
Velda Addison can be reached at email@example.com.
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