Despite last week's agreement by Saudi Arabia and Russia to end their price war [14], the oil market remains in free-fall [15] amid the virtual shut-down of the world economy by the COVID-19 pandemic. The price of the main US oil benchmark, West Texas Intermediate, fell on April 20 to $30 below zero—the first time oil prices have ever turned negative. This means anyone trying to sell a barrel would have to actually pay a buyer. The global industry output of 100 million barrels a day would appear to be on borrowed time. (NYT [16])
Canada, the world’s fourth-largest oil producer, has already started slashing production. Western Canadian Select, the country's heavy oil benchmark, has also dropped to below $0 per barrel. ConocoPhillips [17] last week became the latest company to reduce Canadian oil sands [14] production, dropping 100,000 barrels per day. Prime Minister Justin Trudeau announced $2.5 billion in aid to the oil and gas industry on April 17, including $1.7 billion for clean-up of abandoned and orphaned oil wells. (OilPrice [18])
Despite the specter of abandonment, this could be the first step toward an anticipated bail-out [14], keeping the industry on life-support through the crisis. "Analysts say it may be less costly for a producer to continue drilling oil and pay to have it removed than it would be to shut down and restart a complex oil extraction project, such as the oilsands mines in Canada or shale-oil operations in the US." (Business Recorder [19])
Alberta Premier Jason Kenney told reporters April 15: "Shutting down those [sites] sounds a lot easier than it actually is. It can cause permanent damage to their reservoir and jeopardize billions of dollars of assets." (Reuters [20])
It is imperative to inject the ecological dimension into the debate here. As the US-based Natural Resources Defense Council [21] states:
Tar sands oil is one of the dirtiest fuels on the planet. Vast amounts of water and energy are needed to strip-mine and drill Canada's tar sands deposits—a heavy black substance mixed with sand and clay—and turn the extracted bitumen into usable crude oil. The process generates toxic waste that contaminates local air and water. And from the time it's mined until it leaves the tailpipe as vehicle exhaust, a gallon of gas from tar sands oil generates 17 percent more climate change pollution than conventional gas.
The impacts are also hitting the US industry. With last week's Chapter 11 bankruptcy filing, Colorado-based Whiting Petroleum [22] became the first US shale producer to go under since the crisis hit. Whiting was the largest oil producer in North Dakota, now the second-biggest oil-producing state in the country after Texas. (CNBC [23], Reuters [24])
But Trump is now, predictably, pledging a bail-out. "We will never let the great U.S. Oil & Gas Industry down," he said on Twitter [25] April 21. "I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!" (Politico [26])
