Months Of Low Oil Prices Deepen Economic Toll In Weld County
The price of oil has been hovering at $40 a barrel for several weeks now. It’s much higher than it was earlier this year, when prices briefly went negative for the first time ever. But it’s still not profitable for most Colorado drillers.
KUNC’s Matt Bloom has been following the price slump’s effects on Northern Colorado. He spoke with Colorado Edition.
Erin O’Toole: It’s been three months now since that day in April when people may remember oil prices went negative. That was due to a drop in demand because of coronavirus shutdowns. How do things look in Colorado now?
Matt Bloom: It’s been a tough summer. Extraction Oil & Gas just announced its second round of layoffs since the pandemic began at a facility in Windsor. Another Denver driller, Noble Energy, was just acquired by Chevron, one of the largest oil and gas companies in the world because of the slowdown. That’s just the tip of the iceberg of what’s happening right now. We’re seeing more bankruptcies, mergers and layoffs every week due to low oil demand across the world. The takeaway is that this is not going to be a quick recovery as some had initially hoped it would.
Why is that? I mean, parts of the economy in Colorado are reopening. More people are traveling again. What does that mean for the price of oil?
Well, yes they are but they’re nowhere near the level they were at the start of this year. And there’s still a lot of oil supply in storage across the country from earlier this spring.
I talked to Sarp Okzan, an economist at Enverus, an energy analytics company in Denver. He’s expecting the price of oil to stay well below the break-even threshold for most drillers - which is around $60 - for at least the rest of 2020.
“The demand for crude oil is always higher when the economy is doing well,” he said. “But economies across the globe are struggling so that’s putting a ceiling on where prices can be. At the end of the day, we expect prices to stay in this $35-to-$45 range for the foreseeable future.”
He says to expect prices to start climbing again next spring. That’s assuming there’s progress made fighting the pandemic and global travel and commerce returns to a pre-pandemic level and the demand for oil rises.
What does that mean then for the next year locally? For example, communities in Weld County that have a lot of oil and gas activity.
It means employment in oil and gas will continue to struggle.
I’ve been talking to several workers who have already switched careers just because of how volatile it’s been. James Smith is a truck driver in Greeley who hauled oil and gas equipment. He left the oilfield and took a $4-an-hour pay cut just so he could have some stability.
“I have quite a few friends who have moved on to construction companies, over-the-road positions because the oil and gas industry is not reliable and I don’t see any time in the near future where it’s going to be reliable again,” Smith said.
Other than employment, there’s also a growing concern around a possible rise in the number of abandoned or orphaned wells in Colorado due to all the bankruptcies we’re seeing.
Remind us what orphaned wells are and why they’re a problem.
These are wells that get left behind when companies can’t afford to plug them or take care of them. They’re a safety hazard. They leak methane and other greenhouse gases. And the state then has to come in and plug them.
We currently have a backlog of just over 200 orphan wells and nearly 500 abandoned oil and gas sites that need to be cleaned up.
Some oil and gas states like North Dakota have seen a big influx - hundreds - of orphaned wells already this year due to the economic situation. But Colorado hasn’t recorded that yet and it’s unclear if and when that could happen.
The Colorado Oil and Gas Conservation Commission, which oversees orphan well cleanup, says it’s prepared to handle any influx should that happen. Of course the state’s general fund took a big hit this year because of the pandemic, but the money that funds the cleanup program doesn’t come from the general fund.
There have also been calls from some environmental and oil and gas industry groups for Congress to create a federal orphan well cleanup program. It’s even been included in conversations around another federal COVID-19 stimulus bill. What can you tell us about that idea?
A piece of the recent Moving Forward Act that the House passed (but not Senate) would establish a federal program to clean up the nation’s orphan wells.
Studies show that if the government put stimulus funding toward cleaning up these sites in states like Colorado, it could create more than 100,000 jobs over the next few years. It would also help reduce greenhouse gas emissions from these wells.
I spoke with Neelesh Nerukar. He’s the vice president of ClearView energy analytics (a nonprofit based in Washington D.C.) and one of the authors of a recent study on this issue.
“You have the labor benefits, you have the public health and safety benefits and the greenhouse gas mitigation in a way that makes this an interesting program,” he said.
Is the new federal stimulus bill and this cleanup program likely to pass through Congress?
When this idea has been brought up in the past, it has had bipartisan support. But the contents of the stimulus package Congress is crafting right now is still taking shape, so it’s unclear if that will include a program like that, but it would be the first program of its kind if it does.