President Trump visited Midland and Odessa today for an oil rig visit and a fundraiser. While there, he signed four pipeline permits, one of which will take Texas crude oil to Mexico.
In a speech, Trump said, “We’re here to send a message to the zealots, radicals, and extremists trying to shut down your industry to make America subservient to foreign producers. That won’t happen — we won’t let them put American energy out of business.”
He then hit his Democrat opponent, former Vice President Joe Biden, for his support of a fracking ban and his proposed rejoining the Paris Climate Accord.
The president also announced liquefied natural gas export authorizations will be extended to 2050.
Caught off-guard by a one-two punch combo of coronavirus’ obliteration of travel and the supply dispute in the world market, Texas’ oil and gas industry is reeling only five months removed from when it led the world in profit and production.
In April, the oil futures price — the price agreed upon between two parties in advance of a future purchase — dropped to a historic low at negative around $40 per barrel (bbl).
Since the beginning of 2020, total oil production has dropped 30 percent and total natural gas production has dropped 20 percent, according to the Texas Railroad Commission (RRC).
In that same time frame, the number of flowing wells in operation decreased by 15 percent.
Production is slower to react to an economic downturn because reductions cannot happen at the flip of a switch.
The financial hit became so bad that the RRC considered doing what it hadn’t in nearly 50 years: unilaterally limit oil production, also known as proration.
They ultimately relented, but the industry’s producers have since, without a mandate from the RRC, begun adjusting to the depreciation in demand by cutting what they can.
Many oil companies, especially the smaller independents, took on large debts to finance production growth, hoping the then-high oil prices would help them get back to the black. An August 2019 Wall Street Journal article stated that these debts were being defaulted on at a 5.7 percent rate “and some companies are struggling to meet their obligations as oil prices hover below $60 a barrel.”
Oil is now hovering right above $40 per bbl, quite a recovery from its series in the $20s between mid-March and mid-May — with the exception of the few-day cratering in April.
A couple of months ago, the Trump administration announced the availability of bridge loans to oil and gas companies struggling financially. And as small businesses, some small and independent producers received Paycheck Protection Program aid as well.
On Wednesday, Trump said that aid amounted to $1 billion to Texas oil and gas producers.
This massive and abrupt brake check comes after a decade of record booming for the industry and decreasing energy costs.
And when it comes to energy, as goes Texas, so goes the nation.
According to the Energy Information Administration (EIA), U.S. field oil production dropped 32 percent. U.S. natural gas production, meanwhile, has declined but at a much lower rate of less than five percent.
Toward the end of last year, the oil and gas employment took a bit of a dip as fewer new wells were drilled as production efficiency increased. Just in March, 51,000 Americans employed in the energy sector lost their jobs.
In May, a record of 26,300 Texans lost their jobs in the oil and gas industry.
Midland and Odessa currently face a 9.6 and 13 percent unemployment rate, respectively. Those are down from May highs of 12.4 percent for Midland and 16.5 percent for Odessa.
The Texas Workforce Commission’s Labor Market Information statistics show a six percent decrease in industry jobs since the beginning of 2020.
Ahead of the president’s visit, Sen. Ted Cruz (R-TX) penned an op-ed in the Midland Reporter Telegram, stating, “Energy is a critical American industry, and we can’t afford to lose the ground we’ve gained.”
“Earlier this year, the Permian Basin was producing 4.8 million barrels of oil a day, making it the largest producing oil field in the United States. Ensuring our energy industry remains viable during this pandemic is imperative to Midland-Odessa, to the rest of Texas and the entire United States,” he added.
Cruz further pointed to the additional lending and aid available along with the retaliatory crackdown of the Organization of the Petroleum Exporting Countries’ (OPEC) flooding of the world market supply as initiatives that have helped cushion the fall of Texas’ oil and gas industry.
President Trump and the U.S. facilitated an agreement with OPEC to cut production by 10 million bbl/day.
During the downturn, renewable energy, mostly at the expense of coal and aided by subsidies, has thrived. In April, the wind energy market share reached a record high of 27.6 percent.
The president’s visit highlights two intertwined factors: Texas’ reeling-but-recovering oil and gas industry and the mounting indications that Texas is in swing-state territory.
President Trump is banking on Texas to provide a large chunk of the electoral votes he needs to win re-election and knows how important the oil and gas industry’s health is to his prospects.
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Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.