The world’s surplus of 1 billion barrels of oil, which grows by 2 million barrels every day and will get worse when Iran starts selling oil again, is not going away anytime soon, an industry advocate told a few hundred people Tuesday in Lafayette’s Oil Center.
“I don’t have to tell many of you how bad it is,” Louisiana Oil & Gas Association President Don Briggs said to a lunch crowd at the Petroleum Club.
The Lafayette event was the first of six State of the Industry addresses that Briggs and LOGA are scheduled to give through the end of March in Louisiana and Houston.
In a sign of oil and gas woes, the blessing before lunch asked for prayers for those now unemployed due to the price swing of oil, which has fallen by more than two-thirds since mid-2014.
U.S. benchmark crude on the spot market sold for less than $30 a barrel this week, compared with more than $107 in June 2014, according to the U.S. Energy Information Administration.
Briggs said part of the reason for the prolonged glut is Saudi Arabia, the leader and strongest voice for the world’s OPEC oil cartel. Briggs said that on Thanksgiving Day 2014, Iran announced OPEC would not cut back production to bring the price up. And the November 2014 statement was followed by a ramp-up in Saudi Arabian oil hitting the market.
The Saudi decisions targeted U.S. shale production, a prolific and expensive method of drilling that has roiled the economics of oil and gas by flooding the market, Briggs said: The Saudis know that long periods of low-priced oil put America’s shale drillers in a bind because what they’re being paid for their oil is less than it costs to get it out of the ground.
However, even the Saudis can’t sustain a drop in price forever, he said. Though their costs to get the oil out of the ground is much lower than those of U.S. shale drillers, the Kingdom of Saudi Arabia relies on oil revenue for social programs and gasoline subsidies that keep the country’s population placated.
“The price (of oil) will go back up because the Saudis need it to go back up,” he said.
But forecasting when that rise in price will happen is impossible, especially with Iran’s pending oil sales that will add a few million barrels a day to the glut, Briggs said.
According to state and national labor numbers, thousands of Louisiana oil and gas workers have lost jobs. To help mitigate the job losses, Jason El Koubi, president of regional economic development organization One Acadiana, said his agency is teaming with LOGA, the Lafayette Economic Development Authority and the Louisiana Workforce Commission to help the unemployed find jobs.
Some laid off oil and gas workers have skills needed in other regions of Louisiana, mainly in the petrochemical-heavy areas around Lake Charles and Baton Rouge. There, billions of dollars in new projects need thousands more skilled workers.
El Koubi said the joint initiative is an effort to protect Acadiana’s “cornerstone” oil and gas sector.
“While we can’t change the price of oil, we’re doing everything we can to protect the industry and creatively manage through this downturn,” El Koubi said.
Some of the effects of the current downturn are seen in the lack of drilling activity on Louisiana land and in its inland waters, Briggs said. He showed statistics that rival or are worse than during Louisiana’s last energy depression, in the mid-1980s.
In 1986, the worst of those years, there were 126 rigs drilling in Louisiana. Currently there are 59, Briggs said, and only eight of them are drilling in south Louisiana.