by Michael Snyder via The Economic Collapse blog,
The gravy train is over for oil workers. All over North America, people that felt very secure about their jobs just a few weeks ago are now getting pink slips. There are even some people that I know personally that this has happened to. The economy is really starting to bleed oil patch jobs, and as long as the price of oil stays down at this level the job losses are going to continue. But this is what happens when a “boom” turns into a “bust”.
Since 2003, drilling and extraction jobs in the United States have doubled. And these jobs typically pay very well. It is not uncommon for oil patch workers to make well over $100,000 a year, and these are precisely the types of jobs that we cannot afford to be losing. The middle class is struggling mightily as it is. And just like we witnessed in 2008, oil industry layoffs usually come before a downturn in employment for the overall economy. So if you think that it is tough to find a good job in America right now, you definitely will not like what comes next.
At one time, I encouraged those that were desperate for employment to check out states like North Dakota and Texas that were experiencing an oil boom. Unfortunately, the tremendous expansion that we witnessed is now reversing…
In states like North Dakota, Oklahoma and Texas, which have reaped the benefits of a domestic oil boom, the retrenchment is beginning.
“Drilling budgets are being slashed across the board,” said Ron Ness, president of the North Dakota Petroleum Council, which represents more than 500 companies working in the state’s Bakken oil patch.
Smaller budgets and less extraction activity means less jobs.
Often, the loss of a job in this industry can come without any warning whatsoever. Just check out the following example from a recent Bloomberg article…
The first thing oilfield geophysicist Emmanuel Osakwe noticed when he arrived back at work before 8 a.m. last month after a short vacation was all the darkened offices.
By that time of morning, the West Houston building of his oilfield services company was usually bustling with workers. A couple hours later, after a surprise call from Human Resources, Osakwe was adding to the emptiness: one of thousands of energy industry workers getting their pink slips as crude prices have plunged to less than $50 a barrel.
These jobs are not easy to replace. If oil industry veterans go down to the local Wal-Mart to get jobs, they will end up making only a very small fraction of what they once did. Every one of these jobs that gets lost is really going to hurt.
And at this point, the job losses in the oil industry are threatening to become an avalanche. The following are 12 signs that the economy is really starting to bleed oil patch jobs…
#1 It is being projected that the U.S. oil rig count will decline by 15 percent in the first quarter of 2015 alone. And when there are less rigs operating, less workers are needed so people get fired.
#3 Oilfield services provider Baker Hughes has announced that it plans to lay off 7,000 workers.
#4 Schlumberger, a big player in the energy industry, has announced plans to get rid of 9,000 workers.
#5 Suncor Energy is eliminating 1,000 workers from their oil projects up in Canada.
#6 Halliburton’s energy industry operations have slowed down dramatically, so they gave pink slips to 1,000 workers last month.
#7 Diamondback Energy just slashed their capital expenditure budget 40 percent to just $450 million.
#8 Elevation Resources plans to cut their capital expenditure budget from $227 million to $100 million.
#9 Concho Resources says that it plans to reduce the number of rigs that it is operating from 35 to 25.
#10 Tullow Oil has reduced their exploration budget from approximately a billion dollars to about 200 million dollars.
#11 Henry Resources President Danny Campbell has announced that his company is reducing activity “by up to 40 percent“.
#12 The Federal Reserve Bank of Dallas is projecting that 140,000 jobs related to the energy industry will be lost in the state of Texas alone during 2015.
And of course it isn’t just workers that are going to suffer.
Some states are extremely dependent on oil revenues. Just take the state of Alaska for instance. According to one recent news report, 90 percent of the budget of Alaska comes from oil revenue…
But oil is also a revenue source in more than two dozen states, especially for about a third of them. In Alaska, where up to 90 percent of the budget is funded by oil, new Gov. Bill Walker has ordered agency heads to start identifying spending cuts.
Sadly, it looks like oil is not going to rebound any time soon.
China, the biggest user of oil in the world, just reported that economic growth expanded at the slowest pace in 24 years. And concerns about oversupply drove the price of U.S. crude down another couple of dollars on Monday…
Oil declined about 5 percent on Tuesday after the International Monetary Fund cut its 2015 global economic forecast on lower fuel demand and key producer Iran hinted prices could drop to $25 a barrel without supportive OPEC action.
U.S. crude, also known as West Texas Intermediate or WTI, settled 4.7 percent lower at $46.39 a barrel, near its intraday bottom of $46.23.
There is only one other time in history when we have seen an oil price crash of this magnitude.
That was in 2008, just before the greatest financial crisis since the Great Depression.
In space, no one can hear you scream… unless you happen to be Venezuela’s (soon to be former) leader Nicolas Maduro, who has been doing a lot of screaming this morning following news that UAE’s Energy Minister Suhail Al-Mazrouei said OPEC will stand by its decision not to cut crude output “even if oil prices fall as low as $40 a barrel” and will wait at least three months before considering an emergency meeting.
In doing so, OPEC not only confirms that the once mighty cartel is essentially non-existant and has been replaced by the veto vote of the lowest-cost exporters (again, sorry Maduro), but that all those energy hedge funds (and not only) who hoped that by allowing margin calls to go straight to voicemail on Friday afternoon, their troubles would go away because of some magical intervention by OPEC over the weekend, are about to have a very unpleasant Monday, now that the next oil price bogey has been set: $40 per barrell.
Luckily, this will be so “unambiguously good” for the US consumer, it should surely offset the epic capex destruction that is about to be unleashed on America’s shale patch, in junk bond hedge funds around the globe, and as millions of high-paying jobs created as a result of the shale miracle are pink slipped.
According to Bloomberg, OPEC won’t immediately change its Nov. 27 decision to keep the group’s collective output target unchanged at 30 million barrels a day, Suhail Al-Mazrouei said. Venezuela supports an OPEC meeting given the price slide, though the country hasn’t officially requested one, an official at Venezuela’s foreign ministry said Dec. 12. The group is due to meet again on June 5.
“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current conditions don’t justify an extraordinary OPEC meeting. “We need to wait for at least a quarter” to consider an urgent session, he said.
And with OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective target for a sixth straight month, according to data compiled by Bloomberg. Saudi Arabia, Iraq and Kuwait this month deepened discounts on shipments to Asia, feeding speculation that they’re fighting for market share amid a glut fed by surging U.S. shale production.
The above only focuses on the (unchanged) supply side of the equation – and since the entire world is rolling over into yet another round of global recession, following not only a Chinese slowdown to a record low growth rate, but also a recession in both Japan and Europe, the just as important issue is where demand will be in the coming year. The answer: much lower.
OPEC’s unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices. There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.
And while the bankruptcy advisors and “fondos buitre” as they are known in Buenos Aires, are circling Venezuela whose default is essentially just a matter of day, OPEC is – just in case its plan to crush higher cost production fails – doing a little of the “good cop” routing as a Plan B.
According to Reuters, OPEC secretary general tried to moderate the infighting within the oil exporters, saying “OPEC can ride out a slump in oil prices and keep output unchanged, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators.”
Ah yes, it had been a while since we heard the good old “evil speculators” excuse. Usually it appeared when crude prices soared. Now, it has re-emerged to explain the historic plunge of crude.
Speaking at a conference in Dubai, Abdullah al-Badri defended November’s decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.
“We agreed that it is important to continue with production (at current levels) for the … coming period. This decision was made by consensus by all ministers,” he said. “The decision has been made. Things will be left as is.”
Some say selling may continue as few participants are yet willing to call a bottom for markets.
There is some hope for the falling knife catchers: “Badri suggested the crude price fall had been overdone. “The fundamentals should not lead to this dramatic reduction (in price),” he said in Arabic through an English interpreter. He said only a small increase in supply had lead to a sharp drop in prices, adding: “I believe that speculation has entered strongly in deciding these prices.””
Unfortunately for the crude longs, Badri is lying, as can be gleaned from the following statement:
Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November’s decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home.
“Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect,” he said.
Well actually… “Saudi Arabia’s oil minister Ali al-Naimi had told last month’s OPEC meeting the organization must combat the U.S. shale oil boom, arguing for maintaining output to depress prices and undermine the profitability of North American producers, said a source who was briefed by a non-Gulf OPEC minister.”
And as Europe has shown repeatedly, not only is it serious when you have to lie, but it is even worse when you can’t remember what lies you have said in the past. That alone assures that the chaos within OPEC – if only for purely optical reasons – will only get worse and likely lead to least a few sovereign defaults as the petroleum exporting organization mutates to meet the far lower demand levels of the new normal.
In the meantime, the only question is how much longer can stocks ignore the bloodbath in energy (where there has been much interstellar screaming too) because as we showed on Friday, despite the worst week for stocks in 3 years, equities have a long way to go if and when they finally catch up, or rather down, with the crude reality…
LAKE JACKSON – The shale boom’s bounty of cheap natural gas is fueling an industrial renaissance on the Texas coast, one that was in full focus Thursday as Dow Chemical announced the latest piece of a $4 billion expansion of its chemical operations in Southeast Texas.
The $1.7 billion plant Dow announced Thursday, one of four it plans to build or expand at its Freeport complex, is aimed at taking advantage of cheap natural gas produced from shale, which the company expects to be available for the long term.
The four plants would create more than 4,800 jobs at their construction peaks and would support up to 600 permanent jobs, with average salaries of $75,000, when completed.
The plants would not have been viable in the United States before the boom in production of domestic fossil fuels from shale, which has flooded markets with of cheap natural gas, he said.
“If you had told me 10 years ago I’d be standing up on this podium making this announcement, I would not have believed you,” Liveris said, flanked by Gov. Rick Perry and Lt. Gov. David Dewhurst during an announcement Thursday at Brazosport College.
“Even though Texas had its great mechanisms to attract business, the cost of energy, the cost of feedstocks, which would have been the price of oil and the price of gas, was pricing the United States out of the market,” he said. But the shale “miracle” changed that.
The main attraction Thursday was Dow’s plan for an ethylene cracker that will convert natural gas and its liquid byproducts, such as propane, butane and ethane, into building blocks of plastics used in water bottles, vinyl and other items.
Others are eager
Other chemical companies also are betting on bountiful supplies of natural gas.
Chevron Phillips said this month it will build a $1 billion chemical plant at its Baytown facility, largely because of cheap natural gas liquids.
Shell is evaluating plans to build a major plant in Pennsylvania, which also would leverage cheap liquids to produce chemicals used in a broad array of products.
Liveris said natural gas would have to rise to above $10, with oil prices remaining above $100, to cause concerns about a return on its investment.
In trading Thursday on the New York Mercantile Exchange, natural gas fell 4.4 cents to $1.907 per million British thermal units.
Dow believes a substantial jump in gas prices is unlikely, unless the government allows a surge in liquefied natural gas exports or offers dramatic subsidies to encourage greater use of natural gas-fueled cars.
“There’d be a lot more than just us screaming from every corner of Washington and state legislatures that get involved with that,” Liveris said.
Keeping it at home
Liveris argued that gas should not be exported on its own but used to produce products for export at higher values.
“Why don’t we take this gas and create 15 to 20 times value added and not export it as liquid but export is as solid?” he asked.
Perry said the Texas Enterprise Fund will invest $1 million in the new Dow facility. The total is less than a tenth of 1 percent of the plant’s overall costs, but Perry said the investment played into the company’s decision to locate the plant in Texas.
“They can go everywhere in the world,” he said. “They’re not coming here just because we have great weather – in April and May. They’re not coming here just because we’ve got great music and great barbecue. They’re coming here just because they know this is the type of environment that they want to be associated with. This is the place they want to do business.”
Liveris called Texas’ partnerships with businesses an example for the nation to follow.
“I know when I get red carpet, and I know when I get red tape,” Liveris said. “And I get red carpet in the state of Texas.”
While the Texas Enterprise Fund was a small factor, the plant’s location will allow for it to be integrated easily with Dow’s existing facilities in the area, said Jim Fitterling, Dow’s president of feedstocks, energy and corporate development.
Dow, based in Midland, Mich., expanded its operations to the Texas coast 70 years ago and has maintained a strong presence ever since. The new plants will make Freeport Dow’s largest petrochemical complex and one of the world’s biggest, Liveris said.
- Gas Exports Ignite a Feud (mb50.wordpress.com)
- Why shale energy will be a game-changer for America (business.financialpost.com)