The coronavirus could take a big bite out of the shale industry, even as easing lockdowns are precipitating stronger energy prices. On Wednesday, the International Energy Agency predicted that investment in shale could drop by half in 2020. The organization expects overall energy investment to fall by 20% this year.
Shale has helped the United States become the world’s largest oil producer. Prior to April’s price crash, the United States was averaging 13 million barrels per day in production. Energy added nearly a percentage point in GDP from 2010 to 2015, and created tens of thousands of jobs. During the week ending on May 15th, in contrast, United States production fell to 11.5 million barrels per day. Prices currently sit at about half of what they were in January.
Oil prices have traded below the cost of production multiple times since the coronavirus gripped the world and caused energy demand to slump. Notably, the price of West Texas Intermediate fell below $0 for the first time in history at the end of April. Even after that dramatic drop, the price of crude has generally hovered in the low $30s. Meanwhile, it cost $35.90 to produce a barrel in 2019, according to figures from Rystad Energy. Simply put, prices are not high enough to break even on extraction. Given that, some companies will have no choice but to fold.
This is not the first downturn rodeo for shale producers. Improvements in efficiency caused prices to fall in 2015. As oil flooded the market, drilling activity dropped, and producers trimmed the fat wherever they could. This time, there isn’t as much cushion, and losses are being felt keenly. Analysts predict that the energy industry lost $26 billion in the first quarter, and that 250 companies could go under by the end of the year. Seventeen small companies have already filed for bankruptcy this year, according to Haynes & Boone data.
United States oil output is estimated to fall by as much 2 million barrels per day through 2021.