We’ve been preparing everyone here for news like this for a while now so it probably won’t come as much of a shock (or a significant worry at the moment) for anyone who has been paying attention. Still, it is worth noting that there are more rigs shutting down operations as energy prices continue to remain below profitability levels, and we hit something of a milestone last month.
U.S. oil explorers idled oil rigs for the 14th straight week, prolonging the biggest retrenchment in drilling on record.
Rigs targeting oil in the U.S. fell by 56 to 866, Baker Hughes Inc. said on its website Friday, the lowest level since March 25, 2011. The Permian Basin of Texas and New Mexico, the nation’s biggest oil field and one of its oldest, lost the most, dropping 23 rigs to 305. The U.S. rig total slid to the lowest since November 2009.
The country has sidelined 709 oil rigs in 14 weeks as a price collapse has prompted the nation’s energy producers to cut billions in spending and eliminate thousands of jobs.
Two different energy industry analysts I keep tabs on have both estimated that we could go as low as 700 total rigs before the market finally stabilizes and begins to recover. This could take anywhere from one to three months and depends on a variety of factors which I won’t bore you with here.
The real pinch here is not the effect on prices at the pump – which should remain fairly stable and low through this period – but on the jobs situation. The closed rigs represent more than three thousand workers who are on the unemployment rolls, waiting for conditions to improve, and that could take time. Still, the overall industry – as well as the US energy market in general – can survive this type of rattling around as the global economy adjusts to America’s position as the new energy leader.
That’s not to say that Congress and the Obama administration couldn’t be taking concrete steps to shorten the span of turmoil and reduce the pain. There are a variety of actions which could be enacted quickly to benefit all involved. First of all – as we’ve also discussed here – we could be doing away with our antiquated bans on many crude oil and natural gas exports. As you no doubt know by now, this not only opens up the market to increase demand (and production and jobs) but improves our global position when dealing with foreign nations like Russia and Venezuela.
Another thing we could do is make sure that we don’t suddenly go crazy on tax policy and price ourselves back out of a competitive position. It’s not only gas taxes, but the new Democrat fascination with taxing natural gas at the same rates applied to gasoline where these new, flexible fuel types are used in vehicles. Utah already walked to the edge of a massive tax hike on natural gas before backing away at the last minute, and Democrats in Washington are quickly getting that gleam in their eye in terms of doing it at the federal level. All this does is discourage development of CNG powered vehicles, which the environment loving Dems generally claim to embrace until they actually begin making money.
At any rate, when you see the headlines about rigs closing down don’t panic. At least not yet. We can ride this out, but a little more smart action in Washington could help.