Is the oil and gas industry dead?

One of the big news items in Canada this week; a politician called oil and gas dead, the Premiere of a pro oil and gas Province lashed out over it, and the PM refused to take sides.

It is a pertinent thing to consider though. Is oil and gas dead? That depends on your level of hyperbole and how forward thinking you are.

No, it isn't dead. At least, not in the most, I guess, literal sense. It isn't even on life support. But, the end is nonetheless in sight. And so, I don't think calling the industry dead is necessarily an unfair term. There are certainly a good many of ways of looking it that way which are accurate.

Put another way, the way of life oil and gas companies knew 2 years ago? That is dead. Gone. I don't honestly think we'll ever get back to that point. And, I think that there are many good reasons to believe that.

On the other side of the argument, we'll still need oil and gas for decades to come. So, the industry isn't exactly going anywhere.

This is all just a guess, but I suspect we'll see a massive contraction in the industry. This was already happening natural before the pandemic and the price wars. But, every time there is considerable stress in the industry, all of a sudden, the industry gets more innovative and learns to do more with less. Which means, even as output or potential output go up, jobs and rigs go down. I suspect that we'll see more of this.

And so, I think there is certainly a fair light in which you can look at the industry and say it is dead. Even if tomorrow, demand spiked and grew, or even accelerated, the demand would probably be met with fewer jobs. Not more.

At the same time, the industry isn't technically dead. While the number of rigs and workers will decrease, there will still be oil and gas companies, and oil and gas workers. And here in Canada it is still a major element of our economy. But, oil and gas is also a rapidly developing industry in all senses of the word. I don't think it makes much sense to put overly many tax funded dollars into the industry. Once conditions turn around, that players that are going to survive are also likely to thrive. A lot of their competition will be obliterated. They will be able to run closer or even at capacity. They'll have the motivation to streamline operations. And then, they'll likely lay people off despite any money invested in them to help keep the jobs there.

We DO need to help the industry. But, money also needs to be made available for retraining. And the money which does go directly into that industry needs to be carefully and thoughtfully delivered to minimize abuses. Alberta really needs to be thinking about the industry as though it is dead. If they can do things which have a reasonable chance of protecting jobs, then sure, they should do those things. But, even more effort should be put into diversifying.

This pandemic is a terrible thing. But what really destroyed the oil and gas industry was the price war. And that was building up long before this and could easily happen again in the future. And, if we're being pragmatic, there is also nothing technically preventing another pandemic as well. And, it isn't as though credible people weren't warning of both of these things for years before they happened. The truth is, globally, we are able to produce far more oil and gas on a whim than we could ever need. Prices are only kept in check by certain groups intentionally constraining their output. But, as countries like Canada and the US are not bound by those agreements, they also make the financial situation for OPEC countries harder which increases the odds of a price war.

The only way to be sure an oil price won't cripple your entire economy is to not have your entire economy dependent on the price of oil and gas. And the only way to achieve that is to diversify.

Belief in anything else is insanity. Price wars will happen again. In fact, at this point they are more likely to happen at increasingly higher frequencies and drag on longer. 

This is a beast which sees its end. And while it isn't dead yet. It is hell bent on kicking the rest of the way down.