The Fuse

U.S. Energy Sector Sheds Jobs As Production Falls

by Alex Adams | @alexjhadams | July 07, 2020

In an otherwise encouraging jobs report for June from the U.S. Department of Labor, the country’s energy sector was a major outlier. While almost every other industry increased employment, the number of people working in the U.S. oil and gas sector continued to fall.

Figures from the U.S. Bureau of Labor Statistics (BLS) showed that in June, oil and gas extraction companies lost 1,200 jobs. When other segments of the industry—such as oilfield services, pipeline construction, and drilling companies—are taken into account, energy consultancy Rystad Energy estimates that payrolls fell by a combined 10,000 positions.

Early last month, Rystad Energy calculated that more than 100,000 jobs had been lost in the industry due to the pandemic. Analyzing BLS data, Rystad found that 44,550 jobs have been cut from oil-field service companies, 23,050 jobs from oil and gas drilling and extraction companies, and 16,000 jobs from pipeline companies since early February.

The falling job numbers persist even as oil prices have recovered somewhat. Although concerns over a lack of summer driving have weighed on the value of U.S. benchmark West Texas Intermediate (WTI) in recent trading, WTI prices have still climbed to around $40-$41 per barrel from around $20 per barrel in the first week of May (although prices this time last year were at $57 per barrel).

These continued job losses are likely linked to the fact that U.S. crude production falling at its quickest pace ever. Weekly output recently fell to 10.5 million barrels per day (Mbd), compared to a near record 13 Mbd in late March—a slide that marks the biggest 11-week drop on record in figures going back to 1983, the Wall Street Journal reported. In percentage terms, the paper added, the decline is the largest since the 2008 Great Recession, when U.S. oil production was less than half of what it is now.

The actions of companies behind this fall demonstrate the scale of the issue. Some of the United States’ largest producers, such as Chevron and Continental Resources, have shuttered in production and other companies—including major shale producer Whiting Petroleum—have entered bankruptcy.

Even with oil prices climbing to $40, analysts believe the industry can still expect more upheaval and bankruptcies. “I don’t think that $40 oil is enough to turn around the shale industry,” Andy Lipow, president of Lipow Oil Associates, told the Wall Street Journal. “This price is still not enough to cover all the debt and costs that have been incurred during the boom.”

Despite its volatility, the United States still has a singular dependence on oil to power its economy. The country is the world’s largest consumer of oil, accounting for one-fifth of daily global supply, more than 70 percent of which is used to power a transportation system that is 92 percent reliant on petroleum fuels.

To bolster its energy security, the United States must take further steps to diversify its fuel sources. Electrification represents a compelling near-term solution, with vehicles running on a fuel that is both domestic and diverse in source as well as low and stable in price. Compressed natural gas and hydrogen also present alternatives to conventional internal combustion engine vehicles and the petroleum fuels they rely on.

In the context of competing with a rising China, this diversification takes on extra urgency: As outlined in its Made In China 2025 strategy, Beijing seeks to gain greater global authority by gaining leadership positions in a number of emerging industries. Ownership of the electric vehicle (EV) supply chain is central to this strategy.

As the transportation sector shifts from its gasoline present to an electrified, digitized future, the United States cannot afford to be left behind. Conceding leadership in tomorrow’s transportation technologies risks the future of our auto industry: a sector that forms the United States’ advanced industrial base, supports almost 10 million jobs, and represents 3.5 percent of U.S. GDP.