Wyoming’s oil industry has experienced steady growth after the disastrous decline that affected the global oil market. Demand plummeted during the earlier part of the COVID-19 pandemic. The rebound comes as global oil prices and demand have increased in previous months.
“Since COVID, of course, the ride was like everywhere else, a significant decline almost immediately as everything shut down, and then it’s been difficult to get restarted,” said Rob Godby, an energy expert at the University of Wyoming. “We have seen a rebound in oil production in the state that’s not to where it was pre-pandemic but definitely on that course again. With prices as they’ve been over the last six months, much higher than most people expected, those revenues have really made up for losses elsewhere.”
Wyoming’s energy sector has generally experienced a steady decline over the past decade with coal being one of the most noticeable. Oil, however, has been an exception to this trend.
“Oil has been kind of the one fossil fuel in Wyoming that’s performed well over the past decade, increasing quite substantially over the period, at least prior to COVID,” Godby said.
Though demand and prices are currently much higher than they once were, there’s still hesitancy among American oil producers about getting back into the international market.
“Nationwide, oil production has not come back in the same way it was pre-pandemic and a big part of that is really just producers in the United States and in Wyoming have been very cautious. American producers have been kind of reticent about coming back into the market and for that reason we haven’t seen as much oil production as we saw pre-COVID,” Godby said. “The virus is still pretty much in charge and while OPEC [Organization of Petroleum Exporting Countries] has kept prices relatively higher than were previously forecast, and demand worldwide has come back more strongly than people expected, those two things have kind of kept prices very high, worldwide.”
This hesitancy among American oil producers also affects the natural gas market as well.
“Natural gas supplies haven’t come back as quickly either, in part because natural gas producers have reacted in the same way—very cautiously, even though natural gas prices are also high,” Godby said. “A lot of natural gas in the United States is produced with oil, and so if oil producers, for example in the Permian Basin, are not producing as much oil, then not as much gas is being delivered to the market either.”
He said these two things have kept oil, both in the U.S. and globally, relatively tight, which is true for natural gas as well. This has kept prices for consumers in domestic and international markets higher than they were, pre-COVID.
There are several reasons why American oil producers have reservations about entering the international market again.The biggest one is financial. Investors are reluctant to invest in drilling operations in an effort to keep prices high, and more profitable for oil companies.
But Godby feels that high oil prices will entice companies back into the market sooner rather than later.
“If prices remain high like this, I don’t think oil producers will remain on the sidelines. Prices were approaching $90 earlier this week [and] they’ve been in the mid $80s for a little while now,” Godby said. “I expect that oil production will begin to come back and that’ll bring more natural gas onto the market.”
Natural gas producers are a bit more skittish than oil ones, Godby said.
“For one thing, they’re a little bit concerned about that oil production and what it might do to natural gas markets,” he said. “There is some question as to how natural gas demand will look in the future. We’ve really seen a lot of liquid natural gas exports to Europe, and that’s because the price of natural gas in the United States is around $4 for a million BTU [but] it’s about $30 in Europe, so that differential is really driving what many people expect to be more natural gas exports out of the country.”
But Godby said there is much caution in areas, where only natural gas is produced, including in Wyoming.
“Risks are higher because if oil production comes back online and it brings a lot of natural gas as a byproduct or a coproduct, natural gas producers in Wyoming have a hard time competing with that natural gas [from oil drilling] because effectively it’s a free byproduct from the production of oil, which is usually the primary product that oil producers are producing in the first place,” Godby said.
