Proposed Relief for Struggling Oil & Gas Industry
In the face of the oil and gas industry’s continuing financial decline—more due to Saudi Arabia’s decision to massively discount oil prices than the COVID-19 epidemic—the U.S. Department of Energy (DOE) has recently announced plans to help oil and natural gas producers.
For oil producers, the DOE says the U.S. government will buy 30 million barrels of oil from producers. The move will fill the Strategic Petroleum Reserve (SPR) to its maximum capacity by purchasing 77 million barrels of American-made crude oil. On Thursday, March 19, 2020, the DOE announced a solicitation to purchase the initial 30 million barrels, with additional solicitations to follow. The initial purchase will focus on small to midsize U.S. oil producers.
In a recent press release, DOE Secretary Dan Brouillette stated, “DOE is moving quickly to support U.S. oil producers facing potentially catastrophic losses from the impacts of COVID-19 and the intentional disruption to world oil markets by foreign actors.”
The DOE says it recognizes the need to plan for delivery, so it expects the crude oil to be delivered in May or June, although early April deliveries are encouraged.
For natural gas producers, the DOE recently announced four long-term orders authorizing the export of domestically produced liquefied natural gas (LNG) from four proposed sites in Texas. Brouillette says the export capacity from these four sites is enough LNG supply for more than half of Europe’s LNG import demand and will help pave the way for more U.S. natural gas exports.
The four sites will be allowed to export LNG to any country the U.S. does not have a free trade agreement requiring national treatment for trade in natural gas and where trade is not prohibited by U.S. law or policy, helping create a global market for natural gas producers. This could help U.S. natural gas producers weather the economic recession, giving them access to new markets while also keeping their prices low for U.S. consumers.
According to the DOE, the U.S. is now in its fourth consecutive year as a net exporter of natural gas and has quickly become one of the top global exporters of LNG. For more information, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.