A Short Analysis : Impact of Corona on Shale Producers - Işık Zeynep Cebe



Throughout history, the world faced numerous challenging catastrophic events, and always there occurred both winners and losers. When COVID 19 examining, today, data shows that this pandemic will have an end, and all markets will turn back their equilibrium soon. Many experts state that this crisis is a short term crisis; however, consequences will last long.

From the perspective of Chomsky, who is well-known philosopher, humanity has sufficient information to control COVID 19 and thanks to this, although there are criminal outcomes of the event, everything will be fixed. Examining his view, today, China has proved these ideas.

It is an indisputable fact that COVID 19 can be controlled and has an end when the situation in China is considered, even though the high population rate, the spread of COVID 19 is stopped. However, what will happen to the economy during this period has great importance, especially analyzing the energy market, the sector which shapes the world economy.

Saying that big fish eat small fish is an appropriate sentence to summarize the situation when shale gas producers are considered. About the fall in the oil prices, Vladimir Putin stated that “are great because they will damage U.S. shale.” (Mills, 2020).

What could be inferred that is crystal clear, Russian oil companies will not be harmed. However, whether the damage which Putin states could bring the end of shale producers or not is a questionable phenomenon when their market structure is taken into account. Since shale producers are small entities comparing with the sector leaders such as Exxon Mobile, Saudi Aramco, iron out the consequences of COVID 19 could be thorny for these little fishes in the energy sector.

The sharp demand shock has led to these bizarre prices. International Energy Agency suggests that oil demand has decreased the merest by %20 owing to COVID 19 precautions.

Consequences of these are catastrophic for fracking companies since at least they should earn $30 per barrel so that these companies could make a profit. The vast amount of fracking companies has halted the production in April due to stringent prices, and this could terminate them because of their considerable amount of debts.

According to analyze which is made by Rystad Energy, the total liability of shale producer is $133 billion U.S. dollar, and the deadline for payment is due 2026. If prices continue to shrink, bankruptcy is inevitable for shale producers. Implying monetary policy and targeting banks may be a remedy for fracking companies; however, the U.S. prefers to suggest fiscal policies to deal with the COVID 19 crisis.

When shale producers have entered the market, oil prices have fallen drastically. Due to this, sector leaders’ profit has decreased. Typically, there could be intentions to get shale producers out of the market, considering the marginal benefit of those giant energy producers. Flies are small insects, but their voice disturbs us, and this example could be valid when the impact of shale producers is examined.

In the past, there were attempts to put shale producers out of business, but this was not be achieved according to Marking, who is a lawyer in U.S.

However, thereby COVID 19 crisis, the majority of shale producers could exit the market with natural ways. Livingston, who is an expert in Eurasia Group, suggests that “I don’t think it’s a death knell, but it’s an inflection point for this industry” (Mcdonnel, 2020).

Also, according to him, shale production will continue to exists. However, big companies will become the owner of those small entities. Examining his view, when their enormous debts are taken into account, and many producers stopped their production, owners of small shale production companies could change.

Some researchers suggest that when COVID 19 spread is once stopped, countries, especially China, will increase production enormously. If this situation occurs, usually demand for oil and gas will sharply increase because the primary consumer of oil and gas is factories.

To overcome a recession, consumption is prompt by governments, and thanks to this supply side of the economy could increase their production. Also, the majority of factories halt the production to prevent the spread of the virus, and goods are sold from storage; thus, to make storage and turn back to normal production will increase.

Thanks to these, the demand for oil and gas could increase drastically, and the price could be normal again. Even, there could be a supply shock of oil and gas due to cuts in production. If this scenario occurs, shale producers could restart the production, and they can smooth away the situation.

Briefly, according to well- known philosopher Kant, thinking optimistic when misfortune events occur is our duty as humankind—from this angle, analyzing the situation as catastrophic makes the economic crisis worsen.

Likely the whole of the crisis, this also has an end, especially China’s case is considered. The spread of this disease will be controlled, and its negative impact on the economy will be short term. Thus, oil and gas prices will turn it’s normal eventually. Although the situation is not pleasant for shale gas producers due to their loss of profits and debts, if the spread of the virus stops this summer, they could also overcome the crisis.


References

Farmer, M. (2020) "How will the offshore industry recover after Covid-19" Offshore Technology

Markind, D. (2020) "How the Corona Virus Changing The World Energy Situation, And What It Means For Russia, Middle East, And Amerikan Shale Producers" The Forbes

Krauss, C. (2020) "Oil Companies on Tumbling Prices: Disastrous , Devastating" The Newyork Times

"Noam Chomsky : Coronavirus Pandemic could have been prevented "The Al Jhazeera

Mcdonnel, T. (2020) "The Collopse of the U.S. Fracking Industry, in Seven Charts" The Quartz

Mills, M. (2020) "Oil in the Time of Corona" The City Journal


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