The vast majority of those energy jobs are unlikely to return anytime soon.
Even if US oil prices stay at $45 a barrel until the end of 2021, 70% of the jobs lost during the pandemic in the oil, gas and chemicals industry may not come back by the end of next year, the Deloitte analysis found.
“Such large-scale layoffs,” the Deloitte report said, “are challenging the industry’s reputation as a reliable employer,” the Deloitte report said.
Part of the problem is that the fortunes of the notoriously boom-to-bust oil and gas industry have become even more closely tied to commodity prices than in the past.
A $1 change, up or down, in US oil prices can potentially impact 3,000 upstream and oilfield services jobs, compared with 1,500 jobs in the 1990s, Deloitte found. In other words, the link between jobs and prices is twice as powerful as it was then.
This shift reflects the rise of shale, which made the United States the world’s largest producer of oil and natural gas in 2012. Unlike traditional oil and gas projects, shale is considered short-term in nature because it can be ramped up or down based on swings in prices, fluctuations that impact hiring and firing decisions.
Sub-zero oil prices
Oil prices were hit particularly hard by the pandemic, which caused a record collapse in demand for jet fuel, diesel and gasoline.
The situation was exacerbated by extreme oversupply. Heading into the pandemic, the United States was producing near record amounts of crude oil. Then Saudi Arabia and Russia engaged in an epic price war that amplified the glut, causing the oil industry to nearly run out of room to store all the excess barrels.
Mass job cuts from Exxon, BP, Shell
“Significant actions are needed at this time to improve cost competitiveness and ensure the company manages through these unprecedented market conditions,” Exxon said in a statement.
Brain drain risk
Even the normally stable refining and chemicals sector of the industry shed up to 35,000 jobs, Deloitte said.
The risk is that these mass job cuts causes a brain drain where talented workers flock to technology, consulting and other industries that may have brighter futures.
The ability of the oil industry to rehire laid off workers will depend in large part on the trajectory of prices.
If US crude rebounds to $55 a barrel and stays there through 2021, Deloitte estimates that 76% of the jobs lost during the pandemic could return.
Then again, in a pessimistic scenario where oil stays at $35 through next year, just 3% of those jobs will return, the report said.
Collision with the climate crisis
“Covid-19 has abruptly fast-forwarded the specter of peak oil demand, degraded the investment climate and investors’ appetite for fossil fuels and reminded organizations to take the energy transition seriously,” Deloitte said.
Worse, it’s becoming harder for fossil fuel companies to raise money.
The weighted average cost of capital now stands at 8% to 10% for oil and gas — twice as expensive as for renewables, the report said.
Deloitte urged oil and gas companies to embrace sustainability as a way of business and use the pandemic as a “wake-up call” to decarbonize their work.
“The transition won’t be easy,” the report said, because many oil, gas and chemical companies are “fighting for survival.”