The entire U.S. oil and gas industry may be facing a new phase of deep restructuring because of the oil price collapse, rivaling the vast changes made in the mid-1980s, according to Tom Ellacott, senior vice president, corporate upstream for natural resources analytics firm Wood Mackenzie.
"Indebted Lower 48 producers could be forced to act sooner rather than later," Ellacott said.
"This is not the first time we've seen a price war," Ellacott said, noting that the last one was in 2015-16.
"But this time, oil demand is also weak as the coronavirus outbreak depresses global economic growth," he said. "The macro-economic backdrop is completely uncharted waters for oil and gas companies."
A recent Wood Mackenzie report on the ethylene cost curve demonstrated how the oil price collapse might affect the world petrochemical market.
"Ethylene is the biggest petrochemical by both volume and value and a key driver of the industry's growth, profitability and investment," the report said.
But the outlook for ethylene through 2025 is marred by overcapacity, and the uncertainty created by the COVID-19 outbreak could exacerbate that situation, because the growth of capacity is difficult to slow down, it said.
"In a period of overcapacity for a commodity like ethylene, cost of production is critical," it said. "The recent development of an almost-halving of the oil price level is expected to dramatically alter the shape of the global ethylene cash cost curve.
"Near term, this surfaces in changes to regional market and asset competitiveness," it said. "Long term, if low oil prices were to be sustained, this would have the potential to alter structural investments in the ethylene industry."
Speaking of the industry in general, Ellacott said he expected consolidation and scaled-back activity, perhaps significant in both cases.
"Companies have been preparing for the risk of lower prices through disciplined investment and building in more flexibility to adjust investment," he said.
But there are far fewer obvious places than before the current price collapse to cut spending and improve spending efficiency, according to Ellacott.
"Digital initiatives will work, and there is more to do in this sector, but it takes time," he said. "Each cut today will mostly go toward actual activity or distributions."