Skip to Main Content

Texas Pipeline Operators Seek Production Halt as Coronavirus Drives Down Oil Demand

Texas Pipeline Operators Seek Production Halt Due to Coronavirus, Falling Oil Prices.

As the coronavirus pandemic continues to slow demand for oil across the globe, some Texas pipeline operators want drillers to bring production to a halt.

Texas Pipeline Operators Lack Storage Capacity

Texas Railroad Commissioner Ryan Sitton went public with the dilemma on Saturday, warning in a Tweet that many pipeline operators in the state were quickly running out of storage capacity.

“You’re facing a situation where there’s so much demand destruction from people staying home because of COVID-19 and there’s so much oil flowing right now with no place to go,” Sitton told the Houston Chronicle. “The supply chain is facing a problem and it backs up all the way to the gas stations.”

The pipeline operators most affected appear to be those who have contracts to buy crude oil directly from producers in the field. Once purchased, the operators move their oil to storage tanks, where it’s kept in anticipation of future sales.

But the price of crude has plunged in recent weeks, as billions of consumers around the world wait out the coronavirus pandemic by sheltering-in-place. The global crises, combined with an ill-timed price war between Saudi Arabia and Russia, has allowed the price of oil to fall to just $21 per barrel – an 18-year low. With refineries reducing output, any oil being produced in the Permian Basin or elsewhere in Texas is left to sit in storage tanks. And those are only becoming fuller by the day.

Call for Production Cuts Could Accelerate Oil Industry Layoffs

According to the Houston Chronicle, pipeline operators could apply force majeure clauses if Texas drillers refuse their requests. Those clauses, which can be invoked in the case of natural disasters or other extraordinary circumstances, would free pipeline operators from contractual obligations to purchase or ship millions of gallons of crude every day.

Unfortunately, the fallout is sure to cascade through an industry already hard-hit by the coronavirus pandemic. Rig counts were dropping even before pipeline operators started asking for production cuts, and big Permian Basin players like Apache, Halliburton and Schlumberger had already announced thousands of layoffs.

Some smaller oil companies may not even be able to survive the downturn.

“There’s no question we were going to see bankruptcies over this season as the 2019 results came in and as banks pulled their lines of credit,” University of Houston Energy Fellow Ed Hirs told Houston Public Radio. “Now, of course, everything’s going to be accelerated, and then if they were to limit production, it would just happen a heck of a lot faster.”

Undefeated Pipeline Explosion Lawyer: Call 1-888-603-3636 or  CLICK HERE for a Free Consult.

Our Undefeated Pipeline Explosion Lawyers are monitoring the impact of this national emergency on workers in Texas and Louisiana and will continue to post updates as the situation develops.

Please call 1-888-603-3636 or Click Here to send us a confidential email via our “Contact Us” form with any questions.