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Utah’s oil industry crumbling under coronavirus pressure

All drill rigs have left the state

An oil rig is pictured in the Uinta Basin in the Red Wash area near Vernal.
An oil rig is pictured in the Uinta Basin in the Red Wash area near Vernal.
Scott G. Winterton, Deseret News

SALT LAKE CITY — A new report looking at the state of energy in Utah details a grim picture for the oil industry, with the price per barrel for Uinta Basin waxy crude dropping by 90% since January.

As of May 1, all drilling rigs had left Utah and many current wells are being shut in, according to the Utah Geological Survey.

Utah’s Energy Landscape, released Monday, describes the significant changes to the oil industry, with predictions of declining production by as much as 6 million barrels this year due to lack of demand in the wake of the COVID-19 pandemic.

Travel restrictions and a price war between Saudi Arabia and Russia are resulting in dramatic consequences for the oil sector across the United States and in Utah, which had a $4 billion energy production value prior to the pandemic — the majority derived from the oil and gas sector, the agency said.

The report said it anticipates those consequences to stretch into next year, severely impacting the industry’s workforce and the coffers of government, with nearly $159 million generated from property taxes and another $150 million in conservation fees paid to the state.

Those energy sector employees earn nearly double the statewide annual wage and many are now idled in unemployment lines as the industry sputters amid the severe contraction in prices.

Those prices may bode well for the consumer at the pump, with the average gasoline price in Utah per gallon sitting at $1.98. The glut of oil on the market will result in a production decline in Utah by 20% or more and an additional decline of 10% in 2021, the agency predicts.

Natural gas production was on the decline in Utah but will drop more as associated gas from oil wells decreases.

If, and when, it recovers is anybody’s guess.

“At this point it is so hard to predict because we don’t know how long the lockdown will be,” said Michael Vanden Berg, who oversees the survey’s energy and minerals program. “We don’t know how long it is going to take before people start getting out and driving around. The big question is how long it is before we get back to a normal level of activity when it comes to using petroleum products.”

The report did note that coal production rebounded in 2019 due to a growing foreign export market, and despite the pandemic, production is expected to remain steady for the next few years.

There is also good news on the renewable energy front, with the state adding 914 megawatts of new utility-scale solar between 2015 and 2019 and experiencing a tremendous surge in residential solar, jumping from just seven megawatts in 2013 to more than 212 megawatts in 2018.

A megawatt is a unit of energy that generally can power 1,000 homes.

Additional activity is happening with renewable natural gas coming online in Utah from sources that include sewer districts and other waste facilities.

Correction: An earlier version of this story incorrectly said decreased oil production could reach 6 million barrels per day. The Utah Geological Survey is predicting a decrease of 6 million barrels for this year.