The effects of the COVID-19 virus have been felt around the world. Unfortunately, beyond health risks, bad actors are using the pandemic to capitalize off unsuspecting victims. Scams are nothing new, even in the utility world. Scammers prey upon victims by manipulating their emotions and creating fear. Like other legitimate businesses, utility companies will never ask for personal information over the phone or by email to satisfy payment on a past-due account. Never give out your Social Security number, date of birth or other critical identifying information. If you ever receive a disconnect notice by email or over the phone, verify the sender’s address or telephone number is your utility’s. Remember that phone numbers and caller IDs can be spoofed or mimicked. If in doubt, hang up and call your utility company’s customer service department to verify a request is valid. A utility company will never call you and threaten immediate disconnection if you do not provide a credit card number by phone. Never pay your utility bill by giving your bank account, credit card or CVC number over the phone. Also, never purchase a prepaid debit card or anything else someone tells you to that is not traceable by your credit card company. Throughout the COVID-19 pandemic, utility companies continue to work with customers on payment options, including balanced billing, when necessary. If you are experiencing a financial hardship, contact your utility provider to discuss a plan that works for you. Be smart, be safe and always verify any requested information with your utility provider. Always call the utility customer service department using the telephone number listed on their website or your utility bill. Report to your local authorities any suspicious phone calls or emails posing as your utility provider. This is criminal activity. You can find more information about utility disconnection rules on the Public Service Commission website at Brian Kroshus – Chairman, North Dakota Public Service Commission Kroshus holds the portfolio for regulation of investor-owned utilities operating in North Dakota.

Will the Oil and Gas Division of the North Dakota Industrial Commission choose winners and losers in the midst of a global recession? After deciding last week that current oil production is not “waste,” the NDIC will hold a hearing on May 20 “to consider how to determine the oil price at which the production of oil in excess of transportation or marketing facilities or in excess of reasonable market demand constitutes waste…” North Dakota producer Continental Resources has declared force majeure, a legal term defined in contracts, in shutting in its oil wells and breaking contractual obligations to deliver oil. If the NDIC decides North Dakota oil production is waste, then the midstream and pipeline companies who committed billions of dollars to build pipes to North Dakota lose out.

Since 2005, North Dakota has produced more crude oil than North Dakota refineries can handle. To reach distant consumer markets, the state’s producers have relied successively on trucks, railroads and finally pipelines. North Dakota oil competes against oil that costs as little as $15 per barrel to produce.

Pre-virus, the global crude market was 100 million barrels per day. The U.S. consumed approximately 20 million barrels per day, produced approximately 12.5 million barrels per day and exported 3 million barrels per day. “U.S. energy independence” is a myth. North Dakota produced approximately 1.0 million barrels per day while, for comparison, Texas produced approximately 4.5 million barrels per day.

World consumption is temporarily down between 20 million and 30 million barrels per day because of the COVID-19 recession. Even before the virus, prices were falling and world oil consumption was down 800,000 barrels per day due to the warmest January on record. Why does this matter? Our research shows that for a 1% increase in quantity supplied to a balanced market, the price will fall 20% to 25%. Volatile oil prices are a fact of life in the best of times.

The negative oil price on April 20 was due to a meltdown in the futures market in the May contract. Crude oil buyers continued to buy. Oil prices remained positive in California. Carl Icahn, the investing legend, gratefully accepted payment from May contract holders to take their oil off their hands! Some speculators lost out. Some quick-thinking producers could have joined Icahn and received cash to keep their oil in the ground. Hedge funds and others who bought the oil are paying as much as $1 per barrel per month to store purchased oil for a year in offshore tankers, salt domes, old depots and even frac tanks. The May 2021 price is much higher than the current price of crude plus the $12 per barrel cost of storage.

On April 21, the Railroad Commission of Texas took up the question of a temporary cut to Texas oil production. Jim Teague, the pragmatic co-CEO of midstream company Enterprise Products, speculated that the companies who called for the hearing were simply looking for government cover in order to duck contractual obligations to make deliveries to pipelines, refiners and other buyers. The commissioners and every participant at the hearing knew that cutting back oil production in Texas—whether state-mandated or voluntary—would have zero impact on the oil price in Texas. In fact, everyone knew that shutting in all of U.S. production would not bring the crude market back into balance. The Railroad Commission decided to commission a study.

Shale producers are among the high-cost producers in the global oil market and are vulnerable to predictable price wars with low-cost producers. Necessarily, North Dakota producers receive relatively lower prices than other nodes in the global market because of transportation costs. The least expensive transport from North Dakota is by pipeline, and in exchange for cheap pricing, the producers contractually agreed to fill the pipelines. These guaranteed contracts were then taken to Wall Street by the pipelines for financing. Had the pipelines assumed all of the risks, the costs to producers and consumers would be higher. Continental Resources aligned with the Obama administration to deny market pricing to the Seaway pipeline owners and maintain the regulated contracts. Now, they want the NDIC to protect them from their contracts without making pipeline owners whole.

Of course, North Dakota producers can always go back to shipping crude by rail or trucking.

Ed Hirs is CFA and energy economist as well as a lecturer and energy fellow at the University of Houston and natural resources fellow at BDO Global. In addition to his role at UH, Ed is a former Managing Director for Hillhouse Resources, an independent E&P company developing onshore conventional oil and gas discoveries on the Texas Gulf Coast. Ed also founded and co-chairs an annual energy conference at Yale University.

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