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SOURCE ROCK BLOG

“The supply chain is broken.”

5/5/2020

 
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Flipping through TikTok this week, I came across a farmer who succinctly explained the problem he’s facing during the COVID-19 crisis. It’s the same one our industry is encountering. Showing a ditch full of rotting onions with his cellphone camera, he explained, “The supply chain is broken. Nobody wants those onions. I can’t give them away for a penny-a-pound. Nobody wants them.”

“When you close all the restaurants, you change the whole supply chain,” he added.

For Shay Myers, the farmer from Idaho, he can’t even donate his crop. He told a local news station that with the financial loses he’s already faced, plus the cost of transportation and packaging, it’s not possible to donate his crop to food banks.

For now, he’s maxed out his cold storage with his crop in the hopes that restaurants, schools and stores open soon, or in the next 6 months. Squinting in the sun, he added on social media, “That’s how many extra there are,” pointing to a large onion-filled ditch he was preparing to backfill.

​His clip reminded me that two weeks ago on the day when oil futures turned negative for the first time ever I went and got gas. It was the first time in 40 days. The only other time I went that long without filling up was in 2003 when, after three years of riding the Metro in Washington, DC, I finally bought a car.
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Just like the restaurants closing down and cutting off a market for onions, millions of people working from home (if at all) has cut the demand for gasoline. Producers are looking for storage facilities and investors are cutting their losses. The supply chain is broken.

As a result, America’s strategic reserves are 90% full. Of the 714-million-barrel capacity, 636 million barrels of crude are being stored. And there are few places left to store oil as offshore tankers are similarly reaching capacity. Globally, the 4.4 billion barrel storage capacity is approximately 65% full, and some analysts predict it could be full in three months.  

This farmer’s story helps explain much of the phenomenon oil and natural gas companies are currently experiencing, only he can provide a compelling visual that’s much harder for us to produce: a field full of rotting product.

For farmers like Shay Myers and so many in our industry, we’ll see a turn around when the economy begins to open up. As stay-in-place orders are lifted, demand for basic consumer goods will grow. But until then, these days feel a little like we’re in a ditch filled with rotting onions.

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Author

Aaron Johnson, Vice President of Public Affairs

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