War in Ukraine increases pressure for US oil; the industry faces obstacles
Billings, Mont. – In the northern Montana oil fields, industry veteran Mac McDermott watched crude prices soar from $75 a barrel in January to over $120 as Russia continued its war in Ukraine and then back again when coronavirus concerns in China raised the specter of a global slowdown.
McDermott said his family business would increase drilling slightly if oil prices stabilize. But for the next few months, he waits on the sidelines and struggles to recruit enough workers to oversee about 100 oil wells operated by the company. That includes some unused sinks during the pandemic that he’s been trying to bring online since last year.
President Joe Biden’s decision to ban Russian oil imports following his invasion of Ukraine has been met with Republican demands to increase US production to cope with high gasoline prices. The White House also called for more drilling and cited war as it reversed Biden’s campaign pledge to limit drilling on public lands due to climate change.
Continued: Events of the Russian invasion of Ukraine on Friday, March 18, 2022
Yet the political rhetoric about rapidly increasing crude production in the United States is at odds with the reality of the industry: there are not enough workers to grow quickly, little money to invest. in drilling and fear that today’s high prices will last, according to industry representatives, analysts and state officials.
“It would be great to produce more domestically,” McDermott said. “(But) it’s so volatile. … We haven’t had access to capital for years. If we drilled, the money would have to come from existing production. It’s a risky business. »
Republicans in energy states skirted logistical constraints in the industry to blame Democrats and Biden for slow US oil growth. Texas Sen. Ted Cruz and Montana Sen. Steve Daines have called for U.S. energy to be “unleashed” and for more public lands to be opened up for drilling. Daines accused Democrats of using Russia’s oil ban to cover up an alleged plan to “ban all oil”.
The United States does not import much Russian oil, and the Biden administration has effectively halted new lease sales of oil or natural gas from federal lands and waters. But he has approved nearly 4,000 new drilling permits on federal lands and companies have thousands more in stock. White House spokeswoman Jen Psaki said companies should use those permits to “get more supply from the ground.”
Federal energy reserves account for about a quarter of US oil, with the rest coming from private, tribal and state lands.
Overall, pumping rates slowly increased during Biden’s first year as the industry emerged from the pandemic, when oil futures prices briefly dipped below $0 a barrel.
The hurdles to more U.S. oil are surmountable, analysts say, but they will take months to overcome and it could be late this year or early next year before a significant increase in production materializes.
“It will be a slower ramp-up for fields like ours,” McDermott said. “Everyone in the industry would say if we have a consistent price you know what you’re getting for an extended period of time and it’s easy to make trading decisions.”
In the short term, the world is turning to other sources. The United Arab Emirates said last week it would urge OPEC to consider increasing oil production, which has sent oil prices plummeting. Saudi Arabia alone has about 2 million barrels per day of additional capacity, said Rice University energy researcher Jim Krane.
By comparison, total US production last year was around 11 million barrels per day.
Even with favorable conditions — high prices, political pressure and less cautious shareholders — U.S. companies could see production increase by just over a million barrels a day by the end of the year, Robert said. Johnston of the Center on Global Energy Policy at Columbia University.
Some of the largest US reserves are found off the Gulf of Mexico. However, the massive rigs used in the deep waters of the Gulf take years to fund, build and put in place.
Near-term crude growth is expected to come from already developed onshore oil resources, such as the Permian Basin in New Mexico and Texas and the Bakken in North Dakota and Montana, said Andy McConn of Enverus, an oil company. energy analysis whose data is used. by industry and government agencies.
Even in these areas, there is no way to simply turn on the tap immediately. The most easily accessible reserves have already been drilled, McConn said.
“There’s not a lot of fruit at hand,” he said.
Some oil-producing regions were already rebounding as the industry shook off its pandemic downturn, particularly the Permian Basin — the nation’s busiest oil area with 45,000 wells drilled over the past decade, according to the Energy Information Administration. Other oil plays that could see expansions include Oklahoma’s Midcontinent region and Colorado’s DJ Basin, McConn said.
Operators in the Permian Basin have described growth as stable since last spring. In January, they exceeded 5 million barrels per day.
However, the atmosphere this time is different. “It’s not a ‘drill baby drill’ mentality like it used to be,” said Stephen M. Robertson of the Permian Basin Petroleum Association.
Multiple factors are tempering a production boom, he said, including volatile prices, labor issues and longer wait times for parts to be made and supplies to be shipped. Even some workers’ favorite custom cowboy boots have been hard to come by.
“It’s not just a factor that tells the industry what to do. It’s not just the high prices,” Robertson said.
If the conflict in Ukraine drags on, prices remain high and logistical hurdles are overcome, companies could venture into relatively untapped areas, including Wyoming’s Powder River Basin and Utah’s Uinta Basin.
But it won’t be like the booms that have swept through these regions over the past decade, drawing thousands of workers who have overwhelmed housing and other services and turned rural communities into industrial hubs.
Larry Scott, an engineer who has worked in the oil industry for decades and now represents part of the Permian Basin as a Republican in the New Mexico Legislature, said oil and gas companies still face the challenge. of the work force.
“You can’t scale up if you can’t find qualified people to do it,” he said.
Bryan reported from Albuquerque, New Mexico.