The Energy Boat Is Sinking, And We’re Going Down With It

Now that President Biden has shut America’s door to Russian energy, the public has responded with great zeal. Anyone with a soul knows the Russkies are awful and we shouldn’t give them money. We have scored a small moral victory over a giant tyrant. Prices will be going up with the loss of their contribution, but many are prepared to put up with some more squeeze of their wallets.

A lot of Americans will now be turning to a new enemy: the domestic oil sector. They want oil execs in the stocks now for price gouging because filling their tank and going grocery shopping has suddenly gotten rather pricey while they and their shareholders rake in billions. Who can blame them? There are so many struggling Americans out there and it seems obscene that it should happen, that so few should get so rich while hundreds of millions get poor. It is obscene. Let’s call it what it is.

So how do we stop the profiteering? Or how do we mitigate the damage from it?

The most radical idea would be to nationalize the energy industry. No profit making industry should have so much power over a nation. Chances of this happening: 0%. So let’s move on.

We could cap prices or make them graduate increases. Make it so they can wet their beak, but take a chill in kicking the customer’s ass. It may not work, because of the speed of these price increases. Companies would chafe under the caps as they watch a lot of money left on the table. Still, it’s the least worst idea I can think of for all parties.

Another idea I’ve seen floating around is penalizing companies found to by hyperprofiting while demand is so high and supply is so short. This sounds good, but if you remove too much of their profit, their incentive to expand their business shrinks. To retain profitability, they will take more wells offline. That equals even higher prices, and dependence on imports.

Another option would be to somehow force companies to produce to lower prices. The feasibility of this approach is questionable. Again, the need to profit is in the way here. If unable to, these business will do anything from shrinking to closing, throwing people out of work. Sounds like a recipe for catastrophe to me.

There’s a few other options. Two of them are actually savory.

Subsidies.

We could lend or outright offer oil companies public money to open the taps. That doesn’t sit well with most, as they are already doing quite well without jacking up our national debt.

The other way we could do a subsidy is give consumers a one time payment to offset the higher gas prices. A little stimulus, say $500 at least would satisfy a lot of angry Americans.

The final option, which would take some time to achieve, is fucking green the goddamn energy mix.

Now that we have discussed what we are doing and could do to stop the price pain, let’s dig into the other reasons why gas prices are so high. You’re gonna hate me for this, but there are exculpatory reasons for oil companies’ reluctance to produce and grow. By now, you have already heard that thousands of leases for drilling remain unused. The kneejerk reaction to that is to demand that they get to drilling. However, there remain systemic problems within the industry inhibiting growth. This article here is highly instructive. I’m gonna quote a lot of it because it’s important, but you should read the whole thing.

U.S. shale production is back in growth mode, but inflation and supply chain bottlenecks could hobble the growth trajectory this year despite the tempting economics of $100 oil.

Yet, cost inflation, labor and equipment shortages, and continued restraint in spending and drilling from the biggest public independents could slow output growth.

EOG Resources president and chief operating officer Billy Helms noted that there are a lot of headwinds for the U.S. shale patch to ramp up activity and grow production this year.

Equipment and labor constraints are some of those headwinds, Helms said on the call, giving as examples challenges in attracting workers for the drilling and frac stages and the fact that “most of the good equipment is already under employment today.”

“And hopefully, the industry can strengthen and get better on a go-forward basis. But this year is going to be a challenging year from that side,” said Helms.

Over the past weeks, other shale producers and oilfield services providers have flagged headwinds to this year’s growth. For example, frac sand in the biggest shale play, the Permian, is in short supply, threatening to slow drilling programs at some producers and sending sand prices skyrocketing. This adds further cost pressure to American oil producers, who are already grappling with cost inflation in equipment and labor shortages.  

$100 oil could unleash a lot more U.S. oil production, in theory, but supply chain constraints and record-high sand prices are likely to temper growth, analysts say.

It would seem that the industry is experiencing a bit of paralysis, and that’s factoring into low output.

This next part is chilling:

Supply chain and cost inflation aside, the largest public independents in the U.S. shale patch are not racing to pump too much crude, even at $100 oil.

EOG Resources, for example, guides for crude and condensate production in the range of 455,000 to 467,000 bopd for 2022, compared to 443,000 bopd for 2021, suggesting that one of the biggest listed independents follows the other public shale firms in pledging to cap growth and return more cash to shareholders.

Pioneer Natural Resources, the biggest oil producer in the Permian, will not open the taps and will stick to discipline even at $200 oil, says chief executive Scott Sheffield.  

“Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans,” Sheffield told Bloomberg Television in an interview last month.  

Now here is where I’m listening that we institute a cap on prices. Because they’re berserk if they think the economy can do $200 a barrel oil.

Basically, the energy industry is going to bring the globe to its knees, partly by design, partly by circumstance. There are no easy answers. What seems clear is that we have not really gotten far up to the summit of this rollercoaster ride. You may see shit people have never seen in the coming months and years.

About The Head Seminarian

I went to war, I went to father, I came, I saw, and it is a mess. I wouldn't have it any other way. Shitty people amuse me, people who act like human volcanoes fascinate me like fine art. Life is beautiful, and it is under attack in a manner heretofore unseen in history. I might be writing a blog. Yes, that's all I am doing, now that I think about it. Even I forget sometimes, so we're cool.

Posted on March 8, 2022, in Oil and tagged . Bookmark the permalink. Leave a comment.

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