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OGV Energy's US Oil & Gas Review January 2023

OGV Energy's US Oil & Gas Review January 2023


US oil and gas production continues to expand, but at a much slower pace than in previous years, as supply-chain delays and labour shortages persist. Cost increases have somewhat moderated, the Dallas Fed Energy Survey for the fourth quarter of 2022 showed, while the American Petroleum Institute (API) renewed its calls on the Biden Administration to remove the obstacles to US energy production growth.

US Oil & Gas Production Rises But Uncertainty Also Increases

Activity in the oil and gas sector in Texas, northern Louisiana, and southern New Mexico continued rising in the fourth quarter of 2022, according to oil and gas executives responding to the Dallas Fed Energy Survey.

The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—remained positive but fell to 30.3 in the fourth quarter from 46.0 in Q3, suggesting the pace of expansion decelerated but remained solid as the business activity index stayed above the series average.

Oil and natural gas production increased at a slightly slower pace compared with the prior quarter, executives at exploration and production (E&P) firms said. Cost inflation was reported by most firms for an eighth quarter in a row, but the rate of the cost increases has slowed, according to the survey.

Supply-chain bottlenecks, however, persist and it is taking longer for firms to receive materials and equipment, although the pace at which those delays are growing has moderated. All labour market indexes in the fourth quarter remained elevated, pointing to strong growth in employment, hours, and wages.

But optimism waned in Q4 as uncertainty increased, the survey found. The overall outlook uncertainty index increased to 40.1 from 35.7, suggesting growing uncertainty, especially among E&P firms, 53 percent of which reported an increase in uncertainty.

Among E&P firms, 32 percent of executives cited “cost inflation and/or supply-chain bottlenecks” as the main drag on crude oil and natural gas production growth for their firm. A total of 27 percent chose “maturing asset base” while 16 percent indicated “availability of capital.” Other options each received 9 percent or less.

As far as capital spending is concerned, most executives expect their firm’s capital spending to rise in 2023 compared with 2022. A total of 39 percent of executives said they expect capital spending to increase slightly, while an additional 25 percent anticipate a significant increase. Twenty-two percent expect spending in 2023 to remain close to 2022 levels, while only 14 percent anticipate reductions in spending in 2023.

In comments to the survey, executives said that labour shortages, supply chain issues, difficulties in raising capital, and the hostile attitude of the US Administration are the key obstacles to the industry right now.

“Labor is an issue that is affecting our firm. The government can remove all regulations and timetables, and the amount of increase in activity would not be affected by more than 10 percent. Automation cannot drill wells, move rigs and build locations,” one E&P executive said.

“Politics in Washington, California and other states are designed to cause major problems for the industry, and they are being very effective,” another wrote.

An executive at an oil and gas support services firm noted, “Regulatory uncertainty from prospective environmental and/or environmental-, social- and governance-driven compliance is an overhang.”

API Renews Calls for Support To US Energy Growth and Energy Security

As the new 118th Congress began its work in January, the American Petroleum Institute (API) renewed its calls on the US Administration and Congress to stop obstructing the growth of US oil and gas production, and allow more access to federal acreage offshore and onshore and reform the permitting and review processes to support the expansion of pipeline infrastructure.

API published in early January a new report, ‘The Solution is Here,’ in which it outlined several policy recommendations for boosting US oil and gas production and infrastructure and bolstering US energy security.

“We need not return to growing dependence on foreign suppliers. Quite the opposite: American energy must lead in this space, through more domestic production and modernized infrastructure. If America doesn’t lead, others will,” API President and CEO Mike Sommers said in the foreword.

The report recommends policy actions to make, move, and improve US energy production, that is, to produce more oil and gas, increase transportation capacity, and cut emissions in the sector.

“Through the Biden administration’s first 19 months in office, the U.S. Interior Department (DOI) leased fewer acres for drilling on federal lands and waters than any other administration in its first 19 months since the end of World War II, when the U.S. economy was a tiny fraction of what it is today,” API said, calling for increased access to federal offshore and onshore leasing.

“The federal government should clearly demonstrate support for natural gas and oil development in America now and in the long term,” API says.

Moreover, the US lacks sufficient infrastructure for the future – including new natural gas and oil pipelines and investment in maintaining existing infrastructure – to move energy from production areas to refineries and processing facilities and then to demand centres, the main US oil lobbying group said. Permitting and review delays are blocking needed infrastructure, and ten major infrastructure projects, reflecting $34 billion in capital expenditures, were cancelled, stalled, or were at risk of cancellation due to permitting and review delays in recent years. Those cancelled projects include four natural gas projects in Appalachia region, API noted.

“Congress should authorize major energy infrastructure projects as critical to the national interest, supporting energy production, processing and delivery,” the industry body said, adding that the US needs to reform permitting and review processes and make environmental reviews uniform, with established time limits.

In all, $157 billion in energy investment is waiting in the National Environmental Policy Act (NEPA) pipeline, and a two-year NEPA review time limit could spur $67 billion in energy investment, API said. The group also called for acceleration of the LNG export project applications. Supporting export demand while also meeting domestic energy needs could stimulate increased domestic production that could meet American demand, create jobs, and generate U.S. economic growth, it added.

“President Biden should rescind steel tariffs from the previous administration that affect $7 billion in annual steel imports and increase the accessibility of steel for energy production, transportation and refining,” API says.

The US oil and gas industry is “ready to put in the time—this year, with this administration, with this new Congress—to craft and enact bipartisan policies to make, move, and improve American energy,” API’s Sommers said in the State of American Energy 2023 keynote address.

“The solution is right here in America, right under our feet. We just need to seize it.”

US Oilfield Services Employment Rises To Move Closer To Pre-Covid Levels

Employment in the US oilfield services and equipment sector rose by an estimated 4,677 jobs to 650,587 in December, according to preliminary data from the Bureau of Labor Statistics (BLS) after adjustments to November numbers and analysis by the Energy Workforce & Technology Council.

The December increases make OFS employment the highest since numbers started to drop in March 2020, and roughly 56,000 off the pre-pandemic mark in February 2020 of 706,528.

“Our industry is hiring and continues to build on its workforce across America to ensure we are meeting the growing global demand for energy,” Energy Workforce & Technology Council CEO Leslie Beyer said in a statement.

“Further investments and a level regulatory landscape are needed to unlock the full power of American energy, providing energy security for our nation and that of our allies while continuing to decrease global emissions and lowering energy costs.”

Read the latest issue of the OGV Energy magazine HERE

Published: 14-02-2023

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