OGV Energy's US Energy Review November 2021

Slow increase in US oil and gas production, rising cost inflation pressuring companies, high petrol and energy prices, and the industry calling on the Biden Administration to start supporting American energy instead of pleading for more oil from OPEC+ were the key developments in US oil and gas over the past weeks.

The US oil and gas industry continued to expand activity in the third quarter of 2021, according to the Dallas Fed Energy Survey of E&P and oilfield services companies in the Eleventh Federal Reserve District, which comprises Texas, southern New Mexico, and northern Louisiana.

Oil & Gas Costs Rise Sharply

Oil production rose, but at a slower pace than in the previous quarter, while costs jumped for a second consecutive quarter, company executives said in the survey.

“Among oilfield services firms, the index for input costs increased to 60.8, a record high and indicative of significant cost pressures. Only one of the 47 responding oilfield services firms reported lower input costs this quarter,” the survey found.

Restraint in the US shale patch continued in the third quarter, despite the higher oil prices.

An E&P company executive said in comments to the survey:

“We are encouraged by the restraint shown by U.S. upstream operators. By restricting capital expenditure, we are healing historic overproduction of both oil and natural gas. We believe investors will be attracted back into the E&P space if, as an industry, we continue on this path for at least a year or two more to deleverage balance sheets and return capital to investors.”

Among oil and gas support services firms, one executive commented:

“We are finding it difficult to increase prices to match our increase in costs.”

US Petrol Prices Hit Highest Level in 7 Years

Petrol prices in the United States stayed in October at their highest level since 2014, due to high crude oil prices, recovering US economy and demand for fuel, and continued declines in US petrol stocks.

“Sorry folks, but the cost of gasoline is still going up,” AAA said on October 18, and its spokesperson Andrew Gross noted that “unfortunately, it doesn’t look like drivers will be finding relief at the pump any time soon.”

“API’s primary data on U.S. petroleum markets for September reinforced a combination of developments that has been recurrent so far in 2021 – that is, demand outpaced supply, inventories fell, and consequently imports and prices rose,” the American Petroleum Institute said in its Monthly Statistical Report on 15 October.

As per the API data, US petroleum demand set a record high for the month of September of 20.6 million barrels per day (bpd), including the highest refining and petrochemical demand for other oils – intermediate products in refining and petrochemicals – ever for the month.

On the other hand, US crude oil production was constrained by the storms in the Gulf Coast, the API noted.

Faced with the highest petrol prices in seven years, the US Administration continues to engage with OPEC members to address the slow (according to the White House) supply response from the OPEC+ group.

“We are continuing to press, through member countries — member countries of OPEC, even as we are not a member — to address the supply issue and work to address it here as well,” White House Press Secretary Jen Psaki said during a briefing on 18 October.

“We are certainly well aware of the impact on any increase in gasoline prices or any costs on the American people, and we’re going to use — continue to use every lever at our disposal,” Psaki added.

President Biden Vs US Oil Producers

While the White House pledges action to address the high petrol and energy prices, House Republicans call on the Administration to stop putting hurdles ahead for US oil production and to stop pleading with OPEC+ to come to the rescue.

A total of 145 House Republicans sent in mid-October a letter to US President Joe Biden, urging him “to reverse his anti-American agenda of emboldening adversarial foreign energy producers and empower American energy producers instead.”

“It is total hypocrisy to kneecap American-made energy while simultaneously begging our adversaries like Russia, Iran, and Venezuela to increase their oil production. Your policies are making things much, much worse—for everyone,” said Kevin McCarthy, Republican Leader and Representative of California’s 23rd District in the House of Representatives.

“We disagree with your Administration’s efforts to decrease access to American energy resources while soliciting OPEC+ nations to increase production of their resources. As you are aware, OPEC+ includes nations that are known American adversaries, such as Russia, Iran, and Venezuela. It is not in America’s interest to rely on these nations for energy,” the letter reads.

Upstream M&As slow down, oilfield sector employment rises again

Mergers and acquisitions in the US upstream sector slowed in the third quarter of 2021 from the record-setting deal value in the second quarter, but at US$18.5 billion, deal value in Q3 still topped the five-year quarterly average for M&A value of about US$16 billion, excluding the Occidental/Anadarko mega-merger, energy data analytics firm Enverus said in October.

ConocoPhillips’ acquisition of Shell’s Permian assets for US$9.5 billion was the largest deal in Q3 2021, and it moved ConocoPhillips into second place for total Permian production, Enverus noted.

“We have seen a red-hot market for upstream M&A since the industry recovered its footing from the initial shock of COVID-19,” Andrew Dittmar, director at Enverus, said.

“It was inevitable that the hungriest buyers and sellers would find their deals and activity would revert back toward the average. We seem to be hitting that inflection point,” Dittmar added.

Meanwhile, employment in the US energy technology and services sector rose by an estimated 1,914 jobs in September, which marked a seventh straight month of growth, according to preliminary data from the Bureau of Labor Statistics (BLS) and analysis by the Energy Workforce & Technology Council.

“The energy services and technology sector has added nearly 44,000 jobs over the past seven months after hitting a pandemic low of 597,067 jobs in February, according to BLS data,” the Energy Workforce & Technology Council said.

bp invests in cutting emissions at Washington refinery, Chevron sets net-zero goals

UK-based supermajor bp announced in early October plans for a US$269-million investment in three projects at its Cherry Point Refinery in Washington state. The projects are aimed at improving the refinery’s efficiency, reducing its carbon dioxide (CO2) emissions, and increasing its renewable diesel production capability.

The investment is aligned with bp’s goal to be net-zero across its operations by 2050 or sooner and to reduce the carbon intensity of the products it sells by 50% by 2050 or sooner, the company said.

Meanwhile, US oil and gas supermajor Chevron said on 11 October it had adopted a 2050 net-zero aspiration for equity upstream Scope 1 and 2 emissions.

In an updated climate change resilience report aligned with the Task Force on Climate-Related Disclosures (TCFD), Chevron describes how it would incorporate Scope 3 emissions into its greenhouse gas emission targets by establishing a Portfolio Carbon Intensity (PCI) target inclusive of Scope 1 and 2 as well as Scope 3 emissions from the use of its products.

“We regularly engage with stakeholders and investors to understand their views and to be responsive to their increasing expectations on all issues, including ESG,” Dr. Ronald Sugar, Chevron’s lead director, said in a statement.

“Our updated report demonstrates our goal to partner with many stakeholders to work toward a lower carbon future.”

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