IEEFA: US oil and gas producers are not increasing production in response to the current price hike
[20 Aprile 2022]
According to the new Link “US Energy Sector Outlook 2022 – Taking Off the Renewable Energy Transition” by the Institute for Energy Economics and Finance (IEEFA), “In the United States, electricity generation using natural gas is likely to peak in 2020.” The report also notes that “the cheaper wind and solar energy eliminate gas from the electricity grid. Unusually high prices for natural gas are exacerbating this trend, as a node in the supply chain and Russia’s war on Ukraine creates a global energy crisis.”
The United States is sending record amounts of gas to Europe to help (at great cost) NATO allies weed out Russian imports, but that extra demand has pushed US gas prices to a 13-year high. A temporary benefit from this globally is coal, which has seen an increase in production. But in the United States, coal continues its long-term decline, as many of the largest energy companies, including the Tennessee Valley Authority, Duke Energy and Georgia Power, plan to phase out coal by 2035 and switch to cheaper renewable energies.
According to IEEFA. “The exorbitant cost of fossil fuels and unexpected disruptions to energy security are now placing the burden on what was already a very high growth rate in solar, wind and battery storage projects.”
While wind, solar and hydropower currently account for about a fifth of energy production in the United States, the IEEFA predicts that “their share could rise to more than a third by 2027”. The report concludes, “Between renewable energy and nuclear power plants, the United States could generate more than half of its electricity from zero-carbon sources by 2027, a massive shift compared to what it was just 5 years ago.”
According to another Link, “Shale producers find they have little room for volatility in 2022 – investor pressure to maintain capital discipline keeps production,” IEEFA published on April 13, “With oil prices soaring, listed oil and gas producers demonstrate unwillingness to increase drilling and production operations. According to the Dallas Fed Energy Survey, “the main reason for the slowdown is investor pressure to tighten their grip on capital spending.” The analysis found that “the primary focus of the US oil and gas industry is no longer production growth.”
The report’s author, Tre Cowan, an energy finance analyst at IEEFA, notes, “This trend shows that the main problem for US oil and gas operators is not to increase production, but rather to pay debt and reward shareholders. Higher oil and gas prices no longer seem to spur production increases. ».
As more and more countries prevent or restrict purchases of Russian gas in response to the invasion of Ukraine, demands in the United States have increased to increase production and lower gas prices for consumers. But unlike previous booms, oil and gas producers have not responded with more drilling, opting instead to reap the rewards of higher operating returns.
The IEEFA analysis also notes that “Oil and gas companies are in a bad position to increase production as many companies have run out of stock of wells that have been drilled but not completed to keep costs low.” The report concludes by emphasizing that “regulations and licenses are not major factors in slowing production or keeping prices high.” Something enthusiasts of the new “super” drilling to extract small gas from hypothetical Italian reserves should consider.