A statue of a pump and rig sits next to a gas station in Odessa, Texas, on March 13. U.S. oil and gas companies are under pressure to drill more, but they have limited resources. how much they can do.
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A statue of a pump and rig sits next to a gas station in Odessa, Texas, on March 13. U.S. oil and gas companies are under pressure to drill more, but they have limited resources. how much they can do.
Joe Raedle / Getty Images
It seems like a reasonable fix. With domestic gasoline prices soaring this month, oil producers can drill more, right here in the United States.
President Biden, who has a complicated history with the oil industry, looks set to join. Although his administration is looking to countries like Saudi Arabia to pump more oil, as well as potentially relax sanctions on Iran and Venezuela, he still believes oil producers America is well equipped to boost manufacturing.
After all, the US is the world’s top oil producer, and gas prices hit a record high this month, above $4 a gallon (though that’s not adjusted for inflation).
“The oil and gas industry has millions of acres to lease. They have 9,000 permits to drill now. They can drill now, yesterday, last week, last year,” Biden said this month while Announcement of a ban on the import of Russian oil.
However, it turns out that getting US producers to drill more oil is easier said than done.
Top oil executives warn that they will not be able to increase US production anytime soon.
Vicki Hollub, president and CEO of Occidental Petroleum, said at this month’s CERAWeek energy conference: “I would say we’re in a really dire situation.
Here are three key challenges US oil producers are facing to boost oil production.
It’s the supply chain, stupid
The first challenge is activity.
Drilling additional wells is not as simple as turning a stake and watching the oil gush out.
US crude oil production now stands at 11.6 million bpd, according to latest data from the US Energy Information Administration. This is lower than the level of March 2020, when the country produced 13 million barrels of crude oil per day.
Gas prices rose to record highs after Russia invaded Ukraine.
Stefani Reynolds / AFP via Getty Images
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Stefani Reynolds / AFP via Getty Images
Gas prices rose to record highs after Russia invaded Ukraine.
Stefani Reynolds / AFP via Getty Images
Farzin Mou, vice president of intelligence at Enverus, an energy analytics firm, warned that boosting supply wasn’t easy even before the coronavirus pandemic ravaged supply chains.
“From the moment you drill a rig to when you can put it online, it usually takes about six to eight months,” she said.
Now, add to the difficulty oil producers are facing in procuring raw materials like sand and steel, and it’s more obvious that producers are unlikely to come up with a quick fix for gas prices. present.
In fact, Mou says she doesn’t expect more oil on the market until next year.
The shortage of workers also affects the oil industry
The number of workers in oil and gas production has been steadily decreasing since 2015.
Then, when the pandemic started and demand for oil plummeted, a lot of workers were laid off. Employment in the sector fell from 137,000 workers in February 2020 to 113,000 a year later, according to data from the Bureau of Labor Statistics.
Those people probably won’t come back, said Stacey Morris, research director at energy data provider Alerian.
“They may have to move on and find something else to do because their job in the oil industry is gone,” she said.
Morris also said there has been a “grey oil slick,” meaning the workforce is aging.
Last year, oil and gas producers recovered about half of the jobs lost, but still have fewer than the roughly 12,400 oil and gas production workers they had before the pandemic.
And that will make it more difficult for oil companies to supply the additional wells needed to pump more oil.
Gasoline trucks plunge down the road near an oil refinery in El Paso, Texas, on December 10, 2021.
Patrick T. Fallon / AFP via Getty Images
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Patrick T. Fallon / AFP via Getty Images
Gasoline trucks plunge down the road near an oil refinery in El Paso, Texas, on December 10, 2021.
Patrick T. Fallon / AFP via Getty Images
Investors can push back
The biggest factor for American oil producers, however, may simply be fear.
Over the past decade, U.S. oil production has grown dramatically. But when prices fell in 2014, investors lost a lot of money. Oil prices are notoriously volatile, with the industry regularly going through boom and bust cycles.
But in the last few years, investors have made it clear to oil producers that they shouldn’t be pouring money into additional drilling in pursuit of the next oil boom. Instead, they want companies to return capital to investors.
Mining and manufacturing companies responded by recording explosive dividend growth. According to Morningstar US Market IndexThe average dollar dividend per share has grown from $14 in 2018 to $40 in 2021, an increase of more than 180%.
“Energy companies are scared to ramp up production because they will be punished by investors,” said Morris, a data provider Alerian.
And those same investors can now prevent oil companies from ramping up production too much, even as others promote a “drill, drill, drill” approach.
