Ukraine war raises pressure for US oil; The industry is facing obstacles

Billings, Mont. – In the North Montana oil field, industry veteran Mac McDermott saw crude oil prices rise from 75 75 to 120 120 a barrel in January when Russia pressed its war on Ukraine, then came down again when coronavirus concerns in China sparked global panic.

McDermott said his family-owned company would increase drilling moderately if oil prices stabilized. But for the next few months, he’s been on the sidelines, struggling to find enough staff to keep an eye on the company’s nearly 100 oil wells. This includes some lazy wells during the epidemic that he has been trying to bring online since last year.

President Joe Biden’s move to ban Russian oil imports due to the invasion of Ukraine was met with Republican demands to boost U.S. production in response to high petrol prices. The White House has also called for more excavations and cited war as it has kept Biden’s campaign promise to stop drilling on public land due to climate change.

Yet political rhetoric about rapidly increasing U.S. crude output conflicts with industry realities: industry representatives, analysts and industry representatives say there are not enough workers to expand rapidly, little money to invest in drilling and caution that today’s high prices will not last. State officials.

“It would be great to produce more internally,” McDermott said. “(But) it’s very volatile. … for years we have had no access to capital. If we drill, the money will come from the existing production. It’s a risky business. “

Republicans in power states have oversteped the industry’s logistical constraints to blame Democrats and Biden for the slow U.S. oil growth. Texas Sen. Ted Cruz and Montana Sen. Steve Dains has called for “liberating” American power and opening up more public land for drilling. Dines accuses Democrats of using Russia’s oil embargo to “cover up a presumed plan to ban all oil.” “

The United States does not import much Russian oil, and the Biden administration has effectively stopped selling new oil or natural gas leases from federal land and water. However, it has approved about 4,000 new drilling permits on federal land and the companies have thousands more in stock. White House spokeswoman Jane Sackie said agencies should use those permissions “to get more supplies from the field.”

The Federal Energy Reserve is responsible for about a quarter of US oil, with the rest coming from private, tribal and state lands.

In Biden’s first year, the overall pumping rate gradually increased as the industry emerged from the epidemic, while futures oil prices briefly fell below $ 0 per barrel.

Analysts say further U.S. oil hurdles could be overcome, yet work will take months and significant production increases could be delayed or early this year.

“This is going to be a slow ramp for areas like ours,” McDermott said.

In the short term, the world is looking to other sources. The UAE said last week that it would ask OPEC to consider increasing oil production, which has brought down oil prices. Jim Crane, an energy researcher at Rice University, says Saudi Arabia alone has an additional capacity of about 2 million barrels per day.

By comparison, last year the total production in the United States was about 11 million barrels a day.

Robert Johnston, of Columbia University’s Center on Global Energy Policy, said that despite favorable conditions – strong prices, political pressure and less-than-cautious shareholders – U.S. companies could increase production by just 1 million barrels per day by the end of the year.

Some of the largest reserves in the United States are coastal in the Gulf of Mexico. However, the huge platforms used in deep Gulf waters take years to finance, build and install.

A near-term crude boost should come from coastal oil resources such as the Permian Basin in New Mexico and Texas and the Bucken in North Dakota and Montana, says Andy McConnell, with Envers, a power analyst firm whose data is used by industry and government agencies.

Even in these areas, there is no way to open the spigot immediately. The most easily accessible reserves have already been drilled, McConnell said.

“There’s not a lot of low hanging fruit,” he said.

According to the Energy Information Administration, some oil-producing regions are already returning because the industry is slowing its epidemic, especially in the Permian Basin – the country’s busiest oil patch, drilling 45,000 wells over the past decade. Other oil patches that could see expansion include the Oklahoma Midlands and Colorado DJ Basin, McConnell said.

Operators in the Permian Basin have described growth as stable since last spring. As of January, they are at the top of 5 million barrels daily.

Yet this time the mood is different. “It’s not the same ‘drill baby drill’ mentality as before,” said Stephen M. Robertson of the Permian Basin Petroleum Association.

He said a number of factors, including volatile prices, labor problems and long wait times for parts to be made and shipped, were stimulating production growth. Even custom cowboy boots that some workers like are hard to find.

“It’s not just a factor that tells the industry here what it should do. It’s not just high prices, “said Robertson.

If the Ukraine conflict continues, prices remain high and logistical hurdles are overcome, companies could move into relatively unneeded areas, including Wyoming’s Powder River Basin and Utah’s Winta Basin.

But it will not be something that has flowed through those regions over the past decade, drawing thousands of workers who have overwhelmed housing and other services and transformed the rural community into a hub of industry.

Larry Scott, an engineer who has worked in the oil business for decades and now represents a part of the Permian Basin as a Republican in the New Mexico Legislature, says oil and gas companies still have to overcome the labor challenge.

“You can’t ramp up if you can’t find the right person to do it,” he said.


Brian reports from Albuquerque, New Mexico.


Follow Matthew Brown: @MatthewBrownAP

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