Subscribe to our newsletters & stay updated
June marks the end of the second quarter of calendar year 2022, and the Ukraine war is still raging with an uncertain outcome as of this writing. Oil pricing remains in the $100/barrel range; WTI is at $101.40/barrel and Brent Crude is at $103.99/barrel. Oil pricing strengthened as the Chinese central bank issued assurances of economic support, easing fears that a new round of virus lockdowns would crimp crude demand. Diesel markets also have spiked amid global demand for supplies.
Exacerbating the energy markets are the revised National Environmental Policy Act (NEPA) Phase 1 regulations that will slow the permitting process for critical energy infrastructure dramatically. They will create new obstacles — not only for natural gas and oil development, but also for the development of carbon capture, utilization and storage (CCUS), hydrogen infrastructure and, potentially, the construction of wind, solar and electricity transmission projects.
Three Iowa companies want to spend billions to collect and store CO2 from bio-refineries in the upper Midwest and build a pipeline to ship it to sites for sequestering in underground caverns, the first in the U.S. interstate system. This project also will be affected by the NEPA Phase 1 regulations. In addition, an unlikely coalition of environmentalists, local governments and some Republican Midwest farmers are uniting to oppose the project.
The-carbon steel pipeline would span five states — Iowa, Minnesota, Nebraska, North Dakota and South Dakota — ranging from diameters of 4 inches to 24 inches, predicated on its location along the system.
“With energy costs high for American consumers and European allies looking to the U.S. for access to affordable and stable energy supply, we need policies in place that provide certainty and ensure American producers can meet the rising demand at home and abroad,” states Frank Macchiarola, senior vice president of policy, economics and regulatory affairs for the American Petroleum Institute.
He adds: “The administration’s NEPA rewrite adds more bureaucratic red tape into the permitting process, not only for natural gas and oil but for hydrogen, CCUS, wind and solar. Once again, the administration’s policy actions aren’t matching their rhetoric regarding the need for more American energy production, and we urge the administration to change course and establish a timely and efficient permitting process that supports the energy security needs of the U.S. and our allies overseas.”
Alaska Oil, Permian Basin Drillers
On April 25, 2022, the U.S. Bureau of Land Management (BLM) released a management plan for the National Petroleum Reserve in Alaska (NPR-A), the largest area of public land for oil and gas drilling in the country. It will eliminate almost half of the 23 million acres available for potential drilling.
The plan still leaves 11.8 million acres within the NPR-A available for oil and gas leasing and makes lands available for applications for pipelines and other infrastructure to support oil and gas development. However, it also provides for additional regulations for the protection of habitat areas.
Crude oil production in Alaska averaged 437,000 barrels/day (BBL/d), according to the U.S. Energy Information Administration — the lowest level since 1976. The BLM in January approved only 95 permits for oil and gas wells across U.S. federal lands and 186 in March, a drop from 643 issued last April.
Drillers in the oil-rich Permian Basin region of West Texas and southeastern New Mexico are also facing long delays and steep competition for everything from roughnecks to steel to fracking pumps.
The Permian region is the only place where U.S. crude production is expected to grow this year. However, supply chain constraints are putting a ceiling on how much more frackers can produce in the region, despite the highest oil prices seen in seven years.
Drillers are running out of workers, cash and equipment vitally needed for increasing oil production. The vast service industry of steel suppliers, drilling rig operators and fracking companies that develop shale producers’ wells are entering the current price cycle unprepared. They mothballed large fleets of equipment during the COVID-19 crisis. Investors remain skeptical of the industry, thus leaving companies short of capital and reluctant to invest in new fracking fleets and drilling rigs.
In addition to investor skepticism limiting spending on growth, supply chain constraints are forcing some shale producers to pause operation for days, weeks or even months while they wait for steel casing as inventories are far lower than usual.
Worker shortages also caused operation delays as many have not returned to the industry since the pandemic. In some cases, crews left projects before completion in search of higher paychecks.
Industry executives indicated that the daily rates for drilling rigs ran as high as $30,000, almost double the cost of last year’s prices. The price of steel used in drilling and bringing oil wells online climbed substantially. Steel distributors in the Permian possess little inventory and have seen costs of U.S. steel up nearly 40 percent since the end of 2020.
Robert Drummond, president and CEO of NexTier Oilfield Solutions, believes that until companies build more fracking equipment, U.S. oil production growth will crest at less than 1 million barrels/day annually.
The shortfalls in production growth could persist into 2023 if oil field service companies continue to keep investments low and relegate spending to maintenance rather than equipment.
Carbon Steel and Ukraine
Recently, a major domestic manufacturer announced price increases on carbon steel fittings: 30 percent on caps and 10 percent across the remaking product offering. The dramatic increase on caps reflects the escalating cost of steel plate, resulting from the impact of the Ukraine war on the world market.
Along with the escalating costs of pipe and plate, energy, fuel, transportation, and the availability of shipping media, these are factors affecting the cost of production and delivery of even the basic commodity fittings and flanges required by our industry.
To avoid stock outages, delays in shipping, cancellation of offshore orders and anticipated price escalation, regular communication with your manufacturers and suppliers is highly recommended.
With this said, supporting domestic manufacturing will ensure a reliable source of supply, high-quality products and limited liability exposure — while bolstering our domestic PVF industry’s manufacturing sector.
PVF Roundtable News
The third PVF Roundtable Networking Meeting of 2022 is scheduled for Aug. 9 at The Bell Tower on 34th, Houston.
The PVF Roundtable Don Caffe Memorial Golf Tournament was held June 13 at The Clubs of Kingwood Golf Course in Kingwood, Texas. It was another record turnout and resounding successful fundraising event. The tournament preceded the June 14 Networking Meeting.
The golf tournament and TroutBlast are the two major fundraising events held by the PVF Roundtable Charitable Foundation; funds raised are dedicated to the PVF Roundtable Scholarship Programs.
As a member of the board, and I speak for all members, we thank you for your participation in these events.
They are a unique venue for you and your associates to network with your peers in the PVF industry. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop new and long-lasting friendships and pursue new opportunities in the industry.