US Energy Review October 2022

US upstream and oilfield services employment rose for yet another month in August as the oil and gas industry continues to see part of the jobs lost during the pandemic recovered. Yet, despite solid overall demand for oil in the United States and the highest estimated petroleum exports on record, the US cannot come to the rescue and alleviate the energy crisis in Europe.

US oil production is set to grow this year, but the growth pace would likely be lower than previously expected due to cost inflation in the double digits, supply chain issues and bottlenecks, and infrastructure and services constraints.

US Oil Production Growth Could Be Below Forecasts

Current forecasts of US crude oil production growth may have to be significantly revised down. The recent flattening in the number of active drilling rigs in the top US shale basin, the Permian, suggests that output may disappoint due to supply chain constraints and cost inflation. The number of active drilling rigs in the Permian is up by more than 80 since September 2021, but the number has more or less remained unchanged since May 2022, per data from Baker Hughes.

Shale producers prioritize returns to shareholders and paying down debts to significantly boosting production, and even those planning an increase in drilling activity face supply chain delays and up to 20% higher costs.

According to the September Short-Term Energy Outlook (STEO) by the Energy Information Administration, US crude oil production is expected to average 11.8 million barrels per day (bpd) in 2022 and 12.6 million bpd in 2023, which would set a record for the most US crude

oil production during a year. The current record is 12.3 million bpd, set in 2019. In natural gas, production has been rising relatively steadily since the first quarter of 2022, when it averaged 94.6 billion cubic feet per day (Bcf/d). The EIA expects US dry natural gas production to average 99.0 Bcf/d in the fourth quarter this year and then rise to 100.4 Bcf/d for 2023.

However, US shale executives themselves admit that America’s oil production growth would likely be below expectations.

Scott Sheffield, chief executive officer at Pioneer Natural Resources, one of the top US shale producers, said at the Barclays CEO Energy- Power Conference in early September that US oil production could grow by 500,000 bpd in 2022 compared to 2021. Next year, the growth could be even slower than this year’s expected 500,000-bpd increase, due to supply chain and infrastructure issues, as well as rising costs.

“There could be more downside,” Sheffield said at the conference, as carried by Reuters.

The EIA currently expects US oil output to rise by around 800,000 bpd in 2023 compared to 2022.

Main Oil Producers’ Group Calls For Clearer Federal Policies, Again

Meanwhile, the American Petroleum Institute (API), the main oil producers’ group, said in a monthly report on 21 September that US oil demand remained resilient in August, while inventories – including commercial and strategic petroleum reserves – dipped to their lowest level since 2003.

“The current situation shows the need for increased development of domestic energy that is supported by cogent and supportive policies – including access to resources, infrastructure, and conducive trade and tax policies – that foster investment, job growth and, therefore, economic growth and security,” API’s chief economist Dean Foreman said.

“Unfortunately, we don’t have clear, strong policies supporting domestic oil and natural gas production – to meet domestic needs and to back up America’s recent promises to supply energy to our European allies and others internationally,” Foreman added.

“The most recent response from Washington was a veiled threat by U.S. Energy Secretary Jennifer Granholm to ban U.S. exports of diesel fuel and other distillates if winter conditions increase demand and put upward pressure on prices,” API’s chief economist noted.

API’s Monthly Statistical Report with August data showed that U.S. petroleum demand remained solid above 20.0 million bpd as fuel prices fell along with those of crude oil and indicators of industrial production and consumer sentiment reinforced demand in August 2022. Domestic petroleum demand remained solid over the first eight months of 2022 too, rising by 2.9% year over year. US refining activity exceeded 16 million bpd for a sixth straight month, and the capacity utilization rate was over 92% for a fourth month in a row.

As domestic refining sustained historically strong throughput levels, record-high natural gas liquids (NGL) production – at 6.0 million bpd – offset a decrease in U.S. crude oil production. U.S. petroleum exports of 10.1 million bpd and net exports at 1.8 million bpd rose to the highest for any month on record since 1947, API said.

A combination of solid demand and refining activity, flat production, and record-high exports resulted in the lowest combined U.S. commercial and governmentcontrolled (Strategic Petroleum Reserve, SPR) crude oil inventories since 2003, API noted.

In its Industry Outlook for the third quarter of 2022, API says that despite slowing economies in the US and Europe, the main forecasters still expect global economic growth in the near term that historically has required more oil and natural gas to fuel the economy.

“By contrast, with continued work force, supply chain, financial and energy policy headwinds, the amount of global investment in oil and natural gas development has risen from the prior quarter but remained historically low. This is seen in API’s tracking of the global flow of capital expenditures and the recent backlog of projects under construction in the U.S., which at $158 billion was nearly cut in half compared to where it was at the end of 2020,” API’s Foreman said.

“To supply global oil and natural gas demand that has remained historically strong – and by EIA estimates could reach new record-highs in 2023 – it is imperative to have the cogent energy policies that support the industry’s resource access and its abilities to expand infrastructure, execute capital projects, attract investment capital and build and sustain a productive work force,” the chief economist of API noted.

Job Growth Continues in US Oil & Gas Industry

Upstream oil and natural gas employment in Texas, the largest US oil-producing state, grew in August by 2,600 jobs from July, according to data released by Texas Workforce Commission in September.

Since the low point in employment September of 2020, the upstream oil and gas industry in Texas has added 44,700 jobs, averaging growth of 1,943 jobs per month, the Texas Oil & Gas Association (TXOGA) said in a statement. At 201,700 upstream jobs, August 2022 jobs were up by 33,400, or 19.8 percent, from August 2021. August’s employment was the first time to break the 200,000 mark since March of 2020.

“Upstream employment is growing steadily alongside the world’s demand for affordable, reliable energy. The Texas oil and natural gas industry continues to play its leadership role in enhancing national and energy security in our nation and for our trade allies around the world,” said TXOGA president Todd Staples.

In oilfield services, employment in the US oilfield services and equipment sector rose by an estimated 6,854 jobs to 648,914 in August, according to preliminary data from the Bureau of Labor Statistics (BLS) and analysis by the Energy Workforce & Technology Council. Gains in August make OFS employment the highest since the beginning of the COVID-19 pandemic, but still off the pre-pandemic mark in February 2020 of 706,528 jobs.

“The August job increases are very encouraging as our sector continues to rebuild the workforce from pandemic losses,” said Energy Workforce & Technology Council CEO Leslie Beyer.

“Our industry is meeting the challenge of growing global demand by producing at almost pre-pandemic levels, reducing emissions industry wide, all while continuing to make gains in the workforce.”