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Welcome back to another Energy Source!
The energy world’s attention has been trained on the giant bubbles of gas roiling the Baltic Sea above where the Nord Stream pipelines were sabotaged, European officials say.
Questions about what exactly happened to the pipelines, who was responsible and what it means for the energy war between Russia and the west are swirling. My colleagues have a useful explainer on what we know so far. The conversation over on Twitter has, expectedly, taken a more conspiratorial turn. I’d be interested to hear our readers’ views on who was responsible for the apparent sabotage and the implications — please let us know your thoughts at firstname.lastname@example.org.
In today’s newsletter, we take a look at sentiment in America’s oil patch, which is souring despite oil prices remaining relatively high. That could spell trouble for global oil and gas supplies.
Meanwhile, Category 4 Hurricane Ian is ravaging Florida. Despite the destruction the storm is leaving in its wake, there seems to be limited impact on oil production in the US Gulf, Amanda reports in Data Drill. We hope any readers in the state are staying safe.
Thank you as always for reading. -Justin
PS Join us at the FT’s Energy Transition Summit 2022, which will bring together industry leaders, governments and investors to share actionable advice and debate how the industry can rise to the challenge and deliver secure, affordable and clean energy. Register here.
US drillers sound the recession alarm bells
America’s oil and gas drillers are growing increasingly uneasy about a potential recession as surging costs and persistent shortages of equipment and workers signal a slowdown in the oil patch just as the world is depending on the US to keep energy markets well supplied.
That’s the takeaway from the latest Dallas Fed Energy Survey, a closely watched quarterly update on sentiment in the industry.
The survey’s “business activity index”, a broad measure of conditions in the industry, remained robust in the third quarter as crude prices stayed elevated, although it cooled off from the record-breaking second quarter, according to respondents in the survey.
But the report’s anonymous comments — where oil executives can sound off on the state of their businesses — are full of warning signs indicating the pace of drilling is likely to slow.
Respondents said their costs were up for the seventh straight quarter, nearing all-time highs. And even with the higher costs, many say they still are not able to get the supplies and labour they need without long waits, reflecting continued inflationary pressure.
At the same time, many expressed fears about a coming recession, although most expect oil prices to remain above $80 a barrel for the rest of this year, according to the survey.
“Oilfield service inflation has increased, uncertainty has increased and oil prices have decreased. This is a recipe for lower to flat industry spending in 2023,” said one respondent.
“The probability of a worldwide economic recession is casting a long shadow on the demand for oil,” said an executive from another producer.
Oilfield service firms say they are struggling to find workers in today’s hot jobs market, where spending long shifts in difficult oilfield conditions is less appealing than other options.
“Meeting demand has been hampered by the availability of qualified people to work and, more importantly, whether they stay working in the oilfield,” said an oilfield services executive.
The executive added the new workers wanted regular hours and “a work/life balance” that is “not typical of hourly employees in oilfield services”.
Several years ago, drillers might have swallowed the sharp rise in costs and drilled ahead as they aimed for lofty supply growth targets. But with investors now putting profits over growth, inflation looks to be hitting activity and plans for next year.
“Until the labour market improves and pricing pressures moderate, lower capital investment in new wells becomes a more attractive option,” said an executive, who expected activity levels to cool off next year.
That sentiment has been reflected as the US government’s Energy Information Administration and private forecasters have been pulling back supply growth forecasts for the remainder of this year and 2023.
Some producers said they were looking from the Permian to Riyadh for help propping up prices.
“We are counting on Opec+ to put a floor on oil prices in order to maintain stability in the global oil markets,” said a respondent.
Opec+ has signalled that it plans to tighten supplies towards the end of the year after the recent fall in crude prices and the group’s fears that weak demand could send prices even lower.
One constant from past surveys: frosty relations between the oil patch and the Biden administration.
“The US [Environmental Protection Agency] and other regulatory agencies are being used as a tool to constrain the domestic supply of critical hydrocarbon production as we are promising politically to stand by our allies’ quest to choke off the supply of Russian hydrocarbon imports. It is very difficult to square up,” complained one of the executives. –Justin Jacobs
US Gulf oil production is set to resume after Hurricane Ian forced operators including BP and Chevron to briefly evacuate offshore crews.
BP began returning offshore crews to its Na Kika and Thunder Horse platforms yesterday after determining Hurricane Ian was no longer headed to the region.
But production flows were not totally unscathed: The Bureau of Safety and Environmental Enforcement. estimates 9 per cent of oil production and 6 per cent of gas production in the Gulf of Mexico was halted yesterday.
A “catastrophic” storm, Hurricane Ian made landfall in Florida yesterday after knocking out power in Cuba the day before. More than 1.5mn households in Florida were without power as of yesterday evening, according to PowerOutage.us. The full scale of the human cost — in lives and property damage — is not yet known. The Category 4 hurricane follows last week’s landfall of Hurricane Fiona, which caused widespread blackouts and multiple deaths in Puerto Rico.
With Europe heavily dependent on US gas exports as a result of the war in Ukraine, the threat that storms such as Hurricane Ian pose to US energy production show how the continent is just one big storm away from intensified supply disruption.
S&P Global Commodity Insights predicts the 2022 Atlantic Hurricane season, which ends in November, will curtail 75,000 b/d of Gulf output, down from 100,000 b/d last year. (Amanda Chu)
Slovakia’s prime minister says soaring electricity costs could “kill our economy” unless Brussels intervenes.
Eurozone governments should tax the rich more to provide relief to struggling households in the energy crisis, says the European Central Bank’s chief economist.
Brazil’s presidential candidates offer competing visions for Petrobras, disagreeing on its degree of privatisation and its role in the clean energy transition.
The success of the UK’s auto industry lies in Britishvolt, a battery manufacturing start-up with a 50-50 chance of survival.
Clean energy sectors are seeing a frenzy of dealmaking as businesses scramble to secure the billions in incentives from the Inflation Reduction Act. (WSJ)
Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg.
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