We asked four experts, petroleum economist Karr Ingham, energy analyst Tom McNulty,...
Steve Gonzales, Staff Photographer / Houston ChronicleThe Russian invasion of Ukraine and the threat to energy supplies has not only sent oil soaring to prices not seen in more than a decade, but also prompted — at least for now — a rethinking of oil’s role in the energy mix as the world attempts a transition to low- and no-carbon alternatives.
And then Russia, the world’s second-largest crude oil producer, invaded the Ukraine potentially jeopardizing significant global supply, pushing prices even higher to levels not seen since the record prices in 2008. In other words, even as COVID was still raging as an energy market event, the Russian invasion was piled on top of that making matters even worse.
In the near term, most regions of the U.S. are not primed to provide significant additional supplies in 2022. The exception is the Permian Basin, which provides a whopping 6.5 percent of all global crude oil production. The Permian has already recovered its COVID-induced production losses and is now producing at record levels. The rig count is climbing, and will likely gain momentum going forward thanks to higher prices that make drilling and producing much more attractive.
While the growth of electric vehicles will affect the demand for oil and refined products in the developed world, it remains to be seen how fast and far EVs can expand in developing countries. U.S. shale drilling, with its much faster recovery of capital is far more appealing than the near-decade long capital recovery periods for many potential international oil and gas developments. Any effort to fill the gap between demand and constrained supplies may depend largely on U.S. oil and gas companies and their ESG-conscious investors.So, what does it mean? The ESG movement will mean that better players or stewards in the oil business will draw capital away from bad players.
Russia is the third-largest producer of oil , and the military action raises the potential for supply disruptions. In addition, because oil and natural gas are the mainstay of the Russian economy, some countries, including the United States, are just saying"no." Supply responses have lagged for myriad reasons, ranging from OPEC policy to financial recovery of firms devastated by the pandemic-driven price collapse in 2020. There have also been challenges raising capital for small and medium-sized energy firms . Various federal policies have hampered development, discouraged capital formation, and raised perceived risks of future exploration and production.
Today, there is no shortage of debate around the move to cleaner and renewable sources of energy. The energy transition has become one of the most important global economic shifts affecting nearly every industry, government, and local community. Perhaps it’s time we take Voltaire’s advice and not let perfect be the enemy of good.
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