Supply Chain Issues Are Hitting the Oil and Natural Gas Industry Too
As the price of oil sits at record highs, consumers and businesses are struggling under the increasing burden of rising energy costs. One of the world’s most powerful tactics against rising energy costs is secure, affordable, reliable American oil and natural gas production, and as such the industry is doing all it can to ramp up domestic production.
The United States is a global leader in oil and natural gas production, and this should be encouraged, but there are significant challenges to meet the calls for immediate action.
America’s oil and natural gas companies stand ready for more responsible energy production here at home, for our nation and our worldwide allies. It won’t be immediate, but now is the time to create solutions that get the nation back on track to energy and national security.
Here are a few of the multitude of factors at play impeding an immediate response from industry:
Oil and natural gas producers face the same supply chain and workforce issues that all industries across the country are also facing.
The impacts from the pandemic have been felt by everyone and the oil and gas industry is no exception to that. There are currently months-long delays on securing the steel pipe and casing needed for drilling. Not only can a well not be drilled without adequate pipe, but the steel casing is a critical component to prevent environmental impacts.
As the World Steel Association’s annual report forecast in November:
“However, while the manufacturing side has been doing well, supply chain shortages are still disrupting the global steel market and are preventing a strong recovery in 2022. Due to the backlogged steel orders, the demand will remain high through the next year. Because of the demand for the limited inventory available, steel prices will continue to go up in 2022. The U.S. steel industry is currently valued at $180 billion and began to boom last year thanks to the disruptions caused by COVID-19.” (emphasis added)
It’s not just materials to drill that have become harder to acquire. The transportation sector has been hit especially hard by workforce shortages and increased fuel prices. As American Trucking Association CEO Chris Spear recently wrote to President Biden:
“The trucking industry is the backbone of the American economy, moving 73 percent of our nation’s freight, or 10 billion tons of goods annually. Our ability to do so on a cost-efficient basis for our customers throughout the supply chain depends on certain economic conditions, including fuel prices, which are typically a fleet’s second highest operating expense. Right now, escalating fuel prices are driving up the transportation cost of all goods, adding yet another layer of inflationary pressure on every sector throughout the entire economy.”
Fuel costs aside, the trucking industry is itself struggling to get parts to make necessary repairs, causing fleets to be out-of-service for extended periods of time. They are also facing a worker shortage with too few drivers to maintain necessary deliveries across the country, including meeting the trucking needs of the oil and gas industry.
Since day one, President Biden has acted on his campaign promises to establish a regulatory environment that phases out fossil fuels.
The administration continues to say that its policies have not impacted production, but that’s being very liberal with the definition of impacts. From immediately cancelling the Keystone XL pipeline to a continued illegal ban on federal oil and gas leasing – and a multitude of other policy actions – the Biden administration has created a cloud of uncertainty for U.S. oil and gas producers.
These actions and the rhetoric surrounding them are the market signals that financial institutions have been receiving. As a result, access to capital for ramping up development has been constrained.
For the administration to now reverse course and call for immediate increases from producers, without addressing policies that are impeding doing so, is impractical and disingenuous.
There are ways we can all work together to bring down energy costs – perhaps not immediately – but in the near future. But its going to take more than a call to action from the administration.
We’re working to do our part. Let’s hope the administration will do the same.