Supply Chain, Inflation & Other Economic Issues

[1972Shocker]

Having attacked truckers, California now has a new target

https://www.americanthinker.com/blog...ew_target.html

Democrats have similarly deliberately destructive plans for shipping? In 2027, they're going to require all ships in California ports to turn off their onboard generators and run only onshore power.

This is a big deal, costing tens of millions per dock, and, of course, it's going to require foreign-owned ships to spend hundreds of thousands, if not millions, per ship to make the conversions necessary to comport with the new law.

Even if a company has the margins to afford the new infrastructure, California utilities are massively hiking their rates and are set to do so even more aggressively in the future. So even if you want to comply, there's more at stake than money. The rate hike is going to mean a massive jobs exodus out of this state.

I know for certain that there are many companies — including woke companies — that don't like this stuff and are calling Gavin Newsom's office. Their calls are being answered because they're donors to the party but they're also being told to eff off because it's going to happen whether they like it or not. These companies are leaving because, having funded the Democrats' rise to power, they're not getting what they paid for.

Democrats want to drive both jobs and conservatives out of this state so that they can turn it into the prototype for their "futureplan." They envision a state populated only by serfs who stay home and whose only purpose is to vote for the party every couple of years.

[Shockm]

Only California ports are having severe supply chain bottlenecks. Florida, Savannah, etc. aren’t having those problems which seems to point to states who have lots of regulations also have much bigger problems.

[RoyalShock]

Maybe it's time to start building factories in Africa and shipping it across the Atlantic. Screw Calichina.

[1972Shocker]

Maybe it's time to start building factories in Africa and shipping it across the Atlantic. Screw Calichina.

Hasn't China already been making inroads into Africa?

[SubGod22]

Hasn't China already been making inroads into Africa?

They sure have

[1972Shocker]

Sounds like the shale oil boom may not be able to get the U.S. back ot energy independence even with more carbon friendly government policies. Although, if prices get high enough anything is possible.

Oil Frackers Brace for End of the U.S. Shale Boom
Limited inventory leaves the industry with little choice but to hold back growth, even amid high oil prices

Excerpts From the Wall Street Journal, Feb. 3, 2022

Less than 3½ years after the shale revolution made the U.S. the world’s largest oil producer, companies in the oil fields of Texas, New Mexico and North Dakota have tapped many of their best wells. If the largest shale drillers kept their output roughly flat, as they have during the pandemic, many could continue drilling profitable wells for a decade or two, according to a Wall Street Journal review of inventory data and analyses. If they boosted production 30% a year—the pre-pandemic growth rate in the Permian Basin, the country’s biggest oil field—they would run out of prime drilling locations in just a few years.

The limited inventory suggests that the era in which U.S. shale companies could quickly flood the world with oil is receding, and that market power is shifting back to other producers, many overseas.

U.S. oil production, now at about 11.5 million barrels a day, is still well below its high in early 2020 of about 13 million barrels a day. The Energy Information Administration expects U.S. production to grow about 5.4% through the end of 2022.

Big shale companies already have to drill hundreds of wells each year just to keep production flat. Shale wells produce prodigiously early on, but their production declines rapidly.

Some shale companies will eventually have to start spending money to explore for new hot spots, executives and investors said, and even then, those efforts are likely to add only incremental inventory. Few are currently doing so.

Pioneer Natural Resources Co. , the largest oil producer in the Permian Basin of West Texas and New Mexico, raised its oil production between 19% and 27% a year in shale’s peak years. Now, Pioneer is only planning to increase output 5% a year or lower, for the long term.

While privately held oil producers have increased their output in the Permian this past year, Mr. Sheffield warned even the largest of those would drill through their inventory rapidly if they kept it up. Mr. Sheffield said he expects U.S. oil production to grow around 2% to 3% a year, even if oil trades from $70 to $100 a barrel. U.S. oil prices settled at $88.26 a barrel Wednesday.

Many drillers say they will never return to pre-pandemic production growth levels of up to 30% a year, in part due to rising costs for raw materials and labor, a lack of available financing and the enormous number of new wells it would require. Five of the largest shale companies— EOG Resources Inc., Devon Energy Corp. , Diamondback Energy Inc., Continental Resources Inc. and Marathon Oil Corp. —all have about a decade or more of profitable well sites at their current drilling pace. They would exhaust that inventory within about six years if they grew output 15% a year, according to analytics firm FLOW Partners LLC, which provided one of the analyses the Journal reviewed.

Some companies disputed they are running low on prime wells, arguing that FLOW had inaccurately labeled some of their better wells as uneconomic, among other reasons. Others said technological advances would allow them to extend the life of their acreage.

Frackers made a big dent in their inventory as many sought to harvest sweet spots to survive lower oil prices during the pandemic. In recent years, they’ve also discovered that their projections for how many wells they could cram into tight spaces were overly optimistic. Companies learned that newer wells drilled too closely to older ones often caused interference with the original wells’ oil production or caused new wells to perform worse than expected. They eventually spaced wells farther apart, cutting into estimates of how many they had left to drill.

[wufan]

Sounds like the shale oil boom may not be able to get the U.S. back ot energy independence even with more carbon friendly government policies. Although, if prices get high enough anything is possible.

Oil Frackers Brace for End of the U.S. Shale Boom
Limited inventory leaves the industry with little choice but to hold back growth, even amid high oil prices

Excerpts From the Wall Street Journal, Feb. 3, 2022

Less than 3½ years after the shale revolution made the U.S. the world’s largest oil producer, companies in the oil fields of Texas, New Mexico and North Dakota have tapped many of their best wells. If the largest shale drillers kept their output roughly flat, as they have during the pandemic, many could continue drilling profitable wells for a decade or two, according to a Wall Street Journal review of inventory data and analyses. If they boosted production 30% a year—the pre-pandemic growth rate in the Permian Basin, the country’s biggest oil field—they would run out of prime drilling locations in just a few years.

The limited inventory suggests that the era in which U.S. shale companies could quickly flood the world with oil is receding, and that market power is shifting back to other producers, many overseas.

U.S. oil production, now at about 11.5 million barrels a day, is still well below its high in early 2020 of about 13 million barrels a day. The Energy Information Administration expects U.S. production to grow about 5.4% through the end of 2022.

Big shale companies already have to drill hundreds of wells each year just to keep production flat. Shale wells produce prodigiously early on, but their production declines rapidly.

Some shale companies will eventually have to start spending money to explore for new hot spots, executives and investors said, and even then, those efforts are likely to add only incremental inventory. Few are currently doing so.

Pioneer Natural Resources Co. , the largest oil producer in the Permian Basin of West Texas and New Mexico, raised its oil production between 19% and 27% a year in shale’s peak years. Now, Pioneer is only planning to increase output 5% a year or lower, for the long term.

While privately held oil producers have increased their output in the Permian this past year, Mr. Sheffield warned even the largest of those would drill through their inventory rapidly if they kept it up. Mr. Sheffield said he expects U.S. oil production to grow around 2% to 3% a year, even if oil trades from $70 to $100 a barrel. U.S. oil prices settled at $88.26 a barrel Wednesday.

Many drillers say they will never return to pre-pandemic production growth levels of up to 30% a year, in part due to rising costs for raw materials and labor, a lack of available financing and the enormous number of new wells it would require. Five of the largest shale companies— EOG Resources Inc., Devon Energy Corp. , Diamondback Energy Inc., Continental Resources Inc. and Marathon Oil Corp. —all have about a decade or more of profitable well sites at their current drilling pace. They would exhaust that inventory within about six years if they grew output 15% a year, according to analytics firm FLOW Partners LLC, which provided one of the analyses the Journal reviewed.

Some companies disputed they are running low on prime wells, arguing that FLOW had inaccurately labeled some of their better wells as uneconomic, among other reasons. Others said technological advances would allow them to extend the life of their acreage.

Frackers made a big dent in their inventory as many sought to harvest sweet spots to survive lower oil prices during the pandemic. In recent years, they’ve also discovered that their projections for how many wells they could cram into tight spaces were overly optimistic. Companies learned that newer wells drilled too closely to older ones often caused interference with the original wells’ oil production or caused new wells to perform worse than expected. They eventually spaced wells farther apart, cutting into estimates of how many they had left to drill.

I’m not sure what to make of this article. In their biggest year, some producers increased output by almost 30%. Now they aren’t going to increase growth by that amount. Does that really mean they are running out of oil? There doesn’t seem to be any correlation there, especially because the reason given is increased labor/material cost and decreased finance.

[Shockm]

I’m not sure what to make of this article. In their biggest year, some producers increased output by almost 30%. Now they aren’t going to increase growth by that amount. Does that really mean they are running out of oil? There doesn’t seem to be any correlation there, especially because the reason given is increased labor/material cost and decreased finance.

I'm just spit balling, but it could be the cost of drilling new additional wells costs money (lost money until they are in the supply chain), and many of the smaller companies went belly up with increased labor costs, and limitations on drilling. I own a little Exxon stock, and after several years of the pandemic (I purchased just 6 months Oct. 2019 before the pandemic and before less travel took over), and then Biden driving down oil industry stocks, they have just (this month) surpassed what they were before I purchased them. They actually were down 60% in June 2020, and just now have gone ahead of the value that I purchased them at.

There were lots of small oil companies before the pandemic and Biden. They've all been driven out. And the bigger companies are wary of putting too much capital into new drilling. In 2018, I used to often see oil wells in rural Kansas drilling (not like it was 50 years ago, but it had increased under Trump). I was looking for wells drilling, in the fields as I drove in the past two months, and didn't see very much drilling.

Just a couple of guesses. Of course, Biden would accuse these companies of hoarding their profits.

Some people on this site probably work for oil companies or related industries, and I'd like to hear from them.

[1972Shocker]

Of course, Biden would accuse these companies of hoarding their profits.

I guess that would accoount for the 500 bankruptcy filings in the oil and gas industry since 2015 primarily amont the non-majors who focus on exploration and production and the oilfield service companies that support them.

https://www.ogv.energy/news-item/ove...nkrupt-in-2020

More than a fifth of the bankruptcies in 2020 -- 14 exploration and production companies and nine oil-field service companies -- brought more than $1 billion of debt to court. Multibillion-dollar bankruptcy cases were filed by Chesapeake Energy ($11.8 billion), Diamond Offshore Drilling ($11.8 billion) and California Resources ($6.3 billion). Ultra Petroleum filed for its second bankruptcy in five years, bringing $5.6 billion to court in 2020.

Oil and gas prices have been pretty much in a boom or bust cycyle since 1970. Most of the shale oil operations (tight oil that employs expensive horizontal drilling and fracturing technogies that produee a lot fo salt water that has to be disposed of) are highly leverage and extremely sensitive to oil price fluctations

Some of the peaks and valleys of oil prices since 1970:
July 1973 - $22.50
Jan 1974 - $60.00
Apr 1980 - $135.00
Nov 1984 - $72.00
Mar 1986 - $27.00
Sep 1990 - $83.00
Dec 1993 - $29.00
Oct 1993 - $41.00
Nov 1998 - $20.00
Aug 2000 - $53.00
Jan 2002 - $31.00
Dec 2002 - $56.00
Jun 2006 - $100.00
Jun 2008 - $178.00
Jan 2009 - $55.00
May 2011 - $133.00
Dec 2015 - $44.00
Jun 2018 - $82.00
Apr 2020 - $20.50
Jan 2022 - $88.00

https://www.macrotrends.net/1369/cru...-history-chart

Quite a roller coaster ride.

In the last decade or so almost all our growth in domestic production has come from the shale oli boom which as you can see from the bankruptcy numbers was really all that profitable overall and certainly not enough to service their large debt loads.

The shale oil wells produce lot of oil in a short period of time but the reserves are depleted quite rapidly. With the boom or bust nature over the last 5 decades financing these activities is high risk and expensive. In any case, prices rise, drilling rises, supply rises, prices fall. Falling prices, among other geopolitical issues, cause a contraction in drilling, lowering supplies and raising prices. Wash, rinse and repeat.

Current thinking seems to be the U.S. is simply not in a postions moving forward to recreate the shale oil boom that fuled the countries energy independence. From what I have read $80 oil is about the breakeven price for shale oil exploration and production. But even if prices go to $130 per barrel, which some are predicting, it is not a clear that will fuel antother shale oil boom, and even if it did.

The Biden adminstration is far from oil and gas friendly and that adds a headwind although you clearly cannot place the blame solely on the Biden administration poicies althugh they have doen plenty of damage.

[1972Shocker]

Federal judge revokes 1.7 million acres of oil, gas leases in Gulf of Mexico

https://www.upi.com/Top_News/US/2022...20the%20leases.

In his ruling, Obama appointed Judge Rudy Contreras in the U.S. District Court for the District of Columbia canceled the 1.7 million acres of oil and gas leases sold this past November and ordered the Interior Department to conduct a new environmental analysis accounting for the greenhouse gas emission that would result from the eventual development and production of the leases.

The war on oil and gas continues. Enjoy.

[SubGod22]

Seriously, who wants to be energy independent? The hoops that oil and gas and more importantly nuclear have to jump through are ridiculous and will keep us more dependent on others.

I also love that electric cars are pretty dependent upon fossil fuels to function. This all one thing or another approach is just plain dumb. Use what works. Improve the things you want to work to make them more reliable. Don't force them into existence just because and screw over the people and the economy in the process.

[ShockerPrez]

Tax on the poor. Lefties have no compassion for poor people. In everything they do, they add to and exacerbate poverty.

From a standard of living perspective in developing countries, cheap energy is essential in reducing poverty. Specifically cooking fuel.

[1972Shocker]

Tax on the poor. Lefties have no compassion for poor people. In everything they do, they add to and exacerbate poverty.

From a standard of living perspective in developing countries, cheap energy is essential in reducing poverty. Specifically cooking fuel.

It is a tax that does hit everyone but it hits the poor disproportionately hard.

But none of this is accidental.

[1972Shocker]

Here is a decent article on the current state of the U.S. shale oil and gas industry:

What to Expect from Shale This Year

https://www.csis.org/analysis/what-expect-shale-year

The first decade of the shale boom created jobs, delivered tax revenue to states and the federal government, and helped reduce the trade deficit—but destroyed investor capital on an unprecedented scale. Quarter after quarter, many shale companies reinvested all their cash flow as management teams were incentivized to seek growth rather than returns. The result was a lost decade for investors. According to one estimate, free cash flow for the entire U.S. shale sector for 2010–2019 was a stunning -$300 billion.

Last year, shale companies focused on paying down debt and returning cash to shareholders through increased dividends and share buybacks.

Capital discipline helped the sector to generate enormous cash flow. Twenty of the top shale producers in the United States generated nearly $36 billion in free cash flow in the first three quarters of 2021 (see table). Investors responded, and the energy sector outperformed the rest of the S&P 500 last year, posting a 46 percent return compared with 28 percent for the broader index.

Underpinning this profitability, however, is an unsustainable level of investment. Last year most shale companies reinvested less than 50 percent of their cash flow in new drilling, as the industry downshifted into “maintenance capex” mode. But initial production rates at wells usually drop off quickly, so companies need to drill continuously to sustain output. They can only pull back on investment for so long without sacrificing future production levels and cash generation.

Management teams are determined to stay disciplined this year. Most companies will prioritize payouts to shareholders and debt reductions. Companies insist they will take a more disciplined approach to new capital expenditures, for example running an additional rig or two in their highest-margin areas to generate more cash flow. Consolidation in the shale patch also means that more conservative management teams control a larger share of output.

Still, with higher oil prices (West Texas Intermediate—the key U.S. benchmark crude—has mostly remained above $70 per barrel since early fall) companies can meet multiple goals simultaneously. They can grow production, protect their margins, and deliver higher returns to shareholders. Privately held companies that are not subject to investor pressure will have especially strong incentives to increase output. But a higher oil price environment will create some new challenges.

Most companies also expect higher service sector costs. In a recent survey of energy executives, the majority of oilfield services representatives expected to increase their rates by at least 10 percent this year. Cost inflation reflects broader trends in the economy, but the service sector is also pushing for higher margins after years of depressed demand for its services. Companies will have to spend more on well completions and drilling, and higher spending will not translate as easily to increased volumes.

As the shale sector matures, the role of the U.S. oil and gas industry in the global oil system is evolving. The United States is still the principal source of short-cycle oil, creating a dynamism and responsiveness that is unparalleled elsewhere. But the wild production increases of years past could be gone for good. If global oil demand continues to grow, the U.S. shale sector will be an important source of incremental supply, but other countries will have to step up investment as well. Higher prices and a tighter market would enable more output from countries that are higher on the cost curve—but only if capital is available.

[1972Shocker]

Consumer Prices Make Biggest Jump Since 1982

https://townhall.com/tipsheet/spencerbrown/2022/02/10/inflation-hits-another-fourdecade-high-n2603109

The U.S. Consumer Price Index (CPI) measuring inflation for American consumers rose 0.6 percent, more than then 0.4 percent increase that was predicted by economists who believed the CPI would moderate in the first month of 2022. Year over year, inflation spiked 7.5 percent — the biggest jump since the year...1982.

According to the Labor Department's release accompanying the data, "Increases in the indexes for food, electricity, and shelter were the largest contributors" to January's forecast-busting numbers. Broken down by specific sectors, the CPI showed significant year-over-year increases for energy (27%), used cars and trucks (40.5%), and gasoline (40%).

The January inflation numbers are further repudiation of two claims made by the Biden administration. First, it debunks the White House narrative from last summer that inflation being felt by Americans was "temporary" or "transitory." As any American filling their car up with gas, paying utility bills, or checking out at the grocery store can tell you, price increases have been anything but temporary.

Second, President Biden and the rest of his administration have continually repeated the claim that "Nobody making under 400,000 bucks would have their taxes raised, period, bingo," yet inflation has proven to be a tax on all Americans. Both realities are made even more stark when statistical increases in employment and earned wages evaporate when it comes to Americans' buying power thanks to inflation that's now burning hotter than it has in 40 years.

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In my opinion, things are going according to plan for the Democrat party and the radical left. Perhaps even better than they had anticipated it would.