As a career oil and gas journalist, I’ve grown accustomed to lay people quizzing me about any number of related topics. The particulars vary from cycle to cycle, but in most instances the general public only gets interested when retail prices for natural gas or gasoline rise or when an accident happens.
This time around—with demand having outstripped supply as part of pandemic recovery and both now having been complicated by the war in Ukraine—most questions center around ‘energy independence,’ government policy, and (ultimately) prices.
People want to know why the retail price of gasoline has risen so sharply and why it’s so difficult to address in a prompt and effective manner. Relatedly, they’re befuddled regarding how this happened in a country that they’ve been told can meet all its energy needs on its own and apprehensive regarding the looming energy transition. Many believe, for instance, that widespread electric vehicle use is decades away, seemingly oblivious to the commitments major automakers have made to have large portions of their fleets powered by electricity as soon as 2030.
It doesn’t help matters that the price at the pump is easily weaponized for political purposes. Too often lost in the resulting rhetorical tug-of-war are some simple yet salient facts. Crude oil trades in a global market. If global supply fails to meet global demand, the price goes up. The US consumed more petroleum (crude oil, NGLs, biofuels-oxygenates, and processing gains) than it produced in 2021. Imports, purchased in the global market, were required to address this gap. Because the US is a free country, without nationalized industries for things like oil and gas, companies which produce energy here are free to sell it to the highest bidder. The resulting buyer is often overseas. The price of crude makes up about 56% of the price of gasoline. When crude prices go up, gasoline prices do as well.
Historically, when prices go up drilling also increases. Companies want to make money while they can. This is happening again, led by US operators, which have increased rig count by more than 61% year-on-year, according to Baker Hughes data.
The drilling has produced positive outcomes. The US Energy Information Administration expects April 2022 Permian basin output to increase 70,000 b/d from March to a record 5.2 million b/d. An anticipated 349,000 b/d of production from new wells outpaces declines of 279,000 b/d from existing wells to create the net increase.
Good times
I enjoy being asked about the oil and gas industry and am happy to provide answers. Informed friends and neighbors can share their knowledge with others, elevating discourse as a whole. It’s important that those who don’t work in oil and gas have at least a basic understanding of what drives the industry. High prices have a tangible impact on everyone’s daily lives, the more so if they are young or otherwise struggling economically. Offering false answers doesn’t improve their situations.
Oil & Gas Journal’s coverage of the industry focuses on operations: how hydrocarbons are pulled from the ground, transported, and processed. OGJ also touches on markets, economics, global events, and even politics, but only to provide context regarding the world in which operations occur. The same approach has guided our energy transition coverage.
I’m fortunate to have the job I do. Not just because it’s gratifying and puts food on the table—though both are true—but because it forces my brain to stay focused on facts in a world increasingly driven by whatever entity shouts its opinions first, loudest, and most persistently. Horizontal drilling, hydrotreating, and cathodic protection are all fact-based processes. Many (most?) other human affairs can be if you frame them accordingly. Working at OGJ is a continuous reminder of this.
Christopher E. Smith | Editor in Chief
Chris brings 32 years of experience in a variety of oil and gas industry analysis and reporting roles to his work as Editor-in-Chief, specializing for the last 20 of them in midstream and transportation sectors.