After recovering from a near-death experience in 2021, the U.S. oil and gas industry could have a bumpy ride in 2022 that will impact the amount of drilling, emission reductions and investment in the clean energy from industry.
As oil prices have started to stabilize after collapsing during the pandemic, the recovery is creating a paradox for oil companies. According to a recent report from Moody’s Investors Service, this will fix their results, but also increase calls on industry to cut emissions of climate-warming pollution and move away from fossil fuels.
“The corresponding increase in carbon emissions resulting from increased oil consumption is likely to put additional pressure from investors on oil companies to transition their operations and inspire more policy initiatives to reduce demand. of oil and natural gas, ”said Thursday’s report.
Home Office plans and pending EPA methane emission rules could further alter the sector’s trajectory across the country. Other changes in the industry, including technology and the search for efficiency, could also change the outlook this year for workers and communities that depend on the industry for their jobs.
And although prices are higher than they were during pandemic lows, they could warp for the first half of the year, with knock-on effects on emissions and drilling levels, analysts said.
Here are four industry trends to watch this year:
Don’t bet on low oil prices
High oil prices have recently been a thorn in the side of the Biden administration, which recently released crude from the Strategic Oil Reserve. In addition to injecting uncertainty into the policy, a relatively high price could prompt domestic drillers to increase production from around 900,000 barrels per day to 11.85 million barrels per day, the consultant said late. energy Dan Yergin, vice president of IHS Markit. last month on CNBC. In comparison, 900,000 barrels per day is almost equivalent to what is produced daily in all of North Dakota.
“US production is already coming back, and it’s going to come back more in 2022,” Yergin said.
The expected rebound comes after the pandemic caused the biggest drop in oil prices in the first months of 2020. Travel and industrial activity have almost come to a standstill around the world as governments impose closures and quarantines , but it took months for the oil companies. to reduce their production.
At the start of 2021, the opposite was happening. The global economy began to warm up, but oil producers were reluctant to restart production. This lag has pushed the price of crude higher than it was before the pandemic, to over $ 76 a barrel this week.
The gap between demand and supply is expected to narrow this year, but prices could still be volatile.
Saudi Arabia and its allies in the Organization of the Petroleum Exporting Countries agreed this week to continue to gradually increase production.
At the same time, many publicly traded companies are under pressure from their shareholders to control their spending. They will be cautious about investing money in new drilling, which could dampen US production, said David Meats, analyst at Morningstar.
And a variety of other factors could tip the price of oil over the next few months – another outbreak of the pandemic or a change in course for OPEC and its allies.
“I wouldn’t bet on stability,” he said in an interview.
Emissions pressure is real
Oil companies will continue to look for ways to reduce their emissions this year, under pressure from regulators and their own investors.
The trend started in 2020 and 2021 when European companies like BP PLC and Royal Dutch Shell PLC announced plans to invest in renewable energy production and reduce emissions from their operations.
In November, the EPA launched a plan to reduce the amount of methane, a potent greenhouse gas, which is released from the production of oil and gas (Energy wire, November 3, 2021).
American companies, including Chevron Corp. and Exxon Mobil Corp., have not gone as far as their European counterparts, but have announced plans to invest in projects to capture carbon dioxide and reduce their emissions in other ways. Exxon said in December it would reduce emissions from one of its largest operations in the Permian Basin oil field to zero equivalent by the end of this decade.
This will likely continue into 2022, Moody’s Investors Service said in a December research note.
The “majors remain committed to reducing their carbon emissions,” Moody’s said. “European companies in particular will further increase their investments in low carbon companies. ”
U.S. oil majors are expected to feel more pressure this year from activist investors, who notched a few wins at annual meetings of shareholders last year.
A small investment fund, Engine No. 1, mounted a campaign that led to the election of three people with experience in climate change and alternative fuels to the Exxon board of directors. Other groups, including pension funds and investment managers, have won a non-binding vote at Chevron to reduce its so-called Scope 3 emissions, which are caused by customers burning oil and gas products (Energy wire, May 27, 2021).
The No.1 engine was said to have been in talks with Chevron in September, according to Reuters. And another group, Amsterdam-based Follow This, is turning its attention to US oil producers after spending the last few years running shareholder campaigns in Europe.
Follow This is calling for shareholder votes on climate issues at six US oil companies this spring, up from three last year. Investors are increasingly aware that climate change is a threat to the viability of oil companies, Roos Wijker, spokesperson for the group, said in an email.
“Climate change is ultimately hurting the bottom line of their portfolios, and they are increasingly determined to meet the Paris Agreement target,” Wijker wrote. “So long-term investors want change and are really losing patience with Big Oil.”
Next steps in the Biden administration
From the EPA to the White House, the Biden administration could also play an important role in the oil industry in the coming year, including shaping development on public lands and off the country’s coast.
The administration has moved away from the more aggressive reform agenda of blocking new federal leases or – as pledged during Biden’s election campaign – blocking new drilling, following an aggressive pullback from government officials. politicians in the oil states last year. But the White House has reforms planned for 2022 that could dramatically change the drilling of federal lands.
At the center of administrative efforts is the Home Office, which plans to adjust federal royalties for onshore drilling. These royalties are currently 12.5%, a floor set in the Mineral Leasing Act of 1920. Other modernization efforts include updating bond requirements to keep up with the high cost of plugging wells and ensuring that the cost does not fall on taxpayers if companies go bankrupt. The administration can also adjust fees in the federal oil and gas sector.
Observers have speculated that a carbon or methane levy could also be linked to federal oil and gas development, either independently or through royalty adjustments, to counter the damage. caused by greenhouse gases resulting from the downstream use of federal crude oil and natural gas.
In addition, the administration will draft new methane emissions regulations on federal leases, aimed at reducing waste by stemming leaks and releases of the powerful greenhouse gas.
This will be the second time that an administration has attempted to regulate the methane footprint of production through the Home Office’s Bureau of Land Management. The Obama-era BLM methane regulations were dismantled via an industry lawsuit.
Meanwhile, offshore, the Bureau of Safety and Environmental Enforcement, an interior agency, will issue regulations on high pressure and high temperature drilling practices, and it will update its decommissioning standards for infrastructure. offshore like pipelines.
BSEE will also begin revising the well control and blowout prevention regulations. First written in response to the Deepwater Horizon explosion that killed 11 men in 2010, the rules were relaxed by the Trump administration to be more flexible for the industry. It is not known what this third revision will entail.
The great decline in employment
The industry is increasingly relying on technology and automation to make its operations more efficient.
In October, Schlumberger Ltd. said he worked with Exxon to drill a section of a well off the Canadian coast using a fully automated system.
Oil service providers like Schlumberger employ most of the oil and gas workforce, and they were forced to lay off tens of thousands of people at the start of the pandemic. Some economists believe the industry will never see the same number of jobs as automation increasingly replaces blue collar workers.
Employment in the petroleum services sector reached about 597,000 jobs in September, the latest month for which data is available, according to the Energy Workforce & Technology Council, a professional group.
That’s about 62,000 fewer jobs than before the pandemic.
At the same time, some service companies are shifting to the construction and maintenance of renewable energy projects like offshore wind turbines (Energy wire, March 12, 2021). And the drive to cut emissions is creating jobs at dozens of start-ups that build sensors, drones, and other high-tech equipment (Energy wire, 25 October 2021).
“It is certainly possible that the total number of workers in the industry will never return to pre-pandemic levels,” said Leslie Beyer, CEO of the Workforce and Technology Council, in a report. -mail.
“However, this innovation in the industry creates opportunities for new, highly technical and digital jobs by reducing emissions from power generation.”
Journalist Heather Richards contributed.