Ukraine war increases pressure on US oil; Industry faces hurdles | Health

By MATTHEW BROWN and SUSAN MONTOYA BRYAN – Associated Press

BILLS, Mont. (AP) — In the oil fields of northern Montana, industry veteran Mac McDermott watched as crude oil prices surged from $75 a barrel in January to over $120 as Russia stepped up its war in Ukraine, then fell back as concerns over the coronavirus in China raised the specter of a global slowdown.

McDermott said his family business will increase drilling slightly when oil prices stabilize. But for the next few months he waits on the sidelines, struggling to get enough workers to guard the 100 or so oil wells the company operates. That includes some wells that have been shut down during the pandemic, which he’s been trying to bring online for the past year.

President Joe Biden’s move to ban Russian oil imports over his invasion of Ukraine was met with Republican calls for US production to be boosted to counter high gasoline prices. The White House also called for more drilling, citing the war as shelving Biden’s campaign pledge to curb drilling on public lands because of climate change.

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But the political rhetoric about rapidly increasing US crude production is at odds with the reality of the industry: there isn’t enough labor to expand quickly, little money to invest in drilling, and concerns that today’s high prices won’t according to industry officials, analysts and state officials.

“It would be great to produce more domestically,” McDermott said. β€œ(But) it’s so volatile. … We haven’t had access to capital for years. If we were to drill, the money would have to come from existing production. It’s a risky business.”

Energy Republicans have overcome industry logistical constraints to blame slow US oil growth on Democrats and Biden. Texas Senator Ted Cruz and Montana Senator Steve Daines have called for American energy to be “unleashed” and more public land opened up for drilling. Daines accused Democrats of using Russia’s oil ban to cover up an alleged scheme to “ban all oil.” ”

The US doesn’t import much Russian oil, and Biden’s administration has effectively halted the sale of new oil or natural gas leases from federal lands and waters. But nearly 4,000 new drilling permits have been approved on state lands, and companies have thousands more in store. White House spokeswoman Jen Psaki said companies should use these permits to “get more supply off the ground.”

Federal energy reserves account for about a quarter of US oil, with the rest coming from private, tribal and state lands.

Overall pump rates slowly increased during Biden’s first year as the industry scrambled out of the pandemic as oil futures prices briefly dipped below $0 a barrel.

Obstacles to more US oil are surmountable, analysts say, but will take months to surmount and it could be late this year or early next year before a significant increase in production occurs.

“For fields like ours, there will be a slower ramp up,” McDermott said. “Anyone in the industry would say if we have a consistent price you know what you would be getting over a period of time and it’s easy to make business decisions.”

In the short term, the world is looking for other sources. The United Arab Emirates said last week it would urge OPEC to consider increasing oil production, sending oil prices plummeting. Rice University energy researcher Jim Krane said about 2 million barrels of additional capacity is available every day in Saudi Arabia alone.

For comparison, total production in the US last year was about 11 million barrels per day.

Even under favorable conditions — strong prices, political pressure and less cautious shareholders — U.S. companies could increase production by just over 1 million barrels a day by the end of the year, said Robert Johnston of Columbia University’s Center on Global Energy Policy.

Some of the largest US reserves lie offshore in the Gulf of Mexico. But the massive platforms that will be deployed in the deep waters of the Gulf will take years to fund, build and install.

A near-term crude oil surge would have to come from already-developed onshore oil resources like the Permian Basin of New Mexico and Texas and the Bakken of North Dakota and Montana, said Andy McConn of Enverus, an energy analysis firm whose data is used by industry and government agencies.

Even in those areas, there’s no way to just instantly crank the tap. The most accessible reserves have already been drilled, McConn said.

“There’s not a lot of low-hanging fruit,” he said.

Some oil-producing regions were already bouncing back as the industry shook off its pandemic slowdown, notably the Permian Basin — the country’s busiest oil field with 45,000 wells drilled over the past decade, according to the Energy Information Administration. Other oil slicks that could see expansions include Oklahoma’s Midcontinent area and Colorado’s DJ Basin, McConn said.

Operators in the Permian Basin have described growth as steady since last spring. By January they exceeded 5 million barrels per day.

Nevertheless, the mood is different this time. “It’s not a ‘drill-baby-drill’ mentality like it used to be,” said Stephen M. Robertson of the Permian Basin Petroleum Association.

Several factors are dampening a manufacturing boom, he said, including volatile prices, labor issues and longer waits for parts to be made and supplies to be shipped. Even the custom-made cowboy boots favored by some workers were hard to come by.

β€œIt’s not just one factor telling the industry out here what to do. It’s not just high prices,” Robertson said.

If Ukraine’s conflict drags on, prices remain high, and logistical hurdles are overcome, companies could move into relatively undeveloped fields, including Wyoming’s Powder River Basin and Utah’s Uinta Basin.

But it won’t be anything like a boom that swept through these regions over the past decade, attracting thousands of workers who flooded housing and other services and turned rural communities into industrial hubs.

Larry Scott, an engineer who has worked in the oil business for decades and is now a Republican in the New Mexico legislature representing part of the Permian Basin, said oil and gas companies have yet to overcome the workforce challenge.

“You can’t ramp up if you can’t find qualified people to do it,” he said.

Bryan reported from Albuquerque, New Mexico.

Follow Matthew Brown: @MatthewBrownAP

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Updated: March 18, 2022 — 3:53 pm

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