Today’s Key Takeaways: 10% increase in oil and gas costs on the horizon. Collapse of SVB impacts oil prices. US natural gas consumption sees highest annual rate since 1949. Graphite One expands quantity of graphite by 13%. EPA moves to eliminate “forever chemicals”.
NEWS OF THE DAY:
Oil and gas costs expected to rise 10% this year
Lamar Johnson, ENERGYWIRE, March 13, 2023
Rising labor and supply chain costs are creating major challenges for the industry, according to McKinsey & Co.
The price of producing oil and gas could rise as much as 10 percent in 2023 due to a labor squeeze and high raw material costs, according to a new analysis from McKinsey & Co.
McKinsey’s analysts noted that worker strikes, employees seeking other jobs and other labor pressures are contributing to the projected cost increases for the industry. Its reliance on a limited number of suppliers also is exacerbating the problem, according to McKinsey.
“Planned work has been delayed by strikes over pay hikes, stretched agency staffing pools, and absences as staff seek work that offers improved working conditions and pay,” the firm’s analysts wrote. “This has created a vicious cycle: more work is carried out under emergency conditions, which is increasingly expensive.”
The rise in production costs is expected to accompany an increase in global oil demand, according to the International Energy Agency. IEA’s February oil market report projects record oil production in 2023 from the United States, Brazil, Norway, Canada and Guyana, putting more pressure on the workforce and supply chain. The projections come after oil and gas costs have increased the past two years, including a 15 percent jump for some oil producers last year.
In a statement, American Petroleum Institute spokesperson Scott Lauermann said the U.S. oil production industry is dealing with “the same supply chain bottlenecks and labor shortages that have created challenges across the economy.”
Other studies have documented the labor challenges facing oil and gas. A February report from McKinsey, for instance, found that 15-to-30-year-olds are increasingly eschewing the oil and gas workforce.
That report included an employer survey from the Mining Industry Human Resources Council finding that 67 percent of 2,500 Canadian mine employees between 15 and 30 years of age probably or definitely would not consider working in the oil and gas sector.
Andy Hendricks, president, and CEO of oil field operator Patterson-UTI Energy Inc., said his company has had to offer two pay increases in the past year to stay competitive in the workforce.
“We’ve been able to find enough people to work, but we’ve had to stay competitive with the wages,” Hendricks said.
He said the industry is dealing with rising wages in other fields like trucking and warehouse jobs, adding that he expects oil field operators to pass along some production cost hikes to oil companies this year.
Nigel Elson, a McKinsey associate partner, said that oil and gas producers need to assess whether to use in-house labor or outsource workers, and evaluate options such as bundling services or contracts.
The oil and gas industry is facing supply chain pressures similar to the larger technology and manufacturing industries because of volatile raw material prices. Elson said that supply chain has become “central” to oil and gas operations.
“It’s now not only about cost for the industry, but about the essential security of supply and ensuring a license to operate,” Elson said.
The analysis also provided recommendations for how the industry can insulate itself from coming inflationary pressures.
Primarily, the analysts call for a “bottom-up” mindset that is less focused on cost reductions and more on planning, sustainable processes and an “integrated view” of the supply chain.
Kelly Sheehan, senior director of energy campaigns for environmental group Sierra Club, said the analysis signals why the country should look into alternatives to oil and gas.
“With the potential for even more price shocks on the horizon due to supply chain issues, we have yet more data that should compel decision makers to invest in proven, less expensive, clean energy, like wind and solar,” Sheehan said in a statement.
OIL:
Brent Back Below $80 As Banking Fears Persist
Charles Kennedy, OilPrice.Com, March 14, 2023
- The collapse of Silicon Valley Bank sent oil prices crashing on Monday morning, although prices quickly rebounded on suggestions that the fears of a broader banking collapse were overblown.
- On Tuesday morning, prices fell once again, with Brent falling back below $79 during a volatile start to the day.
- Tuesday’s oil price drop may have been more severe if it wasn’t for OPEC boosting its oil demand growth forecast for China in its latest monthly report.
Brent crude oil prices sank back below the $80 threshold on Tuesday as the markets remained unsteady following the Silicon Valley Bank collapse.
The price of the Brent crude oil benchmark fell below to $79.00 on Tuesday morning in volatile trade—a more than 2% drop on the day. Oil prices began a hefty slide on Monday, losing $2 per barrel, as the market feared a wave of bank failures in light of the SVB shutdown as it helped to highlight possible economic sinkholes that were created by continued rate hikes.
The oil industry’s pricing fate would have been even more pronounced if it hadn’t been for positive Chinese demand data. OPEC revised up its forecast for Chinese demand growth to 710,000 bpd.
Washington had stepped in to calm the markets on Sunday, pledging that banks—not taxpayers—would bear the losses through the use of the money banks paid into the Deposit Insurance Fund.
GAS:
U.S. natural gas consumption set nine monthly records and an annual record in 2022
U.S. Energy Information Administration, March 14, 2023
In 2022, U.S. natural gas consumption averaged a record 88.5 billion cubic feet per day (Bcf/d)—the highest annual natural gas consumption, according to records beginning in 1949. U.S. natural gas consumption last year increased 5% (4.5 Bcf/d) from 2021, the second-fastest year-over-year growth since 2013. Natural gas consumption in the United States set monthly records in 9 of 12 months in 2022, based on our Natural Gas Monthly.
MINING:
Graphite One reports resource growth
Shane Lasley, North of 60 Mining News, March 13, 2023
Updated resource sets stage for next level of expansion at largest graphite deposit in the US.
With only 2,150 meters of drilling carried out during 2022, Graphite One Inc. expanded the quantity of graphite contained within the measured and indicated resources at its Graphite Creek deposit in western Alaska by 13%.
Located about 35 miles (60 kilometers) north of the legendary gold mining town of Nome, Graphite Creek now hosts 37.6 million metric tons of measured and indicated resources averaging 5.15% (1.9 million metric tons) graphite. This marks a 15.5% increase in measured and indicated resource tonnage and a 13.1% more contained graphite.
This growth primarily comes from upgrading inferred resources to the higher confidence measured and indicated categories.
POLITICS:
EPA moves to limit “forever chemicals” in drinking water
Jacob Knutson, Axios, March 14, 2023
The Environmental Protection Agency proposed drinking water regulations on Tuesday for certain types of “forever chemicals,” a pervasive group of industrial chemicals that have affected drinking water quality across the U.S.
Why it matters: If the proposals become official, it’d be the first time the federal government would require utilities to remove the dangerous chemicals from drinking water before they reach households and businesses.
How it works: The proposed standards apply to six compounds of a family of over 12,000 types of chemicals collectively called per- and polyfluoroalkyl substances (PFAS).
- The proposal would limit perfluorooctanesulfonic acid (PFOS) and perfluorooctanoic acid (PFOA), the two most widely used PFAS, at 4 parts per trillion (ppt) in drinking water. One ppt is the equivalent of one drop of contaminant in 21 million gallons of water, according to the U.S. Navy.
The EPA also proposed regulations on four other PFAS chemicals — PFNA, PFHxS, PFBS, and GenX.
- There are currently no active national drinking water standards for PFAS or specific federal mandates for testing in drinking water.
Between the lines: The proposed limits through the Safe Drinking Water Act come months after the EPA unveiled another proposal to designate two of the forever chemicals as hazardous substances under the 1980 Superfund law and issued a drinking water health advisory.
Zoom in: PFAS, also called forever chemicals for their durability, resist degradation by repelling oil and water and withstanding high temperatures.
- They are used in several nonstick, water- and oil-repellent and fire-resistant industrial and consumer products, but have extensively bioaccumulated in people, livestock, wildlife and fish after entering the environment.
- Certain levels of the chemicals have been linked to adverse health effects in both animals and humans, per the EPA and the Centers for Disease Control and Prevention.
Yes, but: Reducing levels of PFAS in drinking water or switching to other distributors will likely require municipalities to invest millions of dollars into new infrastructure and incur ongoing maintenance costs, studies show.
- For example, Brunswick County, North Carolina, allocated $46 million and a recurring annual operating cost of $2.9 million to upgrade and run a treatment plant designed to filter PFAS from drinking water sourced from the Cape Fear River, which was polluted by decades of PFAS discharges by Chemours and DuPont.
- Most uses of PFOS and PFOA were voluntarily phased out by U.S. producers, but they are the most well-studied and are the most widespread in the environment, according to the EPA and the National Institutes of Health.
- The six compounds targeted by the proposed regulations are just a few in class made up of thousands of chemicals. Manufacturers may have turned to newer but understudied PFAS that could pose similar health risks.
What they’re saying: “This action has the potential to prevent tens of thousands of PFAS-related illnesses and marks a major step toward safeguarding all our communities from these dangerous contaminants,” EPA administrator Michael Regan said in a statement.
The big picture: Since the health effects and prevalence of PFAS pollution have become more widely understood, several companies have announced intentions to phase out certain PFAS products, including major fast food companies.
- 3M, one of the original companies that developed and manufactured PFAS, announced last year it would stop producing and using the chemicals by the end of 2025 in part because of proposed regulations on them.